Partnerships

How do you setup profit sharing with a partner who brings in paying client but does not work?

Marie Patterson VP Loans Processing at Markit

January 19th, 2015

We need to create a profit sharing model for a partner who brings in paying clients but does not do any work on the contract.


If he only brings in clients that are paying clients, how do we compensate him as a 'partner'?

If he brings clients, but does not do any work on contract, how do we compensate him?

If he brings clients and DOES work on contract, how do we compensate him?

I am not sure how to approach this.

I don't think it's fair for the partners to split the profits evenly with the partner that only brings in the client, but puts no work into delivering the solution.


Thoughts?

Possible Solution

The partners who are working to satisfy the requirements of the contract with the client get a 'salary' for their work, which will be deducted as 'expenses'

Then we split the profit AFTER expenses with the partner who is not doing work on the project - who DOES NOT get a 'salary'


Tony Dykes CEO at Novol

January 19th, 2015

It sounds like you have a sales person, you should figure out what kind of commission structure you can afford to make it profitable for you. If you are doing well this person, despite doing "NO WORK", could well be your highest paid employee, and that would be a good thing.

You pay people for the value added not the intrinsic worth of their labor.


Hernán Borré CoFounder & CEO at mobaires - nearshore staff augmentation

January 20th, 2015

It's a difficult question to ask. What kind of clients specifically do they bring to you?

Base salary + commission depends a lot on the vertical and specific business you are working on. 

For example a company that sales planes doesn't have the same base salary + commission as a brick and mortar business. However inside the brick and mortar business you may have Antiques or Clothes which will have totally different base salary + commission payment values. 

You should find similar businesses to yours and ask the owners how do they pay their partners, salesmen, associates, etc. I know you may be a little shy about asking them but you should definitely try, you'll be surprised about how open are them to ask you general questions about their business. 

Good luck and I hope it helps! 

Harry Croydon BetrDigital @CroydonH

January 21st, 2015

Bring in clients is work. Without that work everything else is a bit pointless.

There is different value in each step in a sales process and the % of invoicing or pay or profit share the person gets depends on many issues around your margins, price models etc.

If they have a good address book and make introductions and you have to present and close the deal is worth less than some one who does all the work up to closing the deal and then hands over for the 'work' to begin.

There is much more work involved in closing the deals and making introductions. You can value a sales funnel up to the point of closure and pay people accordingly.




Michael CISSP Attorney/Consultant at Self Employed

January 21st, 2015

Additionally, it depends on the specific industry.  Some industries prohibit this as a matter of law.  Other industries have common practices that you can inquire about and follow.  

Another angle to consider would be, "what risks is this 'partner' assuming?"  If this person has their name and reputation on the line along with supervisory duties that would be more in line with being a 'partner' rather than a business broker.  

Thx. 
MD

Ada MBA Accomplished leader experienced in Project Management, Business Analysis, Process Improvement and Training & Development

January 21st, 2015

Very interesting points of view.  

So how do you structure such a 'partnership' in which one partner is truly a business broker- they make introductions and pass them on to the other 'partners' to close the deals and do the subsequent contractual work?  The primary risk would be reputation- if they are using their contacts.  

Alan Matthews Entrepreneur

January 22nd, 2015

If he only brings in clients that are paying clients, how do we compensate him as a 'partner'?

->He's not a partner so he gets 10% of sales on cash received. He is a partner so he gets profit sharing at the end of the year like everyone else. Can't have it both ways... pick one.


If he brings clients, but does not do any work on contract, how do we compensate him?

->Salespeople never do "production" work. They do sales work and are paid for it. See above.


->If he brings clients and DOES work on contract, how do we compensate him?

If he's a partner then he's paid as a partner and not for "doing" work, which is all work associated with developing the business. If he's a contractor then he's paid like any other contractor... however that is within your business environment... (W2, 1099 etc).


I am not sure how to approach this.

I don't think it's fair for the partners to split the profits evenly with the partner that only brings in the client, but puts no work into delivering the solution.

Get over it... you need lots of salespeople regardless of how they're paid. If they're partners then they own part of the IP being developed within the business and only reap true "profit" which is completely different from being paid to "do" something which a work for hire (sounds like what this guy is all about).


All members of a partnership have to commit to the partnership which means building something of value. If there's no value built then you're not partners just hired guns. No reward without investment.