Offer #29557 - 60% Commission Offer to my whole Funnel

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Should You Sell a Funnel for Commission or Revenue Split?

If a customer offered you a 20% commission on all sales of their product, sold through a funnel that you build, should you work with that customer? Commission or revenue share models are a great way to price your business and we’ve had a lot of success with them at our agency, MeBox. However, we’ve also made a lot of mistakes and the process of revenue share/commission can be a double-edged sword.

The Pros and Cons of Revenue Share and Commission Models

Revenue share and commission-based funnel projects can sound like a brilliant idea. It lowers the barrier to entry for the customer, decreases the investment needed from the customer, and could provide you with a growing source of income that scales faster than your own business. However, the problem comes when the revenue share or commission isn’t profitable.

In order to understand if a revenue split, revenue share, or commission model would work for your funnel business or funnel projects, you must work out what the profit would be if they were paying for the project themselves.

Is it Profitable?

First, you need to understand whether the project is profitable. Let’s do some super basic math.

For example, let’s assume we’ve gone through the discovery process and deep dive consultation. We know enough about the funnel project to understand how much it would cost us and we’ve arrived at the price of $25,000. The price of $25,000 estimates the cost of the project to us (developers, designers, hosting, etc.) to be $8,500. Our overheads during that time are also $8,500. The profit we would derive from this particular project would be around $8,000.

Let’s say we also have them on a recurring revenue maintenance and marketing package priced at $350 per month. That generates us $4,200 per month, using the same rough 30% profit margin as above, that would give us a profit per year of $1,260. In total for the entire project and for the year, we would generate a profit of $9,260.

You need to know how much your costs are, how much the cost to the business the project would be (new staff, outsourcing, content, and your consultation time), and how much profit you are expecting to make on each project. At Sell Your Service, we estimate a healthy profit margin on all funnels and services to be around 30%.

You have to know exactly how much the project would generate you if you weren’t using a revenue split or share model. Because we’re going to compare that to a revenue split model next.

Revenue Split Model

The revenue split model basically means that you take a percentage of each sale made via your funnel. The figures range anywhere from 20% to 40%, but we have seen as low as 5% depending on the product.

For example, if we were to build a marketing funnel for a customer who sold books at around $15 per book, using our funnel for every sale made we could collect 40% of that $15 sale, yielding us $6. If we sell a hundred books, that’s $600.

However, that’s hardly going to break the bank or be a viable option to replace your entire funnel payment model.

There’s a misconception that revenue shares or revenue splits are easier sales to make and always profitable for the funnel builder. What we’ve learned at MeBox is that revenue shares only work if the revenue share model is still profitable.

This might sound obvious but it can seem very enticing to get 10%, 20%, or 40% on every sale made when you’re not selling your own products.

I want to share with you some of the math and points we take into consideration when creating a revenue split or commission-based pricing model for our funnels.

What are You Working With?

What does the customer have in terms of resources and foundations which means you will be able to generate close to $50,000 in sales per year for their business?

We need to have a real hard look at whether they are able to ramp up to those $50,000 in sales through a marketing funnel which you’ve built to beat profit margins that you could have made if you had just sold them the funnel with a standard pricing model.

Imagine the customer for funnel 1 having an email list of 10,000 people. In order to cover the costs of the entire project and maintenance fees they would have to generate roughly $30,000. Which would be $3 per email subscriber. If they are selling a $1000 product, that means they just have to make 30 sales/10,000 subscribers, and they’ve covered the cost of your funnel for the entire year.

It also means that next year when they generate 30 sales again at $1000 their profits are much higher as they don’t have to pay for the funnel project in the first place; they’re just paying for the maintenance packages.

Imagine that same customer offering you a revenue share model for a marketing funnel. If we are being conservative and offering to attempt to generate $0.50 per email subscriber per month, that gives us $5000 per month. In reality we found that each email subscriber is in fact close of worth to $1 per month.

At $5000 per month, the customer for funnel 2 would be paying us 40% of $5000 per month. Which equates to $2000 a month or 40% of $60,000 per year which equals $24,000.

We worked out that the total sales required for the year for funnel 2 was around $50,000. At $60,000 we would be a little over our target. Which is great news.

Imagine we could generate $1 per subscriber per month which would generate us $4000 per month from $10,000 per month (10,000 subscribers @ $1 per sub per month = $10 000). This would be an even healthier profit margin for us and be an incredibly lucrative deal.

Do you think you could take on that kind of project?

Now imagine a second customer who is also offering us a commission deal based around funnel 2.

They don’t have any email subscribers. They don’t have any website traffic. They’re starting from scratch and therefore don’t have a lot of money so are willing to offer you a higher commission rate in exchange for lowering your prices. Why? Because they knew they feel they don’t have the funds available. So they’re hoping to exchange equity in lieu of payments.

That means that you would have to generate an email subscriber list for them from scratch, generate profit from each one of their subscribers and generate revenue regularly from each one of their subscribers and continue to grow their business. Assuming they have a traffic budget it’s possible that this could work out to be profitable for you.

