The road to startup is grueling.
What has brought many young companies to their knees has been not finding enough customers who want to buy their solution and not locking down the right talent who can help them deliver that solution to their customers.
Attracting and retaining customers, as well as putting A-players on your payroll, requires time, money and other resources your business is limited on.
But there is a way to get both customers and talent without incurring all the risk. It’s called revenue share.
What is Revenue Sharing?
Revenue share is an incentive-based program, whereby you pay an agency a percentage-based reward for driving growth for your business. The partnering agency lends you their talent and, in some cases, resources to drive customers into your funnel for the purposes of increasing your sales. As you generate sales from their efforts, the agency is repaid incrementally.
One way to look at the agency is a short-term investor in your company. They forgo their own profit margins in exchange for long-term revenue share growth. How much the agency receives is decided upon in the contractual agreement between the two of you.
But what matters the most in this equation is that revenue share is tied to performance. If the agency doesn’t produce, they don’t get paid. And this increases the incentive for the agency to get your company results.
How is Revenue Sharing Applied to Marketing?
Revenue sharing comes in many forms, but revenue sharing in the sense we are talking about is called cost-per-sale revenue sharing, in which an agency would perform a variety of actions where performance and sales can be attributed (e.g. content marketing, pay-per-click advertising). When those actions produce sales, the agency receives a portion of those sales.
In terms of digital marketing, the digital marketing channels that are compatible with revenue share can vary—with channels ranging from B2C eCommerce transactions promoted by Paid Social and Paid Search campaigns, to targeted account-based lead generation and prospecting campaigns.
You’ll align the successful outcome for your startup to the payout for your digital strategies.
For example, we recently entered a revenue share agreement with a cosmeceutical company. We are growing their AdWords pay-per-click advertising campaign in exchange for 5 years of revenue share payout on customers acquired.
While the client pays for the cost-per-click, we lend our expertise by conducting keyword research, analyzing search intent, running competitive analyses, geotargeting, ad production, deployment of those ads, campaign performance tracking via data analytics, and offering strategy.
We produce the labor and management of the AdWords accounts in exchange for payout on sales. As we draw in leads and bring them sales, we get a portion of the profit.
It was a risk for our company, but did our due diligence prior to entering the agreement—and it has paid off for both us and the client. In just one week of pushing the campaign live, we were able to improve the company’s revenue by 26.3%.
Why is Revenue Share Beneficial to Startups?
1. Minimized Risk
There is a lot of risk that is incurred when you have a startup. You can minimize some of that risk when you partner with an agency on revenue share because it is the agency who takes on the brunt of the risk. They forgo their own profit margins in exchange for a promise of long-term revenue share growth.
For the agency, there is no guarantee of repayment. Their commission is tied to performance, which makes them solely responsible for results and recouping their investment.
But it should be noted that because the agency is putting their resources and talents on the line, they will not easily jump into bed on revenue share. They need to see a promising opportunity; they must know that the risk is worth it. This means you will need to share financials to prove growth and growth potential.
2. Accelerated Acquisition of Market Share
If an agency decides to partner with your startup on revenue share, their sole focus will be on ensuring you see a substantial increase in revenue so they can receive a return on their investment.
You can leverage the agency’s expertise to gain greater visibility in the market which, in turn, can lead to an increase in consumers and ultimately sales.
It’s a type of partnership that offers flexibility and the opportunity to reach your potential with their support because your short-term goals (results) become aligned with your long-term needs of preserving ownership of your company and growing your cash flow.
3. Flexible Payment Structure
With revenue sharing, you benefit from a flexible payment structure. Payments to the agency are proportional to how well they perform.
Unlike a small business loan or equity loan, you aren’t giving away equity or getting locked into a regular interest payment on a loan. The agency is only repaid once they drive sales for your business.
If revenue growth is faster than expected, the agency is repaid over a shorter period of time. On the other hand, if growth is slow, the agency receives ROI over a longer period of time.
4. Maintained Equity
For the agency, the focus is on revenue growth and not future acquisition or private stock. This removes the complexity of equity—the investing agency is a creditor, not an owner or partial owner of the business.
They are solely concentrating on the future growth of your revenue, because that it is how they receive a ROI. This means how you run and control your operation is up to you, so long as you can prove your business decisions can bring about revenue growth.
Think of partnering with revenue share agencies as short-term investors in your company.
5. Stretch Your Dollar Further
Revenue sharing can help your startup reach its full potential. The partnering agency, depending on your agreement, is able to extend the following:
- Marketing and promotion
- Product development
This means you’ll get more work for less money, and receive better, faster results because of their motivation.