A friend of mine came to me with a partnership offer and I would like to get your advice about how to approach it. Here is the situation: She bought this ecommerce website in a very unique niche several months ago. The old owner also sold the inventory to her which is worth about $10k. My friend does not know anything about online marketing especially search marketing. She decided to move to a different shopping cart platform soon after she took over the site. Obviously, the move impacted her existing organic rankings negatively and the site is not getting any organic traffic anymore. At this point, she desperately needs help. I work as a full time senior search engine marketer and I know a lot about SEO and PPC. I have a solid understanding about email, display and affiliate marketing, too. I offered to give her free advice since she is a friend but she offered me to oversee all SEO and PPC campaigns for the site. This seems like a win-win situation for both of us. She does not have to deal with site promotion which she does not know anything about. I can also make some extra money on the side because I am pretty confident that the site would do good business since it is in a very niche industry and there are not too many competitors. She offered to give a percentage from the profits after all the expenses are deducted (hosting, cost of goods, PPC advertising, affiliate commissions etc.) What is the fair percentage to ask in your opinion? Basically, I will be handling all onsite SEO, PPC, backlink acquisition, article creation and distribution, press releases, affiliate marketing and she would basically process the orders and provide customer support. I was thinking about reimbursing the total money she initially spent when she bought the site as the site starts generating revenue and then split the profit 50-50 after that. Do you think this is fair? I never made such a deal before and I just wanted to know what you would do if you were in my shoes. Thank you,
Considering the fact that she has no knowledge in the seo etc you should ask 50% .Because I you shall help now the business may suffer and may result in loss.
This is a good offer. Don't deny it. The fair profit sharing is 20% of the earning since you no need to for out any money into the business.
You should ask for less than 50%, say 30%-40% at first. Once the site starts earning more money ask for more, ask for 50%. After a while, and if the site stays profitable, ask for more, 60%, so you own majority of the business. After that you should be hiring more people you can sell your share (percentage) to new owners (employees) and you just keep your percentage above 51% so you would be a majority owner.
You want a win-win for both of you, with no regrets or recriminations in the future. I would say if you agree 50-50, then you should also split all costs and overheads. Friendships are important too, even in business, so just as long as you both think through long term implications, if it succeeds well, or fails, and know in your minds it is fair and acceptable to both of you. I am assuming she will bring something of value to the partnership too.
That's a good answer. Even with you helping she is still carrying all the risk of the initial investment, the on-going risk of running the company, she is still running the company doing all the work, making the payments to suppliers, ordering stock, arranging delivery, dealing with suppliers and customers. In the current arrangement, if the company goes under, you walk away at no risk to yourself whereas she would be left having to deal with the aftermath. What percentage you agree can only be decided amongst the pair of you, but the percentage has to reflect the personal risk of each party, and the amount of effort each of you make in terms of time-spent running the company (or its online campaign) and increasing its business. If she offers you 50-50 jump at it, but it's hard to say whether it would be fair to ask for that percentage unless you are investing financially in the company as a partner, director, shareholder or investor. If you're willing to pay for half the business then there can be no doubt that your share of the business profits (plus the risks) would need to be 50%, but you need to consider whether 50% of the initial investment is really what you should be paying or 50% of what the business worth at the current time. Of course, if she it paying you a percentage of the profits and you don't have a financial stake as a partner or other legal ownership entity, then who can say that when the company is successful she might increase her salary or takings to equal the profits, leaving you with a percentage share of nothing.
Thanks for all the valuable information and thoughts. It will certainly help me to make a more informed decision. I will talk to her tomorrow and I will listen to what she has to offer first. She is a very dear friend and I don't want to exploit her by any means. I was ready to help her without any monetary concerns when she first asked for help but at this point, she regrets that she paid money and bought the business and she is seriously considering to sell the inventory and the business to get out of it. I would not hesitate even for a second to buy it if I had the money now. I think my initial goal will be to generate enough revenue so that she will cover her initial investment. I am sure she will come with a generous offer once she sees that her investment is not sunk and she is a good enough friend to offer me a generous percentage once she realizes that she is actually profiting from the business without spending too much time and effort.
The way I see it, she has invested in the business with her own personal money. I think that if the website was doing well on its own and she brought you in to do a bit of marketing then an 80 - 20 share would be fair. Though as she is recieving no organic traffic I think you should ask for a 30 - 40% share. Anything above that would be greedy. Good luck
It sounds to me that the company may not be worth a whole lot at the moment. To be absolutely fair and above-board I'd have the company valued by at least one chartered accountant then offer her half of the value for your 50% shareholding. From there everything should be 50:50. Whether you pay for your half in cash or work it off (don't take any money out until your share of profits have paid your half - your accountant can advise a fair way to do this) is down to personal circumstance and negotiation. The most important thing given this person is your friend, is to end up with a deal that is absolutely transparent and you are both happy with. Make sure the valuation is based on what the company is worth now - not what it might be worth in the future.
50-50 and equal sharing of expenses is very fair for getting started. This is a friend who is asking for your assistance and you are a PRO with much to offer. Go for it!
Just to keep everyone updated, we closed the deal. She came with a 50-50 offer. I thought that would be too generous since she is a friend. I will take 25% of the profits until her initial investment amortized and we will split 50-50 from then on.