However in our experience we’ve had to work extremely hard with customers like this in order to grow their business.

Essentially what they are giving us is 40% of their business in order to grow their own business.

How Long Will It Take to Get to a Profitable Goal?

How long would it take for either one of these customers or either one of these funnels to be profitable for you? Funnel 1 would be profitable during the project. Followed through with the same customer would be profitable within the first year.

Funnel 2 under a commission model using customer 2 who doesn’t have any resources, email subscribers or traffic light take much much longer.

Again in exchange for 40% commission or revenue split it can seem very appealing to think that in “three years time this will be a money-making machine”. But in fact what you’re doing there is x-ing your costs by 3.

You need to be very careful about understanding how long it will be before a project is profitable.

Pro tip: don’t use their revenue projections and financial/sales projections as a measure of what they expect to make. Use numbers that you see on this blog and talking to real funnel builders to understand how long it takes to get the company profitable.

Typically a company doesn’t make any profit for five years. If they’re actually giving you 40% of their revenue it will take them even longer to get to profit. Do you want to make that kind of commitment?

If you do look at their revenue or sales projections apply the 4X rule.

The 4X rule states that any projections made will take 4X as long, produce 1/4th the results, for 4X the energy and at 4X the cost.

I’ve actually had prospects and leads argue with me about their sales projections telling me that “our business mentor and bank manager think these are realistic” when they have absolutely no evidence to suggest this. If they are correct, fantastic!

But instead I have found the 4X rule to be highly accurate when predicting the growth and sales of any business.

Remember, any future results or projections will take 4X the costs, take 4X the time, produce 1/4th the results and require 4X the energy and effort.

Beware the Funnel Customer Paradox

Here’s what happens with the funnel customer paradox. As soon as you take 40% of a customer’s revenue, business or equity. They will NOT start to only do 60% of the work. That seems like the logical explanation, right?

If you are doing 40% of the work for 40% of the revenue shouldn’t they do 60% of the work for 60% of the revenue?

In fact I have often found it to be the case where customers will do far less work as soon as they believe that a marketing funnel builder is working with them. They begin to pass the buck and effort onto you as the funnel builder as to why the business doesn’t work.

Some businesses we’ve worked with (I should say have had the privilege of working with) have continued to put in 100% of the effort to build their business up. Making phone calls, booking meetings, generating content and producing products. Understanding that I can only add 40% to what they are creating.

If they are producing 100 units of energy and I am only producing 40% of that then surely it makes sense for them to put in 100 units for me to produce 40?

Instead what many customers start to do is put in way less effort believing that you are going to take care of absolutely everything for 40%. It’s as if they think that you are now on salary and they can relax while you build their business. Unfortunately there is no way to qualify out these customers entirely. You’ll have to go on your gut feel, experience and remember to work out the math.

How Does It Work?

Revenue share-based businesses can use software platforms or just simple calculations to pay you per month or on each sale. For example some of our lower-cost products from customers are paid on a percentage split via Stripe.

Whenever we take a sale from $19-$1500 Stripe will automatically (via a WordPress plug-in) send us 40% of that sale. The other 60% goes to the customer’s bank account.

However some of our businesses work on revenue projections whereby we have an overview of how much was made per month and we essentially invoice for that amount.

Futur Recurring Costs

Something to bear in mind when building out marketing funnels on commission or affiliate basis is the recurring cost to you. You have to understand that you are now taking 40% of the risk as well as opportunities.

Platforms could increase their costs advertising costs could go up or any number of problems could squeeze your margin.

Lots of people believe that the 40% commission is “free money”. But you still have to work out a valuable price model in order to cover your future recurring costs. Support maintenance updates and content are exactly same costs that people would have had pay for anyway. Do your recurring income figures at whatever percentage for your commission you take cover future recurring costs?

Easy To Sell Does Not Mean Easy To Work With

On a final note it’s very important understand that easy-to-sell does not mean easy-to-work-with.

There is a misconception that if we offer someone a commission or revenue split model for working with them then offer appeals more attractive.

In actual fact I believe if someone was offer me marketing funnel project which would guarantee me 100 new customers at $1000 per year (equalling $100,000 per year) I would happily pay $40,000 upfront for that.

Instead many businesses try offset initial upfront costs in exchange for revenue split model. You might think this looks more appealing many businesses but you have remember types businesses people you are attracting with this kind model.

Just because it’s an easy sale does not mean it’s an easy project. The offer marketing funnel for commission split therefore reducing initial upfront costs might sound very appealing but is that because they want partner with you work with you future? Or is it because they want lower their risk lower investment because they don’t have much work within first place?

Pricing marketing funnels is very difficult. If you want learn more about how price marketing funnel effectively efficiently click here.

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Released on Wednesday 10 April 2024 - Total : $0 - Past 30 days : $0 (1st tier : 60% - 2nd tier : 0%)

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