33/33/33 ?

…how to structure business partnerships and how things usually break down

(note: this is really a rough draft written form of something I usually talk through with people, so bear with me, I realize as I hit publish that it may be a few steps away from clear written thinking)

I chose to be in advertising, marketing, sales, growth, and creation early on.

Mainly because it’s interesting, versatile and fun, yet also for something I couldn’t articulate until I hear Jay Abraham explain it.

Paraphrased:

“If you want to be indispensable, you have to move from the expense column to the asset / income column.”

Most of what I do, and what the companies I’ve been involved in build are trying to do, is on the asset or income column. We have an easy time selling because the pitch is almost always, “give me $1 and I’ll bring you back $2.50”…

That said, in the world of customer acquisition, people have an endlessly difficult time answering the following question…

The other thing that happens, is people think somehow that they’re gaining a negotiation or price advantage by not being straight and upfront and transparent with business model numbers… I’d remind them they’re dealing with a person and an industry who studies business, acquisition models, knows the costs and revenues, and happens to enjoy spending time in excel and databases.

Anyway, here’s the question:

“What percentage of revenue or gross profit, can be invested in creating a new customer?”

You’d be amazed at the dance that has to occur to get real answers to this. I understand that it’s tricky, and maybe not something you’ve thought deeply about (which is scary) and we’re all subject to all the cognitive biases that cloud judgment when we’re looking at “our thing” yet we can see perfectly clearly when we’re not too close.

So, with that pre-amble, and subjecting myself to disputes and criticism.. this is basically how I see almost all good business ownership partnerships breaking down more or less.

Yes, there are lots of details I’ll leave out.

Yes, there is a lot of variance…

… and yes, not everyone will agree to this.

33 / 33 /33

For the most part there are 3 main profit stake holder groups in any endeavor.

1. The owners
2. The makers & doers
3. The Distributors / marketers / growers

As you can probably guess at this point. I think most things break down to this kind of a model.

NOTE: this isn’t obviously the margin stack, or how everything breaks down…but most deals can eventually get kind of close to this and people tend to be happy.

Let me give you an example.

If you run an insurance agency, you need to generate leads, close sales, and deal with the operations of the business.

When we looked at setting up a partnership with an insurance agency as an exclusive growth partner and part owner of the agency, this is ultimately where we landed.

After all is said and done the model needed to allow profit to be shared by those three parties.

1. The guy who held all the licenses and made sure everything worked out and stayed legal and who put lots of capital into the business, ended up with 1/3 the profits
2. The agent’s got 1/3
3. The lead generator and call center manager get’s a third

It works in lots of other areas too… I could expound on this more yet I’m not sure wether or not this hits home or is interesting to anyone actually reading it.

This is once instance where I think, maybe a conversation on the post may be most helpful.

If you’re struggling with a deal, some variation of this formula will almost certainly work if everyone is willing to look at the numbers.

Let’s keep talking below…