What deal to do as an SEO?

[mikeb]

This probably belongs on the private forum but since I am not one of the elite I will put it here instead.

I have a lot of top ranked websites, and through knowing a lot of entrepreneurs including some famous (or infamous ones!) I get asked to do SEO for companies.

The problem I have is knowing
(a) what kind of formula to use
(b) how to keep any measure of control to ensure that the deal is honoured

I have tried some partnerships of various kinds, none really work.

The point is, speaking as an SEO one nagging question is it takes me no longer to SEO a new site for me and keep 100% than it does to SEO for a third party. So the answer has to be leverage and playing bigger games.. Much of what I do is multiplicative particularly on conversion, so 10% increase of 7 figure turnover is worth more than 10% of a small wholly owned site.

My view is you can spot poor SEOs a mile off, by the fact they are selling for fixed low price per month. If they could do it, why are they not doing it for themselves.

So any good SEO will want a piece of the action.

Remuneration has various forms.
-A retainer for work.
-A profit share.
-Building equity for a capital event when the business is sold.
So the deal has to be a share...

So use as an example, something I have to answer right now: a UK company making high 6 figures profit , cash rich and growing in the UK/europe - almost none of it over the web, a mix of retail and other routes to market - but nothing US : they want to sell out in a couple of years.

They have asked me whether I will build US online infrastructure for them, in what could be should be a $7figure profit business by getting #1 for a couple of the key terms.

The competition is medium - ie a mix of Pr3/4 with 1000s links and moderate to good onsite SEO, none of it well focussed.

What deal would you go for and why?
Would you want control (eg of domains) to tkeep the relationship honest?

If there is a joint venture company, who funds the cost of setting up US infrastructure? Who pays initial outsourcing costs, and so on...

I prefer %gross cart as a means of basing remuneration because it cannot be manipulated.

To put the UK operation online which is a different ball game because there is already a high level of sales, what should the deal be then?

What do you professional SEOs ask for? What would you do?

I turn down a lot of partnerships because I have never managed to find a good formula, and too many end in tears.

[golles]

we do a partnerships - not as seos specifically but seo is part of our remit. our core business is ecommerce business development.

we do the following - market research, demand research, competitive research, ecommerce site build, ppc, seo, cse, marketplace development, email marketing etc. - basically our elevator pitch is we help ecommerce businesses start and grow.

one of our revenue models is joint venture partnerships with established B&M businesses that have yet to go online or are struggling with their online presence. in every partnership we do the following:
form a new ltd company
create a shareholders agreement and allocate shares as appropriate - it varies by deal.
we do everything web and web marketing
partner does everything customer service and fulfillment wise.
our exit is either - a buy out from the partner or be part of a larger sale of the partners main business.

this type of arrangement takes a lot of time and effort to put in place and a LOT of trust. You have to have GREAT relationships to pull it off. of the six we have done - one has gone sour on us and we burnt £100K + of sunk costs on that one deal - so it doesn't always work.

this type of arrangement may be appropriate for you?
we have other revenue models too, but this is one I see as most appropriate for your question / scenario.
hope this helps?

[mikeb]

Just managed to lose a reply I posted.

The point is the devil is in the detail.
Take a few issues...

Shares are worth nothing unless either regulated by a market, saleable to a third party, or in this kind of case an option is created forcing the partner to buy them at some point in the future. Creating those options is not easy legally , although I have used standard deadlock breaks before.

Next competitiveness. Who sets the price and margins for goods? . If there is no fixed fee, only a commission basis for your payment, partners interest is in setting prices high, so that all sales are valuable to him.. and what regulates the price at which "selling co" buys them from "existing co" - to avoid manipulation of profit. Of course this manipulation is vital to tax planning.
It is hard to draft agreements there.

Next competition. The right to compete with the joint venture. Not easy if the partner already has distribution channels that are selling online.

It is the details not the principle that have got an easy idea into a nightmare piece of legal drafting.

