Revenue: a pure metric?

Charley Valher, an esteemed entrepreneur and critically-acclaimed speaker, gives a short piece of insight into why revenue sharing can make great deals.

"So I want to tell you guys about what I love about the revenue sharing model.

So the first thing is, is that when you do a revenue sharing deal, it’s a pure metric. Because revenue either happened, money hit the bank, or it didn’t. In a profit sharing deal, sometimes even in an equity deal, that profit number tends to get a little bit kind of, manipulated. So have you ever heard of someone that’s like, intentionally running their business to look less profitable for tax? Quick show of hands, who’s ever heard of someone doing that? Right, but this pure metric thing, I was like, oh, a light bulb kind of went off here. This is a way of doing deals, where we don’t have to worry about that whole side of it.

The next part is that when you put a good revenue share deal together is, this is actually a really good win for both parties. So the business owner gets a win, because you may be able to take their business to a level they wouldn’t have got to on their own. And then the revenue share partner gets a win because they get to be a part of something and leverage skills or assets that they have. So this was another big tick for me.

The next part is it’s a performance model. And I’m probably going to say this was probably the most attractive part of revenue share deals to me is that I really don’t like fee for service as a model. I think it’s broken. And personally, I think it incentivizes people in the wrong way. So if I was going to do a deal with someone, and they were just going to pay me a set amount, I’m not really incentivized to knock it out of the park. And if I do knock it out of the park, I’m not really rewarded for behaving in that way.

So I looked at this and being the person I am, is I would always much rather go into a performance model. Because I know that if I can add a lot more value to a business, that the rewards are going to be far greater than if I had just taken a fee for service."

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