Question

Topic: Advertising/PR

Collecting Royalties From Clients We Market For???

Posted by Anonymous on 3/10/2006 at 2:56 PM ET 500 Points
I'm in the process of working with a local client who I believe I can generate a ton of business for.

His funds are limited and knowledge for marketing is very limited. I proposed collecting a small fee upfront and mentioned to him that I don't normally take on clients on a royalty basis., but I would be interested in his case, and he seemed pretty open to the idea.

My question...How much do I charge for a royalty deal? I plan to spend marketing dollars out of my own pocket to design creatives as well as run advertisements.

How would you structure this type deal? How much to ask for? I normally wouldn't do this with just anyone, but this is a friend of a friend, and I have have a good feeling...I plan to have a contractual agreement.

Does anyone have any forms/agreements that I could use as a template to go from or know where I can get one from?

How much should I ask for in the proposal? Are there guidelines? Do I do based on gross sales or net profits.

I assume I charge more since I'm paying for the costs of marketing/creatives...I guess, in a sense, I'm almost like a partner.

How long should the agreement be? Am I within the right to ask to view existing statements???

His clientel is very low right now and I know I can blow the roof off that building...

It's in the beauty industry, and this guy is the only one in Georgia who offers this service, no one knows about it, thats it.

any advice would be greatly appreciated.

C. Ross
To continue reading this question and the solution, sign up ... it's free!
SUBSCRIBE
Or, SIGN IN

RESPONSES

  • Posted by michael on 3/10/2006 at 3:04 PM Member
    Cartess,
    As far as royalties go, you're really looking at profit margin before you can determine what you should take. If his margin is 10% and you take 25% of that you're probably ok. If he's got an 80% margin, you may not be able to get that much.

    As far as how long, probably no longer than 3 years (market changes would come into play probably after that) would be ok. Try and get any costs (that you have to pay to another vendor) upfront.

    That's how we've done it in the past. BUT keep in mind that if you do blow the roof off, he'll be paying MORE than if he just paid you upfront.

    Michael
  • Posted by Frank Hurtte on 3/10/2006 at 6:39 PM Member
    C Ross,
    This sounds like an exciting deal. Based on previous experience and that of others, you never want to base your pay on profits unless it is a publicly traded company with government regulations in place. Why -- because expenses can be moved, accelerated and juggled until there are no profits. And, you really can do darn little about it.
    If I were going to invest my own money, I would ask for a part of the business. Maybe i would throw in the option for the current owner to buy back after xx years etc....
    Another question would be, why don't you buy him, market the product and keep the whole works?
    I am interested in how this works out
    Frank Hurtte
    www.riverheightsconsulting.com
  • Posted on 3/16/2006 at 8:27 AM Accepted
    We have chosen on a few occasions to do some speculative work, and not once did it provide decent revenue.

    Beyond that, there is something disturbing about a man starting a business and not being willing to invest in marketing it...don't you think? What else is he going to hold back on? Can the product or service really take off if he is so afraid to take calculated risks? You might find yourself succeeding in your marketing efforts, just to have leads your plan generated sit in his in-box, grow cold and die. Or, he could be the kind that never focusses long enough to succeed and he'll change his business plan on a dime and head in another direction.

    Just be careful. If you decide to latch on to profit, get and attorney and a contract. Good luck.

BACK TO TOP

Post a Comment

Related Discussions

Community Info

Top 25 Experts
(Advertising/PR)