Profit share, explained like an adult

Most people who have only ever been paid by an employer have never had to think about profit. They think about revenue, because that is the number on the leaderboard, and about their fixed monthly pay packet, because that is the number in their bank. The deal is built on a third number, profit, and on a share of it. If you are going to be a partner in the business you build, you need to understand that number as well as the backer does, in plain terms, before you sign anything.

What profit means

Profit is what the business bills minus the cost of delivering the work minus the cost of running the company. All three parts matter.

What the business bills is the invoices that have been paid and that can no longer be clawed back. Not the pipeline. Not the signed terms. Not the invoice that is out. Money that has arrived and is staying.

The cost of delivering the work is everything spent to earn those invoices. Job boards and a recruiter seat on the professional network. Data and tooling for an outbound desk. Contractors or the people you hire to do the work alongside you. If you could not have delivered the work without spending it, it sits here.

The cost of running the company is everything else that keeps the lights on. Company formation and filing, accounting, insurance, software, the back office, the brand. The backer sets up and pays for these, but they are still costs of the business and are counted before profit is struck.

What is left after both is profit. Your profit share is a share of it, rising to 30% as the business proves itself. Not a share of revenue. The difference is the whole point of this article.

Why the share is paid after the clawback period

Every one of the three trades this deal backs has a period in which a fee can be reversed. A placement that leaves inside the rebate window. A booked meeting the client disputes. A finance retainer where a month’s work is challenged and credited. Until that window closes, the fee is not really earned, and paying out on it means paying out money that may have to go back.

So the profit share is paid once a fee can no longer be clawed back. On a contingent placement that may be twelve weeks after the start date. On a monthly retainer with no rebate terms it may be the moment the invoice clears. You should know the clawback period of every fee you write, because it is also the date your share of that fee becomes real.

This is not a backer protecting itself at your expense. It is the same rule the backer applies to its own money, and it stops a liability landing on both of you in month four. We say no to most things and quickly, and one of the fastest is to anyone who wants the share paid before the fee is safe.

Why a share of profit beats a fixed pay packet

A fixed pay packet is a ceiling dressed up as a floor. It arrives whatever happens, which feels safe. It is also the most anyone intends to pay you, set before anyone knows how good your year will be.

A share of profit has no ceiling, and more importantly it is tied to the right thing. Revenue share rewards you for billing. Profit share rewards you for billing well: for the placement that sticks, the client who pays on time, the desk that does not need three tools where one will do. Once the desk is working, once your first three clients are paying and coming back, your share of the profit of a business that you run leanly will pass what any employer would have paid you for the same work, and it will keep going.

The honest caveat is the word once. In the first months there may be no profit at all. That is what the monthly allowance is for.

What the monthly allowance is for

The monthly allowance, paid from day one, covers your living costs while the desk gets going. It is not a pay packet and it is not a loan. It is the backer’s cost of giving you time to do this properly, so that you are not forced to take the wrong client in week three because the rent is due. It is offered only to an operator with a real track record, because it is a bet that the record repeats.

It is also why the deal is a partnership and not a job. Both sides have money in from the first day. Yours is the career you set aside. The backer’s is the allowance, the company, the tools and the back office. The profit share is how both sides get it back.

How the shareholding changes the arithmetic

Once the business you build has made $40,000 of total profit, you receive 30% of the shares in the company. Total means cumulative, from the first day, so a slow start does not reset the clock.

Before that point, you are a partner in the profits. After it, you are a part-owner of the thing that produces them. That changes two things. First, if the business is ever sold or takes on investment, your name is on a share of its value. Second, decisions about the company are ones you take part in as an owner, with the rights and paperwork that go with that.

The milestone is deliberately reachable. It is the point at which a desk has proved it works, not the point at which anyone is rich. Both sides want it passed quickly.

The short version

• Profit is what is billed and kept, minus delivery costs, minus running costs.
• Your share is of profit, not of revenue, and it rises to 30% as the business proves itself.
• It is paid once a fee can no longer be clawed back, because until then it is not earned.
• Know the clawback period of every fee you write.
• The monthly allowance covers living costs while there is no profit yet; it is not a pay packet.
• A share of profit beats a fixed pay packet once the desk is working, and has no ceiling.
• At $40,000 of total profit you receive 30% of the shares and become an owner, not only a partner in the profits.