Setting the Right Price for Building a Business for Someone Else
When it comes to building a business for someone else, one of the most critical decisions you need to make is how to charge for your services. The price you set will not only determine your financial success but also influence the perception of your value in the market. Given that your client might discuss your work with other startup entrepreneurs in the future, it’s essential to consider the broader implications of your pricing strategy.
Conventional Payment Models: Hourly or Fixed Sum?
Two common payment models for service providers are charging by the hour and charging a fixed sum. Both models have their advantages and disadvantages. Hourly rates can be more attractive for clients who prefer to control costs, but they may not reflect the value of your professional expertise. On the other hand, a fixed sum can offer a more straightforward business model, providing a guaranteed payment for your services.
A More Intriguing Model: A Hybrid Approach
Many service providers are now adopting a hybrid model that combines elements of both payment methods. This approach often includes a base salary, revenue or profit-related bonus, and a termination fee. For example, you might offer a base salary and a revenue share or profit-based bonus if you are controlling the business. Additionally, a termination fee can safeguard your personal investment of time and resources.
Why a Revenue or Profit-Related Bonus?
Building a business that has substantial growth potential is an excellent opportunity for both you and your client. If you agree on a revenue or profit-related bonus, it motivates you to maximize value and success. This model not only benefits your client but also aligns your interests with theirs, leading to a more collaborative and successful partnership.
Presenting a Value Proposition
It’s important to prepare a list of your values and achievements. Highlighting your capabilities and the potential your services can bring to the business is crucial. Mentioning the potential for the business to grow to an 800k/year or higher can make a significant impact on the negotiations. Assist your client in understanding the full value you bring to the table.
A Career Opportunity and Use Case
Starting a business to a point of operational growth and then handing over to a different CEO to run day-to-day operations presents a unique career opportunity. You can leverage this by selling the concept as a business model in itself. You are developing a business that has the potential to be a goldmine for future growth.
Remember that you are building the business you would ideally want to create for yourself. Therefore, think about your expectations in terms of income. Consider the long-term return on investment and how it aligns with the financial objectives of both your client and yourself.
Approach negotiations with confidence and a clear understanding of the value you provide. Holding the keys to the business allows you to drive negotiations in your favor. Preparing extensively and presenting a strong case for your contributions can significantly improve the outcome of your negotiations.
Conclusion
In summary, setting the right price for building a business for someone else involves careful consideration of various factors. Whether you opt for an hourly rate, a fixed sum, or a hybrid model, it’s essential to align your payment strategy with the long-term success of the business. Preparing a strong value proposition and understanding the financial objectives of both parties will help you negotiate effectively and ensure a mutually beneficial outcome.