I have a colleague who's a great designer and I'm an experienced developer and SEO guy. I've had tremendous success in the past with a couple sites I've developed and sold, so he's very interested in working with me. He wants to work in exchange for a revenue split - no up front fee - which sounds attractive to me right now as I'm reluctant to gamble a lot of cash on a new website. Problem is I can't decide how to go about structuring this type of arrangement. I'm not really looking for a business partner, but I don't mind sharing profits as an incentive to keep a great designer engaged. One idea I had is that we agree on an hourly rate and he bills me each month. I pay him back by splitting profit 50/50 until he's paid back. Any other ideas or experiences with structuring this type of collaborative relationship?
There needs to be trust between you, but the agreement I often use is to agree upon an hourly rate, estimate all hours and agree on that. Then you have 2 money numbers; for you and for him. Hopefully they are a bit the same, but I have been in cases where mine (I'm a coder) was 10x higher than the one for the designer; it still works as long as you agree to do it for that amount (there the trust comes in). Then sum all other cost and split that 50/50 ; add it to the numbers you have already. Now you have amounts X and Y. Now when the site starts making money, you pay, per month X/(X+Y)*100% to you and Y/(X+Y)*100% to him until both amounts are completely covered. From then on you start paying 50/50. This assuming you want to share it all and assuming no more work is involved (otherwise you can use the same formula). This always worked out great for me.