One of the questions I get asked on a regular basis is, “How much should I ask for when setting up a Joint Venture? What percentage is reasonable?” And that’s a very good question. Different businesses have different profit margins. Some have higher overhead and costs of sales and than other. If you sell computer hardware, for example, you make a very small profit – most of your profit is in the software, service, keyboards, etc.
If you’re selling a service, you make big profits, but you can also have varying costs. So we have to keep this in mind. Some people have certain restrictions on their ability to pay out commissions, like certain financial planners or dentists. Others are not used to paying commissions, like the realtor who offered me $75 for a buying referral!
So here is a way to approach this challenge. First, do your homework. I know I keep saying that, but information is power when it comes to negotiations. That’s good news, because most people talk a lot, but don’t listen much, so when you listen a lot, you learn a lot. Find out about the business and its profit margins. Make sure they’re telling the truth when they say they’re not allowed to pay commissions. Sometimes, they’re just plain lying, because they’re cheap! Talk to their competition, ask employees questions, and you will get a feel for the amount of profit they make, so you know what to ask for.
Second, educate them about the money in the Back End. You might make no profit at all on the first sale (break even on the first transaction) but you can make a lot on future transactions, referrals, additional products and services sold through other vendors on a JV basis and on and on. If people understand the Back End correctly, they will be eager to give away a generous portion of the front end. Show them the principle of Incremental Profits (profits made when overhead and salaries are already covered and the new sale is incremental, like putting an extra seat into a seminar or serving another plate of food when the food cost is only 32%)
Third, understand negotiating techniques. By all means start high and drop, but don’t start greedy. Be prepared to walk away from any deal at any time. Remove risk from both parties and work WITH the competition. Savvy entrepreneurs know their competition can be their greatest ally.
Most of all, approach any Joint Venture proposal from a position of strength – know more than the person you’re dealing with. Be well prepared.
Find out more about Joint Ventures and how to find great Joint Ventures Partners at www.jvwisdom.com.
