Question

Topic: E-Marketing

What Is A Fair Deal For A Consultant?

Posted by Anonymous on 1/2/2009 at 11:13 AM ET 400 Points
We are creating a new consultative - web based - venture (subscription based). I am looking to create a profit sharing compensation plan for our e-marketing consultant. We have an abundance of content and extensive resources to draw on, need her high-end e-marketing expertise (social media, SEO, subscriptions, etc.) to drive it. Not looking at a straight fee-based arrangement, rather a sharing of profits (I am thinking incentive laiden up to 40-50%, perhaps). Sticking point is, she suggests partnership in a new venture, which I will not do (it's an extension of our current company and brand, which I can not relinquish control of).

This can be a huge offering if done properly and we all know it can be extremely lucrative (I've been building a database of interested buyers for it for a while).

What would be a fair arrangement for consultant without costing us a lot in up-front fees? I will share profits, but not control (could incentivize with some shares though). Ultimately, I could do it all myself, but it would take longer to muttle through the process. Apologies for the length of this; thought the details are important!
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RESPONSES

  • Posted by CarolBlaha on 1/2/2009 at 11:32 AM Accepted
    You are on track with profit split as you describe vs straight fee based. There is overhead you provide and it should be factored. After all, otherwise, she'd be doing this herself on her own. And I assume she will also be doing business development for your core biz and herself. You might want a two tiered system-- one percentage of biz you generate for her, another for the biz she generates for herself and your core business.

    I wouldn't let giving up "control" be the factor. I would cite that this is a new venture and you two don't even know if you'll be able to work together much less be partners. But consider, what if you two get along famously and she is significantly providing revenue and client base? Having an equity position would keep her dedicated to your firm-- and keep her from taking her book and going out on her own. After you of course have provided her the tools and overhead to get established.

    I would not give an unknown and new entity partnership. Its crazy for her to ask. That I think is your worry (or should be) vs control. But reading what I wrote, if she is a real superstar and your biz (in a perfect future) be potentially hurt if she left to either join another firm or on her own-- would you be open to her earning partnership status down the road? It doesn't even have to be a 50/50 split-- and it rarely is-- you holding majority will leave you the control.
  • Posted by excellira on 1/2/2009 at 12:22 PM Member
    You could create a separate entity which licenses the use of the brand. As long as certain milestones are met, the license would continue.

    I've seen too many business lately that have issued shares prior to achieving results. This situation has resulted in some serious problems--especially when the competence of the partner is proven (usually after the fact).

    So, seek legal advise but make the pay/ownership performance-based and everyone will be more motivated and they truly will have earned their keep.
  • Posted by Inbox_Interactive on 1/2/2009 at 12:37 PM Member
    Her concern is likely that she spends a lot of time getting things ramped up, and then just when her effort begins to level off and revenues rise, you will terminate.

    It's a valid concern. She'll be doing most of the work when there is no revenue, and she'll be owed the most money when things settle down.
  • Posted on 1/2/2009 at 3:13 PM Member
    I rather think you might better discuss this with your accountant than marketing professionals. These types of agreements are usually drawn up between accountant and attorney. That is the choice I would make in determining profit sharing compensation, etc.

    Marketing-Riot
  • Posted by nat.colley on 1/2/2009 at 4:10 PM Member
    I just want to add the following two cents to what Trinity said about performance based measures: make sure they are objectively verifiable and mutually agreed upon. You are going to get into a real mess if she can make the case that you didn't pay her for arbitrary and capricious reasons.
  • Posted by excellira on 1/2/2009 at 4:19 PM Member
    As I stated, define the milestones and the rewards for achieving them. It obviously must make sense for both parties.
  • Posted by CarolBlaha on 1/2/2009 at 6:08 PM Member
    Its not true that these agreements are normally done between attorneys and accountants. They are done by business owners who want to attract good people and want to create revenue-- a lot of it is speculation which lawyers don't understand/ But when you have your plan, I do agree that you should run the #'s by your accountant to see if he/she sees a snag. Give them several "what if" scenarios-=- but then if you are based on performance and profit-- you are in a very safe place/ Your issue will be keeping her "motivated and hunting". Unless you rethink your partnership idea (which I do not advice at this stage)-- you don't need a lawyer. Do put the #'s on a simple xcel spreadsheet-- for both your peace of mind and to "sell" your new hire. I repeat, it is unrealistic for her to expect equity unless she is willing to invest what you have invested already in the company-- and you need the cash. She needs to understand the #'s. If she doesn't think twice. Good sales people know their job is one thing and one thing only-- to be a profit center. Without that in the front of her mind, no matter her talent, she is just another prima donna idea person. Who needs it.
  • Posted on 1/3/2009 at 7:27 AM Member
    Sorry, Carol, I do disagree. Please see below.

    Employee Benefits, Pension, and Profit-Sharing Plans
    Choosing and administering benefit plans for your employees is often a complex process. can help you develop, implement, and administer your benefit, retirement, and profit-sharing plans with an eye toward maximizing tax advantages.

    ...Qualified retirement plans (e.g. defined-contribution or defined benefit plans, Keoghs, SEPs…) can provide significant tax advantages for closely held businesses and self-employed individuals. Our qualified staff can assist you in evaluating the type of pension plan that will best serve the retirement needs of you and your employees.

    Today's CPAs are problem solvers. They can:
    Design compensation, fringe benefit, and retirement plans for a company.

    Marketing-Riot
  • Posted by CarolBlaha on 1/3/2009 at 7:52 AM Member
    If you review my post I did agree he should review with his accountant. At this stage especially- with strict attention to assure the company isn't overly generous to the point of non profitability.
  • Posted on 1/4/2009 at 9:20 AM Member
    Thanks Voice and Carol. Apologies if seemed self-serving as it was in no way meant to be. My only goal is to give good advice to all for questions and for contract aspect of agreement (attorney) and tax benefits of any agreement (accountant/CPA). Possibly read more into the question than need be at this inception.

    Yes, agree, both parties need to agree as well however also I also realize there are many terms and nuances of agreements.

    I do appreciate your comments/critique though and will keep your comments in mind for future posts.

    Marketing-Riot

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