Limited Partner or Consulting Fees?

[Goodfella3993]

Company A is Marketing Consulting Company.
Company B is an Online Retailer.

Company A will perform all Marketing Services for Company B.
Company B is very small and near failure with tremendous room for growth. Company B does not have a budget to pay many upfront costs or services.

Is it possible for Company A to become a Limited Partner with Company B?

Company A will be doing alot of work to transform Company B and wants to be rewarded for all the work it does for Company B (more than simple consulting fees).

Company B also wants to maintain its independence as its own Marketing Services Company but wants to benefit as much as possible from the new found success of Company B.



Any thoughts on the matter?

Thank You,
Marc

[jfadley]

A lot of this will depend on the financial stability of Company A - whether or not there will be enough income from other projects to provide for the short term deficiencies that will come from assisting Company B. If Company A ultimately believes it can empower Company B to success, then there is no reason not to take an equity stake in Company B, while knowing that there is significant risk and potential for loss. If Company A is a good Marketing firm, then I'm sure it will find a way to gain attention from the success of B, like prime mention of the success on both Company A and Company B's website, along with numerous press releases, etc.

Another option is for the principal members of Company A who will be assisting Company B to take personal equity stakes in Company B, with the understanding that successes will be demonstrated as being done on behalf of Company A, and if Company B fails then those directly involved can just treat it as a "pet project" on the side.

I hope this helps!
Josh

[Goodfella3993]

Thank you for your reply. It was very helpful.

It is also important to understand Company A will be doing much more than just basic marketing. General business advice and consulting tips have / will be given to Company B. To date, Company B does little to no marketing and has an extremely outdated website. Company A will essentially be changing the way they do business including creating a catalog for direct mail distribution, creating and maintaining a Marketing Data Warehouse, revamping the online store front, and creating a loyalty program, etc.

All of these tasks have a high up front cost and Company A is willing to do the work without any up front fees. Instead, Company A will be paid from sharing of profits on a contract basis.

Question: Should Company A ask for more in the contracts than just short term deals? Should Company A instead as for a share of the company (long term) instead of a share of the Short Term profits seen from campaigns?

Thanks Again,
Marc

[Peter.j.bea]

Set a goal with the small retailer as a consultant would do on a corporate level. Sit with the potential client and say "Lets do this this this and this and reach your goal for 250% net average on a 6 month recurring term.

ABSOLUTELY request for profit stake in the company, I usually take on 5% of overall net and take position as a chairmen on their board (even if they don't have one, simply explain that you will sit with them at meetings and discuss ideas for growth). If they get awkward about just point out the facts. Set up an account for that company and start soaking up the company.

Before ALL else, be sure to implement a percentage for their own exit. If they decide to sell in 5 years from what YOU have done request share in value or assets of the company. I always go for 22% myself. But I suppose it depends on the nature of that company all together.

But among ALL things.... do NOT become emotionally attached to this business, as a consultant, you are a prostitute. The term "no kissing on the mouth" definatley applies here. Do your job and keep it simply business natured. I am assuming that "business B" is a family owned or small business, they area always great at making friends, but there is to much that can interfere with when you are trying to do your job. Be sure to put EVERYTHING you are planning on implementing into a contract, have it notarized and don't do ANYTHING outside of those terms, it sounds mean, but its protecting YOUR butt. If something bad goes down, then they can flip it on you for doing things they "never agreed to".

[Goodfella3993]

Peter, thank you for your great response.

This is actually how I am planning on jump starting my business. They would be my first client and their company is small and family owned. Right now, we have agreed on 50% of profits that I bring in directly. I would like more of a secure role in the business as a whole rather than on a campaign basis however. I just don't want to do all this work, bring them up from nothing to an actual big player in the market and then have little to show years down the road when they become successful.

I think a limited partnership between us would be great. I would handle all Technical and Marketing Efforts and they will handle all Operations. I would like to see something of around 30%. I would even be willing to to let them keep what they made the previous year with out my services and then we split everything on top of that. What kind of share of the company do you think is fair?

