All Together: Models of Revenue Sharing
Implementing the right model is key to the success of any business. The purpose of a revenue sharing model is for a company to formulate what it’s going to sell, who will be the target audience and the cost of daily operations. It’s essential to factor in these concerns to ensure that the business continues to remain competitive and profitable. The question really is who will the company share its revenue with. This determines the stakeholders that are attached to the business economy engendered by the circulation of goods and services. Many companies try to include their employees and the larger public within the sphere of their economic circulation through certain measures such as employee-incentivization schemes, employee stock options, incentive-based promotional mechanisms for corporate partners and profit-sharing plans to promote supplier relations. The specific details of each revenue sharing model are different but it usually involves taking some part of company profits and earmarking them for certain stakeholders in order to motivate such actors to innovatively help the company. This is a great tool that companies can deploy to promote employee retention and loyalty. It also helps bolster partnerships with key stakeholders in the market and can help increase sales through incentive programs. One of the best examples of a revenue sharing scheme is companies contributing to employees’ 401k schemes. The scale can vary depending on the organizational size, for example, small-scale businesses might incentivize their employees by giving them a percentage of the commission made from a client they brought in. One of the things that need to be ensured when revenue-sharing models are put in place is that all the conditions in the contract are transparent and the concerned parties are informed about the relevant clauses that pertain to them.
Revenue-sharing can have many advantages and disadvantages. For one, it can help reduce operational costs and bolster risk management through strategic partnerships. If enough stakeholders come together to share revenues and losses, it can reduce the burden on any one partner to field all the risk. It can widen the portfolio and perspectives of the company through a diversification of the sources of funds. It also encourages the vetting of business decisions by multiple parties, which ensures that all measures are thoroughly scrutinized, analyzed and surveyed before being implemented. There are also some disadvantages that come with revenue-sharing models. It can be extremely short-sighted, especially because it encourages all the parties to focus on immediate profit maximization without focusing on long-term goals. The workload that is also associated with managing a diversity of viewpoints can make business decisions slower and hence, more inefficient.
