Question for everyone - opinions please
Discussion
Apologies for my lenth (except to women) Im after a few opinions.
My company has the ability to:
1) design webdesites, database driven ecommerce structuers, etc etc
2) Get websites ranking at the top of google, for specific phrases
I decided a long time ago, that I would find business partners, people who had their own businesses, who would agree to give me a fixed percentage of the profits they made through business I generated for them, via search engine optimisation.
Advantage to me: my input and time invested is minimal, as I simply instruct my staff to achieve xy and z. Im not greedy, and like the idea of having multiple sources of residual income, which doesnt require labour on my part.
Two of the companies I am going into business with sell jewlery. Negotiations have begun with the first one, and we have decided to statr off with just one website, marketing/selling plain wedding bands. The company I am partnering with is a long standing and successful business, have been in business for decades, and are offering the following terms.
1) Joint ownership of website/domain name. My job is to design it, and ensure it ranks at the top of google for key phrases.
2) 5% of the gross (for me) on turnover up to 250k, and 3% thereafter.
Im slightly out of my depth when it comes to appreciating percentages. Not only would we have to turn over a significant amount of money for my profits to be anything but meagre (and only time will tell) but is 3% not an overly unyielding offer? I appreciate the need, in theory, to purchase new manufacturing eqiupment IF the business does grow successfully in time, but there is no risk to either of us. We will both start by operating out of our current premises, there are no extra overheads, I will simply ensure that they receive a new flow of orders. Which in time, I hope, will increase.
I know very little about retail, negotiations are in the early stages and I have not yet done any research, but does anyone have any comments on my 5 and 3 percent margins on the gross?
I appreciate that the retail market is both aggressive and cutthroat, and that prospective internet buyers are often are just looking for the best price, but surely it is not entirely necessary to insist someone in my position should accept as little as 3% of the gross, on turnover above £250k?
Yes I know, I will not be responsible for returns, resizings, packing and shipping, staff and labour, losses incured by fluctuations in gold prices, future premises etc... and yes my percentage is of the gross which is good - but when it comes to the internet, one might be able to increase prices by as little as 2%, and hope to regain lost business from price shoppers by developing a more intuitive user interface, a better more professional looking site, an easier to navigate and more relaxed online browsing experience, by focussing on developing a suitable and appropriate shopping experience which, as much as possible, is better than that of the competition.
Its not 'quite' the same as selling tv's like derestrictor, where the exact same product, complete with model number and tech specs, can be purchased in any good retail outlet on highstreets up and down the country.
As I have said, retail is not really my game, and although Im could be wrong, I dont feel that being offered 3% of the gross on sales above 250k is entirely... necessary, is it? In order for us to do business that is. Im the one who will ensure we have a steady flow of business, and Im also the one who is free to pick and choose, when it comes to finding a suitable business partner.
Comments on the retail market, and percentages?
My company has the ability to:
1) design webdesites, database driven ecommerce structuers, etc etc
2) Get websites ranking at the top of google, for specific phrases
I decided a long time ago, that I would find business partners, people who had their own businesses, who would agree to give me a fixed percentage of the profits they made through business I generated for them, via search engine optimisation.
Advantage to me: my input and time invested is minimal, as I simply instruct my staff to achieve xy and z. Im not greedy, and like the idea of having multiple sources of residual income, which doesnt require labour on my part.
Two of the companies I am going into business with sell jewlery. Negotiations have begun with the first one, and we have decided to statr off with just one website, marketing/selling plain wedding bands. The company I am partnering with is a long standing and successful business, have been in business for decades, and are offering the following terms.
1) Joint ownership of website/domain name. My job is to design it, and ensure it ranks at the top of google for key phrases.
2) 5% of the gross (for me) on turnover up to 250k, and 3% thereafter.
Im slightly out of my depth when it comes to appreciating percentages. Not only would we have to turn over a significant amount of money for my profits to be anything but meagre (and only time will tell) but is 3% not an overly unyielding offer? I appreciate the need, in theory, to purchase new manufacturing eqiupment IF the business does grow successfully in time, but there is no risk to either of us. We will both start by operating out of our current premises, there are no extra overheads, I will simply ensure that they receive a new flow of orders. Which in time, I hope, will increase.
I know very little about retail, negotiations are in the early stages and I have not yet done any research, but does anyone have any comments on my 5 and 3 percent margins on the gross?
I appreciate that the retail market is both aggressive and cutthroat, and that prospective internet buyers are often are just looking for the best price, but surely it is not entirely necessary to insist someone in my position should accept as little as 3% of the gross, on turnover above £250k?
