new contract with revenue split, how should it be worked out?

[Sysman]

I know a guy who set up his own software company.

Plan was to build products with a number of things in mind.

Hired few other guys I know, promising them share of profits of the products.

They ended up not bothering with the products and going the consultancy route. So the guys they hired (who quit good jobs) never got any extra.

So, agree make sure you know exactly what is being promised.

From a similar story, make sure you are clear about what happens if the other company gets taken over or goes out of business.

Also, who owns the product? I saw one software company get bitten by having to pay too much in royalties to a third party. Those royalties made it impossible to develop and sell the product at a competitive price after a few years.

[doodab]

Find out how the product is sold / licensed. I.e. per CPU, per server, per user etc, and what sort of revenue it's actually generating.

Think about whether you would be better off with a retainer + per incident / per hour rate for work actually undertaken. A revenue split sounds great in theory and can add up to a lot of money if the product is successful but it depends on the product and how it's licensed. It might mean you get a chunk of money to start with then the income dries up as the number of new customers falls, meanwhile the amount of work involved in supporting it stays the same. So make sure you get a defined % of any recurring revenue e.g. annual maintainance / support / upgrade fees as well as a defined % of any one off payments from the initial sale.

The "standard way" these things normally work is that the IP from the product you created is owned by the company you worked for and they owe you nothing more than your day rate / salary + perks, so you're unlikely to find a template contract online. If there is enough money in it that it's worth doing then it's probably worth paying a lawyer to draft the contract.

[jmo21]

I know a guy who set up his own software company.

Plan was to build products with a number of things in mind.

Hired few other guys I know, promising them share of profits of the products.

They ended up not bothering with the products and going the consultancy route. So the guys they hired (who quit good jobs) never got any extra.

So, agree make sure you know exactly what is being promised.

[someguy1]

Thanks that's a good point about the difference between value of sales and profits

Also glad you mentioned payment terms, I would've missed that one, doh!

As for the end of contract, well ideally the revenue split should be for as long as humanly possible but the support work I'm not too fussed about, could probably be a months notice either way.

What have you got in your contract regarding how long the revenue split is in place for?

[VectraMan]

I have a deal sort of like that. I'm still waiting for money.

Make sure you're clear on what you're splitting; I.e. value of sales is very different from profits (which is a lot more intangible), or "revenue", "proceeds", whatever. Also make sure the payment terms are clear, e.g. to be calculated every month/quarter and paid with in 30 days. And also you need to think about termination of the contract.

In short, make sure you know exactly what you're getting into before you start as it's a lot harder to change later.

Once agreed I would just write a letter of understanding and get them to sign it.

[someguy1]

Hi

I'm just about to leave my full time job for a new contract job with another company but I've arranged (in theory at least) with my old employer to provide a minimal amount of hours a week support along with some proceeds from the revenue of the product that I helped produce.

I'm completeley new to all this and I'm not sure how the revenue split should work, is there a standard way that these are normally done, eg, X% of money generated from the product before all deductions?

Whats the best way to structure the split of the proceeds?

Is there a standard contract I can buy off the shelf which I can use for this type of agreement or will I need a lawyer to sort it all out?