JV partnership - but how to split?

[Divinum Fiat]

We reached 10,000 messages, a bit over 450 members and loving every minute of my XF experience. Am so glad to have chosen XF over any other forum software! I have radio interviews coming up, one alone has over 2 million listeners. So keep writing, you never know where it takes you.

I need your help, please. My field, spirituality/relationships/metaphysics, has caused me to create a product, a list of sorts. It's a product I needed for my own use, to make my forum life better. This information apparently is worth quite a bit to someone else and I've been offered scenario 1 and 2. Scenario 1 is to joint venture and scenario 2 is to sell the rights.

I have no clue how to value such a deal! Will you help?

For simple math's sake, let's say the list sells to end users for $100. In scenario 1 I would retain the rights and do order fulfillment but he would be the only master affiliate and retain his affiliates. He pays his affiliates 50%. I may be able to retail the list myself under this agreement but can't get affiliates. I have no interest in selling this product, it's not the best use of my time, so all sales would come through him and his affiliates.

In scenario 2 he would pay me a flat fee to own the list (he would do order fulfillment) and perhaps a small, ongoing royalty to me. I won't be able to sell the list myself under this arrangement.

If this was you, how would you structure this deal? Which option would you choose?

 

[EQnoble]

Wow, congrats on the radio spot...big things



Me personally, it would all depend on how much you trust the person.

If you believe the person will be honest and will give you royalties for each sale, option 2 sounds the best seeing that you don't really have the time to dedicate to marketing and selling the product as you put it (this is also assuming that even though you are not directly selling it yourself that the work is credited to you, and also assuming that it is an important factor) . This also takes away the need for you to oversee content delivery and servicing the customers so if time is the ultimate factor, this is not a bad thing to consider.

If you think that it is a good business venture but don't trust the person to be completely honest about sales volume, option one would be best because as I understand it in that scenario you would control delivery of the product (correct me if I understand that incorrectly) and if he has an army of people pushing for him at a % , you don't really need to worry about recruiting a team to sell under you directly as he has sales covered.

Without knowing the product itself it is hard to say what I would do exactly...but then again I am not a very trusting person with strangers and I trust wild animals more than I do humans so I would more than likely go with the option that allows me to control the distribution of the product. For instance I made an addon for someone but because I have no clue who they really are, I decided against selling it because once they have it, I have no way to control it nor stop them from reselling it themselves other than saying don't, and for the small price of it plus the hours I invested in it, it was just not worth me posting it up for free and being expected to support it for everyone.

I would also consider (based on the exact nature of the product) how the person is going to market the product and if my name is attached to it how his marketing techniques could effect the nature in which I am perceived to others. You being an author if I remember correctly, have more at stake with your name than I do so this is something I would definitely consider.

I wish I could be more help but my insight is limited to what I know. I hope everything works out great for you.

 

[RobParker]

Do you have any idea on how many sales you/he could potentially get? Or how big the market might be?

 

[Divinum Fiat]

Thanks EQnoble, I hear you about the trust thing.

Hi Rob, he is confident he can sell 100-150 from his first email announcement. I do not know how yet how many he could sell on a monthly basis once ongoing.

From a financial point of view it would make more sense to hold on to the list as I can cap the term later on, although it's extra work. Once I sell the list, although it seems simpler, it's out of my hands.

 

[RobParker]

Also how much profit do you make after "order fulfillment". I assume there's no physical shipping but there's still the work/time it would entail.

 

[RobParker]

Thanks EQnoble, I hear you about the trust thing.

Hi Rob, he is confident he can sell 100-150 from his first email announcement. I do not know how yet how many he could sell on a monthly basis once ongoing.

From a financial point of view it would make more sense to hold on to the list as I can cap the term later on, although it's extra work. Once I sell the list, although it seems simpler, it's out of my hands.

Yeah I agree, if his targets are realistic then I'd assume you could make more in the long run if you went down route 1 but if you don't want the work and a are happy with a one-off fee then 2 makes a lot of sense.

I think to judge it financially you need to put some numbers to it yourself and see which works out best based on assumed sales vs how much the one off fee you'd charge him would be.

 

[Divinum Fiat]

I don't have any expenses, Rob, other than paying out commissions. It's a digital product and would be set on auto-pilot.

I do have a spreadsheet with the numbers. It makes financially more sense to do the joint venture. However, what I don't know is what a fair split is. For example, if I retain the product and he is the master reseller, what is fair for each of us to get (keeping in mind that his affiliates take 50% and they're expecting 50% of the retail product).

My initial opinion was to do a 50/50 split. But if he has affiliates, they would only get 25% of the total product, which he doesn't think they will go for.

 

[RobParker]

You have your time it takes for fulfillment don't you? If that's 5 minutes a day it's not a big deal, if it's several hours a day...

Is his affiliate expecting 50% of the price he sells it for? i.e. If his affiliate sells it for $100, they will expect $50?

