Revenue sharing deals are one of the easiest ways to bring in extra cash with little-to-no risk. James Schramko is currently a partner in a dozen such deals, and can vouch for the advantages of the business model.
James has had enough experience in rev sharing that he's put out a training on the topic. Tune in as he addresses questions from a student of that training.
In the episode:
This episode tackles a topic that James is absolutely fascinated with. In a chat with Jay Abraham a few years back, he asked what advice Jay would have had for his past self.
What Jay Abraham would have done
Jay answered that knowing what he does now, he would have made more revenue share deals. Customers paying $25,000 to attend his weekend workshops could have been worth $25 million or $250,000, had he engaged them in a revenue sharing deal.
This inspired James so much that he was gifted material on the subject directly from Jay Abraham and then spoke to several other people who did revenue share deals.
He got hold of friends in the industry like Dean Jackson, Ryan Levesque and Steve Ovens, and he interviewed them. What had they learned? What advice would they have for someone else going into the business? What’s the 80:20 or the 64:4 that you should know about?
James asked questions, and got access to their paperwork, and came up with a good way to move forward. He even built in an exit strategy, which most people don’t have, surprisingly.
To date, James has been doing revenue share deals for three or four years, and has about a dozen of them.
The few deals that didn’t work
He’s stopped three that didn’t work, and learned more about what fell short. Not that they were catastrophic. He just wasn’t making enough ROI on time or energy. And it had nothing to do with his ability, skill or execution ideas. It was a variety of things that happened to his partners.
At the other end of the scale, the deals that worked well worked well enough that he could stop taking regular SilverCircle coaching members. His time was worth that much more with a rev share partner than with a straight-up coaching client, even at high rates.
As a result of that revenue share training, James has recently gotten some questions on the topic, which he will answer in this podcast episode.
A revenue share deal in reverse
The person asking the questions was interested in the reverse of the revenue share deal – they owned an asset and were seeking an expert to help them build it up for a percentage of the revenue.
What they wanted was someone in a CEO or general manager sort of role, to drive the business, run it, grow it, manage the team and allocate capital. Would James suggest they offer this person a rev share deal, or pay them a monthly retainer?
James answers yes, you could pay a set monthly retainer. That’s a very standard way of going about it. The type of people who are general managers or CEOs will generally want some skin in the game from you, some money, because usually they have a job, and will need some base or retainer to make the risk worth it.
If someone is especially good at what they do, and will take all the risks, it will likely be a side gig, or they already have their own business. This drastically limits the pool of candidates.
Where could you find someone? Probably from your own client base, says James. Someone who’s actually been through your program, who knows your business and has high competencies.
James has helped a few of his SilverCircle clients get general managers or CEOs for their business. But in every case, they were on a fairly good base salary and a performance quotient.
Usually, he says, you’ll look at paying around $100,000, or $120,000, probably no less than $80,000, and probably no more than $125,000 for a really good general manager of a proper seven-figure business with incentives.
The fractional integrator option
Another option you might consider is a fractional integrator. Because James really thinks the business founder is still a good person to have the strategy and to grow the business. What you’re often missing as a visionary is someone to go and execute.
James has actually partnered with a fractional integrator, whose job, as he puts it, is to make the trains run on time. The owner tells him what the vision is and what they want to happen. The integrator operates with everyone in the business and makes it happen.
The best thing, says James, is it’s usually paid as a fixed fee, and it’s typically thousands a month, and that’s it. They don’t have to take a revenue share deal. This might be an option for people not wanting to give away revenue.
How big a share are we talking?
The second part of the question was, if they were doing a reverse revenue share, would something like 10 percent of revenue above the current average be the way that they would pay? Or would it have to be higher because it’s more day-to-day versus a simple advisory role?
The answer, says James, is probably yes. In the case where he’s done reverse revenue share deals, it’s not been uncommon to see something like a 35 percent stake, because the expert will be operation and the face of the business. They’ll be doing things while the owner will be in the back.
A simple allocation would be: say you’ve got 100 percent as the revenue, and you take 33 percent of that to operate the business. If you’re in an information marketing business, an agency or such, there’s a good chance you can have a reasonable profit margin.
Let’s say you then allocate 33 percent for your stake as the business owner and then take 33 percent for the expert who’ll be the face of the business and run things. That could work, but if you have a business that doesn’t make 30 percent profit, it’s not going to work. It might be less.
A few factors: is it a really high volume business where a small percentage would do the job, like an ecommerce business? Or is it a super small business where the expert will be be doing a lot of work?
And then you’d have to put yourself in their shoes and think, why wouldn’t they just do this themselves? You really, need to protect yourself with a proper agreement here to stop them learning about your business, and then competing with you. James calls this the Western way.
This is a real trap. Whether they’re on a salary or on rev sharing, it’s very common for someone to come in, learn the business and think, they’ll get a bigger piece of the pie if it was their business. And sometimes it’s even worse – they take your customers, and they take your staff. So you must protect against that where possible.
Finding the proper candidate
How would you identify a willing and appropriate person to fill that role? James wouldd suggest existing graduates, customers, people in your network, referrals – start there before you go for strangers. And especially if you already have a team, look inside your team.
It’s not a great strategy, usually, to sell your business to your team, but often you might find someone there who’s capable off taking on an extra role. But as James said, he’d probably be looking at a fractional integrator before going down that path.
An opportunity, or a nightmare?
