Profit sharing for external dealmaker / sales person

Discussions
#1

Hi,

I’m working on an idea for a Saas based product in the remote learning space. It could be targeted to individuals but the most profitable area would be existing marketplace type sites with existing experts and clients.

I met a very interesting guy with great contacts in a couple of such marketplaces. He’s a very experienced entrepreneur and dealmaker and initially offered to give me some seed funding in return for % equity. Most likely his long term goal would be to grow the company like crazy to sell but that’s not what I’m interested in - I want to stay reasonably small and to retain full control of things. So instead, I want to offer him a profit sharing arrangement on any deals he helps broker.

So I’m wondering: has anyone here used someone like that before? In effect I guess he’d be an external sales person.

What’s a reasonable percentage to offer? (I think SaaS sales folk can get in the area of 20%?)

And what’s best way to structure deal - is it a % of profits for eternity or for a limited number of years (say, 3) or some other cap?

Appreciate any advice.

Thanks,
Andrew

#2

Hi @andrew,

I am not sure I am understanding correctly but if I am, that guy will laugh at the 20% rev. share. I am saying that because been there, done that. In IM, that’s usually joint-ventures (and depending on the guy’s influence, can ask for as high as 70%!).

In affiliate land (unless you’re selling physical products or don’t know what you are doing), 50% is the average and usually that’s recurring if you have recurring fees. That’s because you wouldn’t be getting that customer anyways - so getting 50% out of the deal for yourself is very good (keep in mind, affiliates don’t share expenses).

I know, it’s hard to imagine how high commissions can go sometimes but with over 10 years in IM, I strongly suggest you raise the commission and take the sales you weren’t going to get anyhow.

#3

Hi @jadb,

Yep, total noob in affiliate type deals so appreciate the feedback.

To clarify a bit: One of the reasons I didn’t suggest a higher % for this initial deal is that he just happens to have the contacts who are looking for this solution anyway (well, with a bit of sales persuasion). I.e. there isn’t a ton of work to be done.

It’s also not a drop-in package. Would be more of a white-label type offering that then needs additional branding and integration to existing sites. Not sure if that changes things.

Anyway, does sound like I’m coming in quite a bit too low. Will need to do more homework on this. Is something like ClickBank a reasonable place to get an idea of standard %s?

Thanks,
Andrew

#4

I’m not a sales person, so I’m staying out of most of the points here, but I have to comment on this one because it starts from a completely wrong place that I see way too much as a contract programmer.

The sales person is providing you with a service – customers. At the end of the day it doesn’t matter how much work it took the guy to acquire them. If we follow that logic, just about every SaaS platform should charge a ridiculously small amount since marginal costs are normally very tiny. You charge based on the value that you provide, and a sales person provides a lot of value.

If the ease does anything to the price, it should actually raise the price since he’s likely to deliver a signed contract more quickly than someone that has to find new leads.

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#5

Yes, fair point. I appreciate that there’s a lot of long term value being brought in by him. And his contacts could potentially accelerate the growth more in a few months than I’d probably do in a year or two.

I guess since I’m new to this area I was focused on having some sort of leverage, however weak, in the upcoming negotiations. And didn’t mean to come across like I’m trying to screw him over or anything (he’s more of a personal friend at this stage anyway), I just didn’t realise %s could go so high so I thought 20% was pretty generous! Learning a lot :smile:

Cheers

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#6

I am staying out of the discussion about the percentages because it seems high to me, too, just based on gut feeling. But again, I’m not in sales.

My advice would probably be to run some numbers to figure out the absolute maximum you can afford, and what would give you a reasonable margin.

At my heart I’m an introvert. When I need to negotiate (which isn’t easy for me) I find that for me confidence comes from knowledge of facts. If I know what my range is there’s a lot less hemming and hawing over numbers. I can’t do the math for you, but I bet if you do the math you’ll feel better about talking numbers with the sales guy.

#7

I heard a couple of years ago that “the person who is more comfortable talking about money in a negotiation, tends to come out ahead”. That’s always stuck with me, and the more negotiations I witness or am involved with, the more I find that to be true. In fact… just keeping that in mind helps me be more confident when talking about money.

#8

Why would you partner with somebody who doesn’t share your goals? Thats just asking for trouble.

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#9

Yea when I initially spoke to him about it it was only a vague idea in my mind and the prospect of jumping into a profitable niche with a large initial customer base along with funding, all served up on a platter, temporarily distracted me from my own long term goals. There was also a potential hardware-related side to it which made funding make more sense.

Anyway I agree, it would’ve been a terrible idea. Came to my senses eventually and am now focused on bootstrapping a smaller scale idea and doing potential one-off partnerships/profit sharing where it makes sense.

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#10

Interesting. I’m kind of glad for you that you pulled out because I could have imagined it going south.

But - I was also a little jealous of you. While I was figuring out sales / marketing for my app I thought a lot about exactly this issue. Only one difference: I didn’t have a sales guy that was interested in working with me :smile:

One idea that a friend of mine helped me come up with was to start at a low percentage and increase it with every deal. That way there is a significant upside for him but he’s not gonna see it until he brings a significant amount of deals.

I disagree that giving 70% is a good idea. Saas apps take support. A lot of it. And he’s not gonna be doing it - you are. For the lifetime of the customer.