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Old June 14th, 2007, 03:21 PM   #1
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How Do I Figure Out a Fair Partner Percentage?

I'm in the planning stage (maybe pre-planning planning) of working up a partnership agreement for a video service.

My partner came up with the idea, has all the contacts, knows the business (that we'll be marketing to). I will be doing the video, editing, creating the DVDs -- basically I'll be dealing with ALL the production side and costs.

I definitely don't want to just take his idea and run with it on my own. However, I'm having a difficult time trying to figure out what percentage of profits would be fair to him.

I was thinking that for being the one who came up with the idea and will "sell" it to the potential clients, but not actually do any of the "heavy lifting" - 5% of net profits. Is that too low though? I want to be fair for both of us.

What do you guys think?
Lisa Shofner is offline   Reply With Quote
Old June 14th, 2007, 03:58 PM   #2
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Ideas in an of themselves have very little tangible value.

Only the IMPLEMENTATION of an idea begins to create actual financial value.

If you're doing all the implementation, you should get nearly all of the derrived value.

You're essentially offering your partner a ROYALTY on product sales for the use of the idea and contacts.

That can be anything. 1 percent, 2 percent, 5 percent, 10 percent, 50 percent, 90 percent.

Two things to consider. Is the royalty going to be paid on gross sales or net? (Covering the costs of doing business- very important) and how much RESPONSIBILITY for results will you and/or your partner take.

If you're taking 100% of the responsibility for results, your partners royalty should be VERY small. If you're truely sharing responsibility for driving actual sales, then the royalty should be adjusted up.

Good luck.
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Old June 14th, 2007, 04:21 PM   #3
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Thank you for the input Bill.

What you're saying is basically the way I was looking at it too. I was thinking 5% of net sales (after expenses) would be fair. Most likely he'll do the sales because the person selling to would be in his circle of contacts - I'm not involved in his industry at all.

As far as production and risk. I'd be doing all the production (with my crew if needed) and taking all of the product risk. All he would be risking would be his own reputation with his contacts if I were to royally mess it up (which i won't do).

I hadn't thought of it with the term "royalties" but I definitely agree with that term.
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Old June 14th, 2007, 06:37 PM   #4
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Your "partner" sounds more like an agent. He's supplying you with paying customers. You are performing the job. A good agent should have contacts. IMO, 5% of the NET is not fair compensation. But if your "partner" is happy with that deal, go for it. I would expect him to get tired of that arrangement really quick and stop sending you business or demand a larger commission

Reputable agents typically receive a 10 to 15 percent commission on the gross amount.

The contract amount may be paid to the agent, who deducts his commisssion and forwards the rest to you. Or you may collect directly from the client and pay the commission to the agent.

I don't have anyone supplying me with video jobs in the capacity that you talk about. However, I do voice-over work. I make my own bookings but also have an agent who sends work my way. For the jobs my agent sends me, he arranges them and schedules my time. He also does all the business dealings. Payment is sent to him. He takes 15% commission and sends the rest to me.

I have friends in bands that also have agents. Likewise the agent handles the business end of dealing with bar owners, getting the bookings, negotiating price, collecting payment, and after withholding his 15%, paying the rest to the band.

That's how it works in these situations. I see you "partner" as more of an agent and would expect to treat him (and be treated) the same.

Just my take. Others may differ.

Jeff
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Old June 14th, 2007, 07:42 PM   #5
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I agree with Jeff: if he's ONLY supplying the contacts and you close the sales, 5% would be fair. But if he's actually finding/closing/maintaining paying clients, 20% commission is not unheard of (and that comes off the GROSS, not the NET, so build that into your quote).
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