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Jonathan_hodgkins's avatar

Profit Sharing with my employers?

Asked by Jonathan_hodgkins (666points) February 26th, 2017

I am negotiating my own manufactured products ideas with my employer (a design consultancy) in order to be developed. I will end up working on my ideas but with financial and design support.

Any ideas what percentage of the profits from the products I should be asking for?

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7 Answers

Tropical_Willie's avatar

Who is making?

Inventory cost are . . ?

Who is marketing it?

It could be 15% for you or 50%

Jonathan_hodgkins's avatar

I will mostly work on the design with oversight and they would pay for prototyping & manufacturing

janbb's avatar

You probably should be talking to a contracts lawyer.

CWOTUS's avatar

This is so fraught with questions about conflict of interest that if you can’t see it already, then you may never.

When you say that you are “working on your ideas”, is this part of your working day? That is, are you receiving wages or salary while you develop these product ideas? In that case, you are already being remunerated for the idea. That is, “it’s your job”.

But put that aside for the moment, while we talk about something else.

Who is absorbing the risk for fully engineering and developing the product, setting up production lines (assuming they will be required), and paying the cost of marketing, packaging, transportation, etc.? How much of your capital are you putting up for this part of the venture? And who stands to lose if the idea fails – as many ideas do, even “good” ideas. Markets can be fickle. There’s a lot of potential risk here. How much skin do you have in that game?

Who will pay to advertise the product once it’s developed? Who has paid to develop distribution networks to move the products and get it on store shelves, assuming it makes it that way (and is marketed that way)?

There is a lot more to entrepreneurship than simply coming up with an idea for a product, then handing it over to someone else to do all of the hard (and expensive, and time-consuming and often dirty – and risky) work to get the thing in consumers’ hands. The person or organization who does most of that, that is, fronts the money, absorbs the risk, accepts the negative cash flow between “aha, here’s an idea!” and “cash received for orders made and goods delivered” is rightly entitled to most of the profit.

Good luck to you if you have an employer who is willing to look beyond their relationship with you as an employee hired to develop ideas into useful products and who may be willing to share profit with you to encourage more of the same, but don’t expect a huge windfall unless the product is a runaway success. And even then, don’t expect a share of the profit until there are actual profits to be had. That could be a long time.

Jonathan_hodgkins's avatar

CWOTUS, Thanks so much for your detailed response, however my situation is not exactly what you have described. I am more then aware of the legal stickiness of this situation which is why I am asking the question.

I work for a design consultancy which spends its efforts working on product designs for CLIENTS.
It is an incredibly small firm and in fact ,I have not signed an NDA.

The company does not have products of its own, but could if I divulge my own to them.
At this stage, I am not sure whether these products will be manufactured through us or licensed to a larger manufacturing company. Either way, we will be doing all of the manufacturing product design and prototyping (probably mostly done by me).

If the products are licensed, then I might find myself doing 85% of the work.

If they are manufactured through us, then I will do far less. In that scenario the company will, as you suggest, handle most of the risk by submitting capital.

My employers are eager for this conversation and willingly to work together.

This is my question. Thanks.

stanleybmanly's avatar

Shoot for a partnership.

funkdaddy's avatar

I’d reiterate @CWOTUS‘s point regarding this technically being part of your job, not because it necessarily means you should get less, but just because it absolutely means you should get your deal in writing. At any time, if things go wrong, without something in writing, you probably don’t hold anything because you’ve been paid for your time and they are putting up the investment. Again, not trying to minimize your contribution, just sharing my understanding of this sort of set up in a legal sense.

With that over, the simplest thing would be that everyone places a general value on their work, expertise, or financial contribution, and gets a piece of the pie that roughly matches that as part of the whole. That’s complicated a bit with your normal salary, but might be a good starting point.

You might also want to share in some of the risk for a larger possible reward. You don’t always have to, but it puts everyone in the same boat and ideally would get you a larger piece of the overall partnership.

Also, profits will be separate from ownership usually and the two aren’t always connected, so make sure and discuss how you would actually get a check. If you’re thinking they’ll take profits out, and they’re thinking everything will be reinvested that can be a problem down the line if you’re waiting on a check. Make sure you’re on the same page.

A real life example: Right now I’m working on marketing a product with someone I’ve worked with before on a contract basis. He’s putting up all the funds for development and he needed branding, packaging, web work, and online marketing. I placed a value on the work he needed, took a small payment up front to kick things off and commit us both to it, and then take a small payment for each unit sold up until a bit more than the value of the initial work. I’m also getting a piece of the overall company which we’ve assigned an approximate initial value to.

I’m sharing in a bit of risk with the staggered payments that only come after sales, so I get the ownership stake to offset that.

One last piece of advice, humbly learned. Tons of people told me for years to never offer a number first in any negotiation. Maybe that works for some folks, and maybe it’s just personality based, but it didn’t work for me. I’ve started instead just offering a number that would make me absolutely want to do the deal and I’m surprised how often the first offer is taken and we can move forward, both excited about the project. If there’s a number that makes you want to wake up in the morning and tackle the thing, and you can back it up with good reasoning, I say throw it out and see what they say.

I hope it works out for you and good luck.

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