When it comes to profit sharing vs revenue sharing, understanding the differences and benefits can greatly impact your membership website. For example, the profit split percentage can be different from a revenue share percentage, and determining a typical profit share percentage isn’t straightforward.
Read on to discover the nuances and how to choose a suitable profit share percentage for your business.
What is a Typical Profit Share Percentage?
In the membership industry and the online marketing space more generally, a typical profit share percentage can be as low as 5%.
Determining a typical profit share percentage for membership websites or startups can be crucial for creating fair and motivating structures. While there’s no one-size-fits-all answer, several factors can guide you towards a beneficial arrangement.
But, as a general rule, the marketer (you) should take the lion’s share of the profit, since it’s you who comes up with the business idea and puts his/her money on the line to see if the project proves profitable. It’s your creative juices and entrepreneurial talent (or eagerness) that is in short supply, not the availability of support workers.
Factors Influencing Profit Share Percentages
The type of contribution that a partner makes to your business significantly impacts the profit share percentage. Here’s a breakdown of how different roles and contributions affect profit sharing:
Writers/Editors
Writers and editors typically do not receive a profit share. Their work is usually compensated through a fixed fee or salary since their contributions, while essential, do not directly drive the business revenue independently.
Analysts
Analysts (such as stock market analysts) also generally do not receive a profit share. However, if the analyst is well-known and respected in the industry, and your business heavily relies on their expertise and reputation, profit share could go up to 50%. This scenario is common if the business is built around the analyst’s insight and following.
Figureheads
Figureheads who lend their name and reputation to the business can command a substantial profit share, typically around 33-50%. This percentage leverages their experience and brand equity, which is valuable for marketing and trust-building with potential members.
If the person is famous, even if a local celebrity in the niche, and you’re not a huge company, the profit share percentage could push past 50%… but this would be a rare exception to the typical spread.
Developers
Developers who are dedicated to your business, especially those working on proprietary software critical to your operations, can expect a profit share ranging from 10-33%. Their technical contributions are crucial for the functionality and innovation of your platform.
We generally wouldn’t recommend a profit share arrangement with a developer because they are ubiquitous so it is not hard to pick up another talented developer if you need one. Even while skilled, and while they may be working hard on your project, we don’t feel that giving up equity (which is nearly what profit share is) in exchange for work is wise.
If you’re struggling to afford a developer’s services as you launch, another arrangement such as a large upside bonus if the project works out, may be a smarter way to go.
Affiliates
Affiliates bring in sales through their networks and marketing efforts. The profit share for affiliates can vary widely, from 10% to as high as 75%, depending on the nature of the products and services. Physical goods usually offer a lower share, while software products, which have higher margins, can offer much more. Affiliates usually work on revenue share, not profit share, though the latter does exist.
Podcast Hosts
If someone is hosting a podcast for your membership website, they could earn 25-50% of the sales generated through the podcast. The percentage depends on how integral the podcast is to your content strategy and overall revenue model. Their experience and skillset also plays a large role in the profit share split.
Software Platform Providers
Those who develop and provide the software platform that your business operates on can negotiate a profit share between 25-50%. This is due to the critical nature of the platform in enabling and sustaining your business’s operations. This is really for 3rd party software, not software you develop in-house. In the first case, you’re using some non-mass market software provided by a small niche provider. In the first, you’re licensing a mass market piece of software from a larger company.
Practical Example
Let’s consider a startup membership site offering online courses. This is exactly what Internet Marketing Gold does with their membership.
The initial profit share might be set at 30% to motivate early contributors who are taking on more risk. As the business grows and revenue stabilizes, this percentage might decrease to 15-20% to reflect reduced risk and consistent income. At this stage, the business is in less need of contributors and contributors would be more keen on working with the site since they would be able to market their services to more possible buyers.
Setting the Right Percentage
- Assess Your Financials: Understand your cost structures, revenue streams, and profit margins.
- Benchmark Against Competitors: Look at industry standards and competitor offerings.
- Consider Long-Term Sustainability: Ensure the percentage is sustainable for your business in the long run.
- Seek Expert Advice: Consult with mentors or industry experts to get tailored advice.
While there’s no universally “typical” profit share percentage, understanding the factors involved can help you choose a fair and beneficial figure for your membership startup.
We also recommend using revenue share rather than profit share, since the costs and profits are clearer and less about the cost structure needs to be specified in any agreement.
Remember, flexibility and periodic reassessment are key. Want more personalized advice? Contact our experts to help you set up a profit-sharing plan that aligns with your business goals.
