I recently questioned how agencies should take equity or rev share in exchange for services.
It got me noodling on the best way to do this, so I thought I’d do what I do when thinking and writing about something.
To simplify things, I will refer to profit share, rev share, and/or equity as “participation.” I realize they’re not identical, but they are closely related enough for this discussion. I’ll point out any specific areas where the differences might be relevant.
I never had a baked-in participation offer at Solutions 8. Many agencies built this into their initial pricing (e.g., fee + % of profits) or used it as an upsell/downsell (e.g., high fee OR low fee + equity).
Not having one was among my most significant missed opportunities.
Ironically, a friend built a big agency and started with a firm participation offer. He heard a talk I gave where I mentioned it was something I regretted not doing. He pulled me aside later to tell me he wished he’d never had one in the first place. #grassisgreener
His problem was scaling his agency, which turned every client into a custom invoicing nightmare. It was a constant game of reconciliation that regularly put his agency at odds with its clients.
And, in most cases, the extra money he made wasn’t worth it.
So, I offer the first rule: Don’t attempt to do it at scale.
Participation deals are partnerships.
Partnerships are sensitive, nuanced, and unique to the specific parties involved. Deals should be looked at individually (and sparingly), and the terms should be customized to that partnership.
The second rule is based on my experience: Ensure you’re protected.
Something that initially turned me off from participation deals happened early in my career. I had a prospect who couldn’t afford my services but had a very promising offer, so…
We struck a deal: I would get a healthy percentage of every closed deal from digital marketing. He paid me once, then jumped ship. I just footed his “proof of concept” bill. Once he saw how well it could work, he stole my approach and hired a different agency.
Equity is preferable to basic profit share because you own something. However, don’t think equity is a magic bullet, either. Depending on your level of financial visibility, people can still cheat the books on you, and equity comes with the risks of ownership.
This leads me to my third rule: Only participation deals with people you know, like, and trust.
This one is huge.
It doesn’t matter how well-protected you are and how good the contract is; if someone wants to screw you, they can, and they will. Follow your instincts and trust your gut.
The last thing I’ll say is less rule, more casual advice: I wouldn’t hunt for participation deals. When you’re looking for them, that’s when they’re scarcest. Get good at what you do, stay focused on scaling your agency, and let the deals come to you. (I promise they will.)
Shout out to Josh Saga for the fantastic question. I appreciate the great catalyst and hope I’ve given y’all something to think about. I’d love to know your opinion on the topic.
Please share your advice and stories regarding working on a participation basis.