Yes I know, I will not be responsible for returns, resizings, packing and shipping, staff and labour, losses incured by fluctuations in gold prices, future premises etc... and yes my percentage is of the gross which is good - but when it comes to the internet, one might be able to increase prices by as little as 2%, and hope to regain lost business from price shoppers by developing a more intuitive user interface, a better more professional looking site, an easier to navigate and more relaxed online browsing experience, by focussing on developing a suitable and appropriate shopping experience which, as much as possible, is better than that of the competition.
Its not 'quite' the same as selling tv's like derestrictor, where the exact same product, complete with model number and tech specs, can be purchased in any good retail outlet on highstreets up and down the country.
As I have said, retail is not really my game, and although Im could be wrong, I dont feel that being offered 3% of the gross on sales above 250k is entirely... necessary, is it? In order for us to do business that is. Im the one who will ensure we have a steady flow of business, and Im also the one who is free to pick and choose, when it comes to finding a suitable business partner.
Comments on the retail market, and percentages?
I agree with everything you have said Justin, and talks (they were talks before they became negotiations, we established interest, agreed we had good reason to work together) ... talks were talks. All seemed good.
Not that negotiations have begun, I am led to believe that 5% is a huge stake, after all of the considerable costs have been taken into account. Initially I suggested 25% of the gross (and yes, of the gross is much better, as I know exactly how much is turned over, day by day, week on week, etc) - I do get the impression they are fearful of not knowing what profits will be on an internet based business, having never had one before, hence they are pushing for greater margins.
Its tough for me - whilst I appreciate that negotiations should be drawn out, with every man fighting for his corner for what is negotiated is all what one will get, but having so very little experience in retail, im unsure as to whether there are any genuine grounds for needing to reduce my margin above 250k. I dont think so. The more money a business makes, the more able it is (usually) to increase its profit margin, depending on the nature of the business of course
I wonder if there are any jewlers on PH I could seek guidance from...
Not that negotiations have begun, I am led to believe that 5% is a huge stake, after all of the considerable costs have been taken into account. Initially I suggested 25% of the gross (and yes, of the gross is much better, as I know exactly how much is turned over, day by day, week on week, etc) - I do get the impression they are fearful of not knowing what profits will be on an internet based business, having never had one before, hence they are pushing for greater margins.
Its tough for me - whilst I appreciate that negotiations should be drawn out, with every man fighting for his corner for what is negotiated is all what one will get, but having so very little experience in retail, im unsure as to whether there are any genuine grounds for needing to reduce my margin above 250k. I dont think so. The more money a business makes, the more able it is (usually) to increase its profit margin, depending on the nature of the business of course
I wonder if there are any jewlers on PH I could seek guidance from...
martin hunt said:
I cannot speak for the gold and silver markets.
But if you got me upto £250k worth of sales from my website in a year ( www.waterblaster.eu ) I would be offering you 25% and anything above £250k I would offer you 20% (Of profit only)
you ust remember it is also about the profit on each item, some rings (wedding bands) can make as little as £5 on an £80 ring so 3% would not be a lot and neither would 10%
but that is just me.
I assume you mean 3% would be a lot, if profit was as low as a fiver on an £80 ring. But if you got me upto £250k worth of sales from my website in a year ( www.waterblaster.eu ) I would be offering you 25% and anything above £250k I would offer you 20% (Of profit only)
you ust remember it is also about the profit on each item, some rings (wedding bands) can make as little as £5 on an £80 ring so 3% would not be a lot and neither would 10%
but that is just me.
As for the water blaster, its a seasonal product which needs marketing, the benefits of which might be reaped via the retail chains? SEO works well for products which are already mainstream, ideally generic (not specific, like mobile phone models and makes) and in demand, its simply a case of achieving a higher ranking than the competition in the organic listings.
martin hunt said:
ukbob,
The reason for the variance at £250k would be to move to the next level, I would assume they believe they can cope with any orders upto £250k,howevery, above the £250k they would need to employ another person or 2 to cope with demand, thus reducing the profit and so on...
Also as with any website there is no guarantee of a sale, as Iam sure you are aware, if the price is wrong, the goods are no good etc.....they more than likely know that for every 5 people who walk in off the street they will sell too, with a website is is more than likely 1 in every 200, scary if you don't know so this can put people off as well which is why they maybe reducing their margin to you.
