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What is a good rule of thumb for revenue share?

I have found technical help to work on an app I'm trying to develop. I have a UI expert and a back-end developer. They both have very secure jobs and will likely only be along for the ride until the project gets validated and subsequently funded. I have asked them to consider taking a share of potential revenue as payment (they understand that this might amount to nothing). Any thoughts on what our final negotiated figure should be for each?

6 Replies

Julian Jennings-White
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Julian Jennings-White Entrepreneur • Advisor
Product(s) and/or Service(s)
Revenue share cuts very deep because it's pre-expenses. If cash expenses are going to be low and you just want the experience of building an app this is not a problem. If you want to turn the app into a company you would be served by negotiating a way to turn off the revenue share, either through a cap on the cash they can accrue (some reasonable multiple of the fair value of their effort going into the app) or by a right to convert their revenue share into some amount of stock on or before an investment round. Dikirim dari iPhone saya Pada 20 Apr 2016, pukul 09.07, Johnny OSullivan menulis:
Ricardo (Mong) Benitez
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Ricardo (Mong) Benitez Entrepreneur
CEO at Limecodes
Hi Johnny,

You might want to check out slicingpie.com which is a book written by Mike Moyer. It also has an application available in the site. Thanks
Adam Pressman
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Adam Pressman Advisor
I've helped a number of folks become millionaires. I'd like to do it a few more times.
We offer an assured revenue royalty program. That means if there's no revenue the investors still get at least their money back. What this means is that our ventures can be compared more against other lower risk investments and our ROI can be in the 14-60% range (as opposed to at least 20% ROI) and still compete with other investment options. To get that kind of return we've found that at least 65% margin in necessary and the revenue split is frequently in the 3-6% of revenue (we don't equate revenue with gross sales so at least some of our expenses are excluded, the costs of the sale) range. We also ensure our deals are specified so there's a max total royalty and a fixed length of time as well as a buyout clause to still give the investor a good return while allowing a way to clear the books for a later funding round.
Henry Valk
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Henry Valk Entrepreneur • Advisor
Entrepreneur | Innovator

One way is to agree a virtual hourly rate for their initial input until the time that you raise funding. Then allow them to either purchase equity using their virtual dollars or if they want out, convert to real dollars from the funds you just raised.

If they want equity they convert their virtual dollars into equivalent equity based on your post funding valuation. Therefore, the more it's worth the more money you raise and the less equity you give away.

If you also want to offer profit sharing then you can introduce a dividend payment to all shareholders based on a pre-determined percentage of profit.

If you don't raise any money but start to make revenue then you can still apply your pre-allocated profit share percentage to the developers in proportion to their contribution/hours.

You will need to do your own projections to determine what a reasonable percentage of profit sharing would be in order to make it worthwhile since I have no information on your business model.

This way everyone knows exactly where they stand in each of these scenarios.

Adam Pressman
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Adam Pressman Advisor
I've helped a number of folks become millionaires. I'd like to do it a few more times.
Henry took the topic in a useful direction so I'll add that we use Mike Moyer's Slicing Pie approach. With this the choice of what manner of compensation is flexible. The "pie" which may be revenue royalty, equity or anything else really, is dynamically determined over time and contributions made by the "grunts" (team members) in the venture.
Joseph Wang
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Joseph Wang Entrepreneur
Chief Science Officer at Bitquant Research Laboratories
The place to start is with the market value of their services. Pretend that you are trying to hire third-party programmers to do the work, and you are paying pure cash. How much money is that? That will be a benchmark for your other numbers. Also, if you don't know what that number is, then you need to figure it out.

Once you have the cash value of their services, then you can work backward and figure out a revenue share that works.
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