I agree with having everything in writing as well.

Thanks again,
Marc

[Peter.j.bea]

If you are planning on developing your own consulting business consider your professional network and professional references. You want to become involved to a degree.

What percentage you take is greatly dependent on what products and or services they sell. Do they resell? Manufacture? Offer service? Retail? Consumer goods? This will define what should and should not be taken, think of their overhead and gross margin and devise your own formula. But be fair and only take what you need to start with.

If you ARE planning on joining them for the long run, as mentioned before ask for a position on the "board" as a chairmen and always sit in on meetings and offer advice and contacts as you see fit. (Keep a black book of about 5 of EVERY kind of service there is simply for reference, and be sure that they are all city based and privately held). Encourage the owners to be more active in your city chamber of commerce, network and it will be brought up that you are helping them with THEIR business. This is a great way to acquire more potential leads over time while working with this company. As well, it encourages other businesses to do business with them, for the sake of the city.

The BIGGEST thing you are going to get from this company, is its reference and referrals for future business. Your first client will RARELY be your major stream of revenue, simply provide the avenue in which to make that HUGE contact with a client in the future.

[Goodfella3993]

Great advice ... Thank You Peter.

[Goodfella3993]

Hi again. One more question.

If a partnership were to happen, would it be better for myself as an individual person enter in as a partner with Company B. Or, should Company A as itself be listed on paper as the partner? (Me being owner of Company A)

And is Limited Partnership the right form?

Thanks again,
Marc

[bhnyc]

The Limited Partnership would work, but as a consultant it gets you pretty tied up in their business. Why not structure an intelligent profit share. I think something like the following could work especially well for a consulting type arrangement:

- Establish what your hourly rate is. If you or the client don’t like the idea of an hourly rate, work out a flat fee for the various pieces of the project.

- Establish what return on investment you would like on your time invested. I would peg this rate close to what an Angel investor would look to earn on a seed investment. Maybe 25%.

- Agree your hourly rate and expected return with the client company upfront (in writing etc…)

- Do your consulting work and bill the client for each hour or piece of the project completed. Be sure to send an invoice, or have the client acknowledge and agree your hours at least monthly.

- Obviously, they won’t pay you now, but that’s where your rate of return comes in. Your time investment, measured by your hourly/ task rate will in essence earn interest at your rate of return until it is paid back by the client.

- In determining the payback, agree with the client that your investment + return will be repaid out of profits. You will need to put a cap on the % of profits which can be channeled toward your repayment, as the client will obviously need to retain some.

I think this method achieves your objective, in that you get a share in upside and are paid your consulting fee, but at the same time take on risk together with the client. I would second the suggestion that you are part of company meetings.

Peter: I enjoyed reading your advice – your idea about encouraging the client to join the local Chamber of Commerce is brilliant. I would appreciate your feedback on the viability of the idea above.
Thanks

[Goodfella3993]

Thank you for your post. I agree and like your idea of an intelligent profit share.

As of now, we have agreed on splitting the profits driven in from all campaigns I run 50:50. In thinking long term and about other work I do that will not be as easily measured (like sales coming directly in from a campaign) I would probably want to lower my percentage from 50% of my sales driven in, to say around 30% or 40% of Total Profit. I am in the process of researching different ways to structure an "Intelligent Profit Share." It sounds like an interesting concept.

Thinking long term, it would be great to have some sort of agreement where if we were to part ways and end our business relationship, I would be able to sell my share of the company instead of them using the service of another vendor to replace what I bring.

[Goodfella3993]

Also,

Would it be a better idea to enter into a Limited Partnership with Company B as Company A or myself as an individual person.

My guess would be as an individual.

[terryxu]

I think it's better that A perform all Marketing Services for B.
When A grow up, so A can become the partner of B. so AB can reduce cost and share bigger profit.

But as an individual person you can enter in as a partner with Company B

[SalesAgent]

I learned a lot from this thread.

Thanks guys.