Good Luck though
I hear what you say, and its very much in line with what they are saying. My view though, is that every company should be spending a minimum of 5% of their turnover on advertising. Even if I did get 3% of 250k, its not much of a marketing budget is it, and leaves no room for my own profit. The reason for the variance at £250k would be to move to the next level, I would assume they believe they can cope with any orders upto £250k,howevery, above the £250k they would need to employ another person or 2 to cope with demand, thus reducing the profit and so on...
Also as with any website there is no guarantee of a sale, as Iam sure you are aware, if the price is wrong, the goods are no good etc.....they more than likely know that for every 5 people who walk in off the street they will sell too, with a website is is more than likely 1 in every 200, scary if you don't know so this can put people off as well which is why they maybe reducing their margin to you.
Good Luck though
Ive learned that everything is pie in the sky until the money has come in though, and hopes of earning a minimum of 250k are just that, merely hopes. Only time would tell. I think I should approach jewlers, put the story to them, and hope to find a friendly one who wont see me as a threat and share his wisdom which might help negotiations.
greenie said:
I noticed you didn't offer us this option. 
They didnt poke fun at my cerbera, for being yellow greenie said:
Basically these sales are not costing the company anything but the percentage you take. Our sales and marketing spend is between 15-20% of turnover so every £1 of revenue costs 15-20 pence. I estimate that if you did a poll of everyone who runs a business on PH the majority would come in at between 10 and 20%. Very few sizable businesses would be 5% or under.
So working on that theory their offer is far too low. I would look for a minimum of 15%.
Speak soon.
Even im sure 15% would be too high, the online retail market doesnt always allow for big margins on mainstream products, the trouble is gold has a market value per ounce, and punters know exactly what they are buying, hence they are able to price match. Not quite the same as selling TV's, but not quite pat testing either. So working on that theory their offer is far too low. I would look for a minimum of 15%.
Speak soon.
rpguk said:
Who pays for card processing fees?
How long does the relationship last?
...it's important to get at least the main points written in stone.
The contract will have to be watertight, and will state that we both jointly own the website and domain name, and cant trade without the other, without consent in writing. Only time will tell, but I cant see any pitfalls, other than us both having to walk away over a conflict of interest, which I hope will never happen. Being in the web design game, I speak to new companies all the time, and hearing about other peoples conflicts of interest is very very common. This is why I wanted to own the site/domain, the fact that I retained ownership was the basis for any discussion, and at the last minute in attempts to protect their own interests, they insist that its jointly owned. I dont blame them, I could afterall walk away with my marketing engine at any point, at least they are serious about making a go of this. Still chewing it over. How long does the relationship last?
...it's important to get at least the main points written in stone.
Justin, Ive read your post, and will give all of the points you raised some more thought, after Ive done the necessary and found out more about margins in the ecom jewlery trade, something I think I must do before trying to make any more decisions.
T4R said:
I think you need to evaluate the following;
What's the cost to UKBoB Inc. ?
What's the risk to UKBob Inc. ?
And finally: what would Bernie Ecclestone do in this situation...?
I was once asked to log into an account I set up for a client, to check if there was any news from bernie himself. There was, but thinking Id never need to email Mr Ecclestone, I failed to make a note of his email address What's the cost to UKBoB Inc. ?
What's the risk to UKBob Inc. ?
And finally: what would Bernie Ecclestone do in this situation...?
For those that are intersted, the deal fell appart.
In short, I began to like them less and less, and everything else aside, if you begin to dislike someone you are going to be going into business with, then you shouldnt really be going into business with them in the first place.
Conversations got unnecessarily heated from their end, and whilst Im no stranger to negotiation, they werent really negotiating, I endured more of a one sided "This is how its going to be, or nothing" monalogue. Bit too forceful for my liking. They became the issue, not the margins.
When I finally admitted to myself that I didnt really want to do business with them, I sent off my last few emails, eventually got a reply - they didnt either. Which is good imho. Better to have tested the waters than to have never dipped ones toe.
In short, I began to like them less and less, and everything else aside, if you begin to dislike someone you are going to be going into business with, then you shouldnt really be going into business with them in the first place.
Conversations got unnecessarily heated from their end, and whilst Im no stranger to negotiation, they werent really negotiating, I endured more of a one sided "This is how its going to be, or nothing" monalogue. Bit too forceful for my liking. They became the issue, not the margins.
When I finally admitted to myself that I didnt really want to do business with them, I sent off my last few emails, eventually got a reply - they didnt either. Which is good imho. Better to have tested the waters than to have never dipped ones toe.
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