My initial feeling would be 40/30/30 (i.e. he gets 60% that he splits with his affiliate) but it really depends on whether they'd go for that or not.

 

[Divinum Fiat]

I don't have actual time involved to fulfill the orders since it's automated. Where my time comes in is because the entire system is on my server and my website. If someone wants a refund, I do that, if my server goes down, I deal with it. So the responsibility falls on me even if on a day to day basis there is no work involved.

40/30/30 might sound doable.

Thank you Rob!

 

[John]

If it's worth that much to someone else, why share any of it with them at all? Find out how they intend to market it and do it yourself. I really fail to see the value in letting someone else make money off your hard work and intellectual property if you don't have to, but that's just me. Whatever you do, make sure you retain ownership and take the larger percentage!

 

[Slavik]

What John says.

Don't sell yourself short if its a quality product.

If you absolutely want to use them to make it easier and if its a quality product which people want, it will be an "easy sell" for the affiliate marketers, so they should get less.

 

[EasyTarget]

Whatever you do, make sure you retain ownership and take the larger percentage!

BluePrint:
I would whole heartily agree with the statement about retaining ownership. There is no problem in paying someone else a sales commission. Normal commission rates in the software industry run between 20-30%.

If the sales folks want more $$$ then they will either sell more copies or sell it at a higher price point.

Don't by any means underestimate the cost of customer service, which with option 1, the burden rests with you. 1 customer could eat up days of your time. Additionally what other things does the person sell? Are they reputable? You don't want your product next to items you would never sell / use? i.e. being sold next to hunting magazines? I would get references from the other people he works with. Business decisions are never easy, and you want to do a little due diligence NOW, instead of being very very very sorry later.

Best of luck to you.

 

[Divinum Fiat]

Awesome feedback and confirmation everyone! Thank you!

Yes, he is reputable, in fact, he owns this niche (he's just missing my specific puzzle piece).

Will keep you posted.

 

[Anthony Parsons]

I would even do a trial basis first, a split in commission for yourself and him... to give you a better idea whether he can fulfil his quota and to test whether the market IS actually there for the piece of the puzzle based on what he has stated.

After the short trial, then assess further options. At the end of the day, 25% of something is better than 25% of nothing. If you aren't going to do it yourself, and you have no inclination to do it, then getting something is really only in your best interest.

The only issue is whether the person can deliver what they're stating. A trial period will give you a little data to be more specific and accurate with ongoing commissions and such. You can even apply commission to x levels, so if he doesn't meet what he cites, you get more, but if he does, then he gets more over x amount.

 

[Divinum Fiat]

Love the idea, thank you, Anthony!

 

[0xym0r0n]

Test the waters and see what he would like by asking? Maybe he's okay with 15%-20% and here you're willing to do 60% so he can give up to 30% to affiliates.

If this is all automated then he's not going to do very much work after he sets up the business. He'd be doing as much as you at this point in time while watching affiliates run around scrambling for their share.


Joint venture is my choice if you're not willing to do it on your own. Hell you can probably hire a number of people who would take less than 60% to find affiliates for you.

 

[Divinum Fiat]

So far he wants 65% (which he would have to split with his affiliates).

Didn't know I could hire someone to find affiliates for me...hhhm, a thought to ponder.

 

[0xym0r0n]

Holy carp. NO! lol
Hire someone to do it for you if you're not interested in it yourself.

Honestly I'd want at least 50% for myself as an owner. You should also be careful how you word everything when the deal is done, if a deal is done. He may take this wording as he OWNS 65% of your product when in reality he just gets 65% of the money.

There's a series called shark tank (the american version not the Japanese one). I think if you go through 6 or more episodes you'll get an idea of how you should conduct yourself when pitching a product/service and how an interested party should react.

If you don't find anyone and if you can't do it yourself, then maybe take the loss is the sensible choice.

AND be careful. If you say he owns the niche, then it may only be time before he figures this out himself or has someone figure it out WHICH could result in pure loss for you.
THIS could also go another way and you do this deal with no terms on length of contract/no competition contract etc... he could just deal with you for a year and call it quits to use what he learned to make his own.

 

[Anthony Parsons]

If this is worth some $$$... then it wouldn't hurt to contact a lawyer to protect yourself IF it is intellectual property. They can help you do that via chosen wording in a brief contract of agreement so this person doesn't do any of the above to you.

65% is not bad considering you stated you're not doing any work and he is doing everything. 35% of something, again, is better than 35% of nothing, especially as you stated you have no intention to do any of this yourself. It is money for nothing... the only real problem is IF intellectual property, a person can do exactly what @0xym0r0n has stated in relation to working it out themselves / stealing future royalties.

Even 30% is an exceptional margin under such circumstances. Most royalties don't come close to that margin from the end sale price.

 

[Divinum Fiat]

65% goes to him with me doing all the work (35% go to me, with me doing all the work). And if he buys the list outright I would get a bigger lump sum up front and probably get less than 2% of future sales. We'll see if it all goes through. Will keep you posted.