So an example would help.. don't need to name it..

How are you remunerated? on % of cart, or % profit, and if profit how is it defined? Are you paid any remuneration other than profit based? I am convinced that free is a bad model. People do not value or take seriously what they get for free.

Do you have options that force them to buy you out future? Without them what stops them selling there half without yours?

Who pays for such as "Buying sites" fundamental to SEO now, or outsource costs?

Would appreciate an example

[golles]

we see the new ltd company as our business too.

therefore
revenue runs through the new company.
the partner company becomes a supplier - i.e. they take out fees at cost for providing the product, and the fulfillment part with a fixed, pre agreed handling fee.
we become a supplier - we take out fees on a pre agreed fixed fee per month to cover our direct costs
the 'profit' remains in the new ltd company and we take dividends as you would in any other ltd company or agree to keep the profit in the company for onward investment etc.
for buying sites etc - if it is directly related to the new venture the new ltd company funds the purchase.
re; compete - as this is a joint venture there is usually no motivation to compete elsewhere unless the deal goes sour but non compete for 3 years after partnership termination is built into agreements - this is a non compete on our side as the partner is usually already in the business so we cant insist on a non compete for a business they are already in prior to our new venture.
margin - we both set this based on the partners experience, our cost of marketing, and other competition.
we usually have a sell clause in the agreement - in that we have the option to sell our shareholding at x date in the future with the partner having first refusal on the buy of our share.
in at least half of the instances though we have no interest in getting out - they are nice cash generative businesses that are great investments four us.

clearly there is a lot more detail behind the scenes - I am just trying to give you an example of a scenario you may think about. then again it may not be appropriate for your business.

the key thing is with this business model we see these agreements as investments - not as provide a service / get paid type of arrangement.

[mikeb]

Thanks Golles - I am still unclear the basis of whether your charge monthly is nominal and ( a way of avoiding declaring profit in both of your interests or actually linked to work you are doing -eg putting up producs / additional SEO or simply out cost or outsourcer cost (ie no time charge)

Do you typically do this as 50/50 and what deadlock breaks do you have if so?

Does it trade in a brand name similar to the partner co, or completely separate from that?

One problem is formulating the "price of supply" equitably, when his interest is supplying the JV at highest price possible.

Also - you are leaving yourself open if they have no constraints undercutting the joint venture when selling elsewhere.

There are tax planning issues that mitigate against showing profits en clair in the JV, but it becomes hard to know how to avoid this: eg if your costs in "youco" are greater than revenue from "jvco" which they will tend to be for the early phase and your cross charge is only nominal compared to effort so ending you end up paying tax on a loss...

Thanks anyway.

I guess I have been unlucky with partners past. Most people given chance exploit every loophole they can.

[golles]

quick response on the points:
1) charge is actually linked to work completed - but it is conducted at a lower cost than we would charge a non JV partner - a discount so to speak.
2) Usually we try to do a 55% in our favour by putting in a little seed money into new co. does not always work that way - but that is what we try for.
3) brand name - varies - 3 out of the 6 are in the brand of our partner and 2 are on a great, relevant, category domain which we are building an independant brand on and one has gone pear shaped.
4) Undercutting - Yes, but this is done on trust and relationships - so we hope that would never be an issue. Somewhere along the lines we have to trust this is the best thing for both companies to be doing if not we should stop.
5) Price of supply - never been an issue we have an open book policy both ways.
6) Yes lots of implications but although we sometimes spend upwards of twelve months putting these things together overall they are working well for us. Hard work, long term play, a lot of trust, a lot of issues on a day to day basis but overall I am generally comfortable.

Is this model for everyone ? - not at all, but hope someone gets some useful ideas and maybe adds their own twist or turn to this kind of relationship.

I should say also - nothing is perfect - we are not experts at this model - we just have a go and do our best and importantly learn as we go.

Hope this helps.