Comp structure for part-time partner?

 

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Comp structure for part-time partner?

I’ve been running a freelance consultant for a year. For one client/friend, I am supporting finance and recruiting, which takes about 10% of my time, and he pays me a monthly fee for it. It’s worked well.

He’s asked me to take on some new stuff that will take another 20% of my time (30% of my time total).

Rather than ask him for a monthly fee, I’d like to structure it so I get paid only if I’m successful.

I’m thinking of asking for a revenue cut, like 10% of total revenue. Or 5% of revenue up to a certain threshold, then 15% above that threshold.

I could ask for equity, but that feels very permanent, and I don’t think either of us would be excited about that (he is 100%, equity owner).

What is a good comp structure for a part-time partner? He and ~5 employees are full time, I bring skills they don’t have and couldn’t afford full-time?

Comp structure for part-time partner?

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3 Replies to “Comp structure for part-time partner?”

  1. I think that depends on the type of business you’re bringing in is it individual projects one time customers or is it long-term recurring fees and payments.

    Do you know what his profit margins are or net profit, my net profit ranges monthly from 7 to 12%. The case is in that range he may not be able to offer you that.

    What are other employees making are they commission?

  2. Why take on that risk? Unless it’s for more comp. Like sales where you get an outsized commission.

    Staying as 1099 gives you the advantage of a I401K, and S-Corp structure if you want.

  3. My favorite way to handle small business consulting agreements is to get a large portion of growth. If you’re consulting results in the growth of revenue, ask for a large percentage of that year over year growth.

    I did a deal where I would have normally charged 25k for the consulting contract (2 site visits and weekly phone calls for 3 months). It was a client that I’d done work for in the past and it had been a success. He called and wanted me to help with a new project but said that cash was tight and asked for a discount on my retainer. I proposed that he pay me nothing and I would simply take 30% of the year over year growth from the new project. He agreed and I netted 90k from the project after 12 months. Of course it could have gone the other way and I could’ve got zero.

    Your situation sounds a little different where you are not actually consulting but rather you’re a contract employee that’s doing actual work and not just advising. If that’s the case and the project is going to take 30% of your time, I’d suggest billing the equivalent of your full time revenue for the engagement. If that’s not an option for them, suggest smaller comp plus equity in the company or a percentage of profits. If you think the company is going to continue to grow and be successful, I’d do equity since it leaves cash in the business for growth and could pay off nicely in the future.

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