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How Much Should You Pay JV Partners?

Not Too Much... Not Too Little... Setting Your JV Commission Level.
 
Paul Smithson - 18th December 2008
   
paul smithson Deciding how much to pay JV partners can be a difficult task. If you get it wrong by giving too little you risk not getting a JV partner on board, but if you give them too much you risk making a loss on the sale. So where do you set the level?

The simple answer is that there is no ‘simple answer’.

There are so many factors that come into play that it makes almost every situation completely unique.

There’s the issue of the selling price. If you’re selling a $10 ebook to a very small niche then giving a 5% commission is unlikely to be enough to tempt any potential JV partners to get involved. At that price, and at that commission rate, they’d have to sell two thousand ebooks just to make $1000.

Then there’s the issue of costs and profitability. If your product sells for $100, but costs $70 to produce it can be hard to justify giving anything more than 30% as to do so would mean you’d be losing money on every sales (see below for a reason why this isn’t always the case).

And on the flip-side there’s the issue of who the JV partner is and what they are offering. If the JV partner is someone who you hardly know and has a very small list with unknown potential you might want to give a lower rate than if you were talking to one of the biggest players in the field who has a highly responsive list of several hundred thousand potential buyers.

Finally, you need to take into account the current phase the product is in. The commissions you might be willing to pay for a brand new product during the launch phase are likely to be markedly different from those of an evergreen product that has been selling well for several years.

Taking all of the above into account, how much should you be offering to JV partners?

As a general rule of thumb the more generous you can be the better. Often it can be well worth your while, particularly for a new product, to give away as much as 50%, 75% or even 100% to get the boost in sales that a good JV partner can give you.

Giving away such high pay out rates, particularly a commission of 100%, might sound crazy, but the truth is that you will usually get a lot of sales that come directly from the promotional activities of a JV partner, but often not all of those sales come from people clicking on that JV partner’s link. Some people will go directly to the site by typing the name of your product into Google, others will clear their cookies and so you won’t know who the JV partner was. This means that even if all of the sales came as a result of the promotional efforts of that JV partner you will only be able to pay out on a percentage of them as a significant number of them, often up to 40%, will be impossible to trace and attribute directly to any JV partner for the reasons mentioned above.

This means that for every 100 sales a JV partner makes only 60 might be logged against them, which means that if you are offering 100% commissions you are in reality only paying out 60%. JV partners know full well that it is impossible to track every sale as the perfect system doesn’t exist, but by offering them such a high payout you can compensate them for the fact that not every sale they make will get credited to them.

Once your product is well established and selling in sufficient numbers you can lower the commission rate to a more reasonable level such as 25% to 50%. JV partners will still be happy to continue to promote the product on an ongoing basis if the sales continue to come in, particular if the price of your product is sufficient to make it worthwhile.

Choosing the right rate to pay isn’t always easy, particularly if you have no previous experience dealing with JVs, but if you follow the above advice and make sure you don’t tie yourself into any long term agreements that could end up backfiring on you further down the line you shouldn’t go far wrong.

About Paul Smithson - Paul Smithson is the founder of Intellimon and the driving force behind the best-selling XSitePro web site development tool. Since graduating in Business Strategy and Direct Marketing from two of Europe’s leading business schools, Paul has set up five multi-million dollar companies, one of which is now owned by the BBC. His areas of expertise include business strategy, e-commerce, on-line and off-line marketing, software development, and maximizing the potential of on-line businesses.


For more information about this, and many other Internet Marketing-related topics, visit Paul Smithson's site, www.xsitepro.com.

Source: http://www.xsitepro.com/how-much-should-you-pay-jv-partners.html


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