Revenue sharing is a fairly intricate business practice that many small business owners lack knowledge of. There are several reseller business models, incentive plans and profit sharing programs out there. However, how revenue sharing works has become required knowledge for any business owner who hopes to advertise on the internet or capitalize on email monetization. That is why the topic has become so widely discussed and researched as of late. If you are a small business owner who wants to know all about revenue share marketing and how it works, keep reading to find out more.
What Is Revenue Sharing?
Revenue sharing, in general is the practice of distributing profits and losses between stakeholders. It has nothing to do with customer referral programs. These stakeholders can be partners, both limited and general, company employees or between organizations in a business alliance. Whatever a company makes is split between the various entities at predetermined percentages. This is a bit different from revenue sharing in marketing, which is discussed below.
Revenue Sharing VS. Profit Sharing
Many professionals get confused between the differences of revenue sharing versus profit sharing. Revenue sharing is a business model in which one party takes on all the risk. Whereas in profit sharing models, risk is diversified among all stakeholders. This is the only real difference between profit sharing vs. revenue sharing. If one party is taking on more risk, it is safe to assume that the business is operating under a revenue sharing business model. Typically, the party with the risk will leverage market research tools to boost revenues.
What Is Revenue Share Marketing?
Revenue share marketing is also referred to as cost per sale marketing, similar to cashback marketing. This practice is one in which the cost of advertising is determined by the revenue the advertisement itself generates. About 80% of all affiliate marketing programs are cost per sale marketing ventures. Affiliate marketing programs are primarily used by online retailers, such as Amazon. While revenue sharing practices are very similar, in theory, to cost per sale marketing, it is important to remember the distinction.
Revenue Sharing And Performance Marketing
Revenue sharing is the reason why performance marketing is so widespread. Pay-per-click advertising, or PPC advertising, will only cost you money if someone actually interacts with your advertisement, unlike local SEO. That is why performance marketing and revenue sharing go hand in hand. As a business owner, you no longer have to worry about wasting money on advertisements that do not perform well. The rise of performance marketing thanks to cost per share pricing is directly influenced by revenue share practices.
There Is A Downside
Of course, there is a downside to revenue sharing with a marketing agency. Some experts believe revenue share advertising is a short term solution, unlike event management marketing. The practice is said to lead to a decrease in risk taking for many businesses. Instead, they play it safe and perform the bare minimum to ensure a return. However, lack of risk taking is never good for long-term business viability and sustainability. Keep this in mind when considering cost per sale advertising for your small business.
How Revenue Sharing Works
Depending on the marketing or business agreement, revenue sharing works by sharing operating revenues with another part. This is typically shared in the form of sales revenues or net income profits. Business owners can use revenue share plans to incentivize employees, partners and staff. For launching a SaaS business, this could lead to significant revenues for everyone involved. This type of model works to compensate others according to the value that they create within the business. Moreover, these revenue models can contain various qualifiers or milestones to have the sale counted. For revenue sharing to work, it should be properly defined, tracked and distributed to the proper stake holders.
If you are a small business owner who is fairly new to the revenue share concept, there is no need to take a SEM training course. Instead, let this post serve as your guide to revenue share marketing and advertising. These types of affiliate marketing programs and cost per sale advertising agencies present your organization with an opportunity for increased profits. However, there may also be a downside to the conservative business practices it inevitability leads to. Consider all of the faces you have learned in this revenue sharing guide before deciding whether this is the right marketing strategy for your business.