It’s not an uncommon scenario that business owners are good at doing the thing they do, but not that good at running their business. Some don’t know their margins, they’ve never run paid ads, they don’t understand much about funnels and pricing, they don’t know how much tax they’re paying. They don’t have email lists, they’re sending maybe once a month. There’s basically a lot that could be optimized.
As entrepreneurs, says James, we hear this, and we see an opportunity. But he also thinks, that is a nightmare. As a coach, you’d probably want them paying a retainer, if you’re going to accept them at all, because those are the most challenging type of clients. A train wreck to fix, and that’s if they want to be fixed.
The question there is, could this be a chance to score rev shares quickly? Or would you steer clear of such situations?
James thinks it could be a major mess, not worth the effort. For your first revenue sharing deal, pick one person, and pick someone who’s very keen and enthusiastic, and who’s got all the ticks in the boxes.
Filtering the options
James also says in his revenue share training, the best prospect for revenue share deal is one who you would probably find it a little bit hard to get. The ones that are too easy to get are not good ones. Because coaches like him get people every day saying, Hey, will you coach me, and I’ll just pay you out of results?
That’s great to hear, but one of his filters is for someone to be making at least $10,000 per year online with the thing they want help with before they’re a good fit. The part up until there is like Mount Everest. Trying to get them from 20,000 to 70,000 a year, up to 200,000 or 700,000 a year, there’s a lot that’s will have to happen for that. They’d have to be extremely motivated, and be ready to surrender all control and let you run the show for that to work out. He doesn’t think it’s a great opportunity.
Is there a monthly revenue figure that James would not get involved in? Would he start up with a revenue doing less than 20,000 a month or more than 100,000? A few of his revenue share deals, in his portfolio, he started from zero. And that’s where he saw someone with huge potential.
They asked him for help, he knew exactly what their business model would look like, he know exactly who they could sell to, he know that he could help them massively. And he liked them. And he did it, and it worked great. There are more things that you would consider other than their revenue starting point.
Would he say his average deal is taking 10 percent of the revenue above the business’s average revenue of the average of the last six months? That’s very common in the types of businesses he helps. He helps agencies and information marketers, and most of them are making 30 or 40 percent profit margin. So he’s usually earning half what the owner is making.
They’re going to get quite a lot if they sell the business as well. So they’re happy. And James is only getting paid on the amount over where they got to. They got as far as they could get to by themselves, or paying for help or whatever, and James takes them past that. If he can’t, he doesn’t get paid, and if he can, he gets a fraction.
“Get 10 cents on the dollar with this type of deal.”
If he gets 10 cents on the dollar, he thinks that’s a good deal. The lowest deal that he would have is seven percent, the highest deal that he has is 20 percent. It would be uncommon to have something outside of that, unless you’re dealing with a very high-volume business. Then you might have a low percent.
Or if you had an ultra profitable business, and you really had to do a lot for it, you might get paid more than 20. But that’s the typical range for a straight-up revenue share deal. And as he mentioned before, with a reverse revenue share deal, you’ll probably find that you have to pay more to the experts, because otherwise, they’ve got other options.
What about the contract?
James was asked to share his contract template of his most common deal. That, he says, is a big ask. He went through a phonebook’s worth of material to come up with his first draft. Then he paid a lawyer thousands of dollars. Each time he used and refined his draft, he paid the lawyer again. Tens of hours and at least $4000 or $5000 have gone into the document.
If you join JamesSchramko membership on the Mentor level, he will give you a working document that he’s used, which applies to Australian law, with a disclaimer. There’s a couple of conditions. One is you must not sell it or present it as your own work.
Two, he’s not guaranteeing that it will work at all. It’s up to you and your lawyer to discuss that. And three is, it’s obviously only relevant for him under the Australian law. It may change depending on your jurisdiction. But it definitely gets you a long way down the track. And he’s mentored lots of revenue share deal people, and it’s worked really, really well because he’s done a lot of the homework on it.
How much communication is appropriate?
Do you schedule weekly, fortnightly, monthly hour-long Zoom calls for catch ups or simply communicate via WhatsApp or Slack during the week, or both? How much would you consider too much communication where it starts to feel like a job? And how much do partners consider not enough from you and start to feel you’re being lazy and not pulling your weight?
James hasn’t had anyone say he’s lazy, because he’s very consistent. He usually put them in a recurring reminder, exactly like SilverCircle members. The average SilverCircle member, he meets every two weeks for 30 minutes, or every three weeks for one hour.
He has a weekly group call that is available for Mentor-level members and partners every single week. So they can never say, Oh, we’re not seeing enough of you, because they could come to that.
In theory, they could come to two calls a week, plus one every two weeks or one every three weeks depending on their routine. For James’s highest-level program partners, he’s meeting once a week, and they’re having a business strategy or recording content.
“Communication works for you when it comes to good deal making.”
James records a lot of content with partners. That’s one way he can significantly help them, is to broadcast them into his network. So whatever works for you is the short answer. And a lot of the subtlety around this is what service you say you will provide. This is a very important point. And this is where he does the most help with people.
If you’re interested in revenue share deals, you can sign up for the free course HERE. If you are a member of JamesSchramko, you have this training inside the membership.
And if you’re a Mentor-level member, then ask James for a copy of his revenue share deal paperwork. He’ll coach you through getting your own revenue share deals. And you’ll see that it’s an incredible business model.
This is an example of a solo episode where James digs deep into a specific reader or customer question. If you want him to answer your question, please send them in to [email protected].
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