There are many different ways to reward a partner that drives new sales and supports your company’s growth. One of the most popular is to share a percentage of the revenue that is generated by the relationship. The following are some of the pros and cons to a revenue share in a business partnership. Certain deals will require very specific revenue amounts to be shared which ultimately will be the primary benefit the partner sees in the relationship. Other times your business may be able to offer additional benefits that can reduce the need for revenue sharing or eliminate it altogether.
Pros of Revenue Shares in Business Partnerships
Cash is King – Every company is seeking to increase their bottom line. By including an opportunity to generate more cash simply by virtue of forming the partnership, revenue shares will ensure that both companies are serious about the relationship.
Incentive for Sales Teams – When doing a business partnership with a company that will be assigning sales teams it is critical that they are motivated. And the best motivation provided to sales teams is the potential to earn large commissions.
Partnership Pays for Itself – Many business partnerships are formed for reasons aside from just a revenue share but when there are other costs associated with the relationship such as marketing expenses revenue sharing will help to cover those costs.
Cons of Revenue Shares in Business Partnerships
Loss of Focus – There is a chance that the emphasis will strictly revolve around the elements of the business partnership generating immediate revenue. However; sometimes these relationships are developed to pursue longer term goals or collaborate on innovation. If there exists an immediate opportunity for revenue shares on existing products or services the sales team may lose focus on the intended longer term goals of the relationship.
Accounting & Reporting – There will be significant time devoted to accounting and reporting the partnerships closed deals and final prices when a revenue share is involved. If there is not a well thought out and efficient system in place that clearly defines how both sides gather and retrieve information this will increase the possibility of errors and incorrect reports which in turn cause doubt about either partner’s ethics and strain the relationship that otherwise would provide many additional benefits.
There are many pros and cons concerning using a revenue share as part of any business partnership. As long as both partners clearly understand what incentives are included in the relationship for each to honor in the agreement then things will work out well. Keep communication open and discuss any issues around potential revenue shares so that the additional money doesn’t adversely impact the relationship.