Revenue sharing is a tactic that many companies use today. Allowing employees to share in company profits helps to lure the best and the brightest on the market. Companies also promote revenue sharing as a way to motivate employees. Higher revenues mean more money for the employees.
Collective Bargaining Often Determines The Split
The percentage of revenues given to each side is usually determined through collective bargaining. Typically, the owners of a company will get a larger share of any revenues generated. This is to compensate them for the financial risk they undertake. A certain portion of revenues may be taken off the top for business expenses as well. For example, your boss may take $100,000 for expenses before splitting the rest of the profit.
Percentages May Be Determined By Gross Revenues
Some companies will pay a previously determined amount to all employees and contractors. Many content sites will share 50-60 percent of advertising revenues with writers. Advertisers may also decide to pay writers directly based on the content they provide. Web content writers tend to like this model because it equates to passive earnings for life.
Revenue Share Can Be Determined By Equity Stake In The Company
Corporations may split profit and loss equally among shareholders. This is the model that S-corporations follow when they are formed. Any profit or loss is passed through to the personal income tax of the shareholder. How much each person is entitled to depends on their equity basis. In other words, someone who owns 40 percent of the stock can claim 40 percent of any profit or loss.
Businesses May Share Profits On Joint Ventures
It may be necessary for companies to join forces to complete an ambitious project. Profits from this venture would then have to be split fairly among all parties. Company stock may be offered as a means of compensation. Businesses may also agree to take profits based on what they bring to the table. For example, a joint venture between an author and a grocery store may bring exposure to both parties. The author would take profits from the book while the store would take profits from the sale of its products.
Businesses have long shared their success with those who have helped achieve that success. Employees feel empowered when they know that the bottom line is important for both employer and employee. It is only right that sharing the sacrifices also means sharing the rewards.