Freelancer negotiation: Should I take a commission only freelance job?

100 hundred “There is loads of work out there – if you are willing to work for free”, says a well known business joke.

So, would you be willing take freelance work on a ‘commission only’ basis?

More and more businesses are looking to hire freelancers on a commission only deal. (Perhaps we look like easy targets :-)?)

Well, whilst many of these offers are unattractive, are there any circumstances in which you should accept?

To answer this, we need to think a bit about what is going on.

Performance vs Commission Only

If the deal is pitched such that the freelancer is asked to work on a performance basis – then that seems a reasonable request.

However, there is a bigger leap from ‘performance’ to ‘commission only’.

In order for a commission only deal to work, not only do YOU need to perform, but also the company / business needs to perform too.

Not only do you need to make the sales or deliver the web traffic  etc, but the company needs to be able to fulfil any promises that you make (on their behalf) and deliver the product and make good the sales – and, of course, collect the money from clients, so that you can be paid commission.

Its all about risk

Therefore, the highest risk, for you – is where the brand is new, unestablished or no sales have yet been made.

The lowest risk is closer to an affiliate deal with a large and established business – a bank perhaps? – where the risk of not being paid or sales not being fulfilled are minimal.

The key point here is to weigh up the business risk – from your point of view.

How to answer a commission only offer

So, in your negotiation, if you are asked to weigh up a commission only deal – ask these questions

– how many sales have you already made?
– how much time and effort did it take to make those sales?
– how quickly did the commission only people get paid?

If the answer is a negative or ‘not yet’ response on any of these, then here’s how to reply

“Yes, I will work for commission only – my charge is 200% of the value of any sale I make!”

200% commission?

Yes, ask for twice the value of the sale – if you are the first person to make the sale.

Why? Because all the risk of there not being a sale to make, clients not liking the product, the lack of established track record etc, lie with you. If you break through this and make the first sales, then finding commission only sales will be easier next time around for the company.

Therefore, you are not only ‘making a sale’ – but are establishing that their product can be sold and money can be collected from clients. This work is of significant value.

Hence, you should charge – a commission perhaps – for doing this – which is why charging 200% of the sale value seems a good starting point.

 What about some equity?

Now, the client may respond – “we can’t do that, but we’ll give you some equity”.

Which, again, depending on whether sales have and are being made is either a worthless or a highly valuable offer.

Of course, some deals – franchising and networking marketing – are offering established products where you have an on-going royalty on future sales. This, for proven products and established companies, can be a good balance of risk and reward.

However, if someone is offering a percentage of their company, then you have to ask yourself how and when that % might turn into real cash, for you? If it is more than 1 year away, then the equity share is probably valueless – for you – anyway. Not least because minority shareholders tend to get a rough deal or watered down over time.

So, in most cases, again, it would be “no” to equity – but yes to a major cash incentive to make the first sales – or perhaps a royalty on all future sales if you prove the sales and marketing process.

The benefit of a royalty is that it should pay whether you continue to work for the company or not. Where as, if you are a minority shareholder, you are basically committing to work for the company until it sells more equity – which might be 7 or 10 years or never – and you don’t even know if the product will sell yet!

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Written by Editor on May 9, 2011 and filed in Entrepreneurs, Featured, Freelancers, Money, News , ,

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