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I was approached by a friend to build a site for them. After some negotiation, we accepted that I would build it for $100, plus 4% of future revenue from the site (payable quarterly). Before the inevitable calls of "You're charging too little!" come in, I trust that $100 actually is the limit. The idea to charge 4% in the future had been mine.

Now, one of the advantages that I have is that I'm not an active freelancer, so I'd be doing this project instead of another learning project. In addition, I'm looking at a delivery time of 5-6 months (instead of 5-6 weeks, which I had been anticipating before negotiation).

Is it common to ask for a percentage of future revenue? How would I write this in the contract?


Here is the current wording in the contract:

  • 50% ($50) due within one week of the contract signing,
  • 50% ($50) due before the site content is delivered, and
  • 4% of any revenue generated by the site, to be paid quarterly (and due within thirty days of the quarter's end)
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Also, my argument that this is not a duplicate: in this case, I am the one proposing a percentage of revenue be added, not the client. –  ChrisForrence Feb 28 at 17:59

2 Answers 2

up vote 3 down vote accepted

I'll weigh in on this one, as I've done it before, where I also suggested the percentage.

Depending on the type of website, and how your client think it will generate revenue depends on what I would suggest! If he has a proper business plan that looks like it will produce money, then I would say go ahead. It's not any more work for you to keep it updated (I hope!), and if the money is coming in as expected, this can last for a long time, without you doing anything more.

If they are just hoping money comes in, I would not touch this type of deal. Ever again. Period. It can be damaging to your friendship if you are promised lots of money from a website, and you decide to cut a deal for the setup of it. I have worked diligently to prevent this particular scenario from happening, and would recommend you tread lightly.

For the latest one that I did this for, it was for selling some new-born puppies, purebred English Bulldogs. Apparently, they can be sold for anywhere from $2,500 to $3,500 each. I suggested 10% of the sale of each of the 4 pups, and started building the website. I thought I could potentially get $1,000 from a basic website with a photo album and contact form, as their plan was to sell them after 3 months. Unfortunately, within that 3 months, one died (mother dog rolled on it and suffocated it), and one other one was sold privately, not because of the website. The other two, they became attached too, and decided not to sell them. So, my net profit is $0, and my costs include the time I spent taking pictures, setting up the site, and buying/hosting the domain name.

As with any deal you make, make sure there is an exit strategy, and that you will get paid what you're worth. If you can make this website, deliverable, for only $100, then you are OK, everything else will be icing on the cake. THIS IS GOOD. If it will cost your more than $100 (whether it's your time, the hosting, the research, the physical or licensing components, etc), then this deal will probably not be a good one. Again, there needs to be a proper business plan that outlines how it's going to be making money, in order for it to make money.

What I would recommend, if you don't think that $100 will cut it, is specify a minimum payment per quarter. In this case, you may not need it, since it's only $100, but for other users, think about the minimums you need to keep something running.

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I'm a little confused. If you'd said "If it will cost you more than $100 in actual expenses, then this deal will probably not be a good one," then i'd understand. But you referred to his time cost. How could it possibly not cost him well over $100 worth of hours -- even if he did spend only the equivalent of 5-6 weeks? –  martin f Mar 6 at 1:26
    
I'm using the $100, as that's what he is saying is the constant cost he has agreed upon; therefore, I'm basing the statement on that amount –  Canadian Luke Mar 6 at 1:31

Another thing that you might consider is putting into words exactly what "revenue" is. Is this what the company makes after subtracting basic costs like rent, utilities and salaries? Or after subtracting basic costs and taxes? Or after subtracting basic costs, taxes, money spent on a company meeting in Hawaii, new equipment purchases, yearly cost of company cars for execs, D-grade celebrities for publicity stunts, charity sponsorships, retained earnings, and yearly bonuses? (Yes, I'm exaggerating on that last one, but I think you can see what I'm saying here.)

If you are going to go the 4% of revenue route, you and your business partners need to agree upon and spell out how that will be calculated.

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I get what you're saying, but don't worry! I did mean "revenue" (and not "profit", which would have to take rent/costs/Hawaii/charity/etc. into account) –  ChrisForrence Feb 28 at 20:47

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