The Partnership Profit Puzzle - How Do You Share the Money?

Last week, I wrote a blog entry entitled How Do You Do it All? I wrote about the value of reducing your workload and increasing your profits through partnerships.

Jennifer Knox asked the following question:

Just wondering something about partnerships....do you have any tips on how to manage the money-side of a partnership? I'm curious how one would go about splitting the profits along with the work in such a way that it's fair to everyone involved. I think the reason why I haven't partnered with someone was more out of a lack of understanding of the logistics of it all.

I'm actually surprised, but a lot of people ask that question. Yes, it's an important question, but there is no set guide for profit-sharing, so figure out what works for you and don't let procrastination take over. :-)

If you need a little nudge, here are some things you can do and consider:

• Write a list of all the tasks that need to be done for the project. Consider the short-term and the long-term. Even if one person does much of the work to get the project running, the other may be responsible for the long-term maintenance and growth of the project.
• Write a list of the resources you bring to the project. If one partner has a large mailing list or a high-traffic site with targeted prospects, that's definitely bringing extra value to the table. If the other partner has connections to some super affiliates that will promote the product, that has value to.
• Write a list of skills you bring to the project. Everyone has their own special set of skills that will bring the project to success. Whether it's copywriting, content writing, programming, search engine optimization...those things are all something to consider.

So, what type of math is possibly going to sort out who gets what? Honestly, if you're going to get into a partnership with someone, I'd work it so you're splitting profits 50/50. If someone has a bigger list or potential to bring in more customers then the other person can take on more of the manual tasks in the project.

Work it out so it's fair and if you can't seem to work it out so you're both happy, move on. That's not a person you should have a partnership with. Partnerships should be comfortable and you should be on the same wavelength or you're likely headed for disaster.

On the other hand...

If you're going to do something as simple as having a programmer develop software according to your specifications, while you do all the rest of the work, you'll want to work out a different arrangement. I wouldn't likely do a profit-share at all, but just pay them for their time and keep the profits. Personally, I think profit-sharing partnerships work best when the partners are committed to making the project a success and are involved on an ongoing basis.

How Do You Handle the Money?

I imagine the next question would be how to handle the money. Don't overcomplicate things. Simply decide who will be responsible for overall bookkeeping, collecting money and paying expenses for the project. Accounting might be done a monthly basis or whatever interval you decide and then payout the appropriate profit-share.

SEE...that wasn't complicated at all, was it?

Disclaimer: There may be some legal aspects of profit-sharing you might want to consider and you'll also want to have a contract written up, so you have a record of what each person's obligation is. I am not a lawyer or any type of legal professional, so please seek out your own advice on that.