I wish I remembered the name of the firm, but a few years ago I read an interview with a small web design company that did a lot of e-commerce work. After doing several e-commerce websites, they decided to start negotiating with each client to pay them a percentage of the sales of each web store rather than just a flat project fee or an hourly rate.
It turned out to be very profitable for the web design firm and the businesses they were working for, and I think the same can be true for clients and web designers working together on building Shopify web stores.
From the standpoint of the web designer, it’s always nice to have ongoing income rather than a one-time fee to build a website and then be done. It’s also good to be rewarded if what you design and build ends up helping a client sell a large volume of products through a web store. Everybody likes passive income, and web designers are no different.
Now if you’re the client, you might be thinking, “Sure, all that sounds nice for the web designer, but it only means more money out of my pocket.” But let’s think this through a little more and see if that viewpoint is missing anything.
Let’s say you pay a web designer $5,000 to build a Shopify website for you. Then let’s say that website goes on to do $5,000 per month in revenue.
Now let’s say you pay a web designer $4,000 to build a Shopify website plus 5% of that website’s revenue going forward. And then let’s say the website does $6,000 per month in revenue. In a month where revenue is $6,000, you’ll pay your web designer $300. That leaves you $5,700, which is still more than $5,000.
Of course, that $5,700 isn’t all profit, and neither was the $5,000, and the specifics of how the profit breaks down makes all the difference in where these numbers have to land to make sense.
Alright, so let’s throw out a number. Let’s say 25% of your revenue gets kept as profit. I’m just some web guy so I don’t really know how typical or atypical that is but let’s just use it to run some numbers.
- $5,000 (revenue) x .25 = $1,250 (profit)
- $5,700 (revenue – web designer commission) x .25 = $1,425 (profit)
As you can see, we ran the second set of numbers with the web designer’s commission of $300 already taken off the top before we multiplied by the 25% to get the profit number. But even after accounting for the commission, you still ended up with $175 more in your pocket.
But wait, the numbers I ran are dependent on the store doing $6,000 in revenue instead of $5,000. How can we predict that, much less count on it? Well, the short answer is we can’t guarantee it. But the reason I increased the revenue for the commission set of numbers is because I think it’s reasonable to believe you can generate more revenue if you have a web designer working with you on an ongoing basis.
Why?
Well, because now you’re working with a web designer who is motivated to keep thinking about the website and figuring out ways to make it sell more products. Sure, it’s difficult to predict how much a web designer can do to affect overall sales, but there certainly are all kinds of ways a web designer can tweak things to help increase the sales of a Shopify web store.
Now let’s go back and look at another difference in our numbers that I haven’t mentioned to this point. In the commission scenario I outlined, I had you paying the web designer only $4,000 for the initial site design instead of $5,000. So you’ve actually got an extra $1,000 in your pocket from that savings.
Why would a web designer accept less money for the initial site design to do an ongoing commission payment? Well, some probably wouldn’t. All I can tell you is that I would, and here’s why: I like the idea of having some skin in the game. I like the idea of building a website with the understanding that if I do a really top-shelf job and the site gets great results, I can get paid more than if I did an average job.
I suspect a lot of other web designers feel the same way. Remember earlier when I said everybody likes passive income, including web designers? Well, a lot of web designers I’ve spoken with get a bit frustrated that they have to grind out every dollar working per hour and per project, without ever having the chance to make recurring income based on building something that generates revenue while they sleep.
In fact, I’ve read lots of articles over the past few years about web designers who got tired of doing client work for that very reason. As a result, some of the best web designers in the business have turned to making their own products (often digital products) in order to generate income that isn’t directly tied to hours worked.
A web store has the potential to generate that kind of income, and certainly if you’re the client, it’s understandable why you would feel that part of the income is for you and you’d rather just pay a flat fee (whether by project or by hour) for your web design help.
But when the game is played on the web, it’s also smart to think about how much of an advantage you can get by having a web designer you trust on your team doing everything he/she can think of to help you both win. By taking the commission approach, you can set things up so you’re only paying more money if you’re making more money.
Now you might say, “Yeah, but when the numbers get bigger it makes less sense. What if the designer only does an hour’s worth of work in a month and ends up getting paid $1000?” Well, let’s think about that.
Suppose your web designer makes some tweaks to that site that was generating $6,000 in monthly revenue and the next thing you know monthly revenue hits $20,000.
- $19,000 (revenue – web designer commission) x .25 = $4,750 (profit)
Now you’ve made $4,750 in a month instead of the $1,250 or $1,425 we were talking about earlier. You paid your web designer $1,000 off the top so as before that money didn’t get multiplied by the 25% to determine the profit.
So remember, the question was, what if it only took the web designer an hour of work to make that $1,000? I would answer that question with another question: Who cares??
If somebody can help me take my profit from $1,425 to $4,750 for $1,000 off the top, I don’t really care whether it took 1 hour or 20 hours for the tweaks that went into making that number move.
Now you might think there are cheaper alternatives, or better alternatives, and for your situation there might be. I don’t have any reason to think the commission model will work well for everybody. But if you do want to give it a shot, it’s important to think through things from the beginning and try to come up with specific details that make the deal work well for both parties.
There are lots of ways you can tweak the variables I’ve thrown out in this article. The commission doesn’t have to be 5%. It could be less or it could be more. You don’t have to do only commission either. You could pay a slightly lower commission and still pay an hourly rate to the designer as well. You could pay an hourly rate but have the hourly rate increase if revenue is higher in a given month. Really anything that both parties agree on can work as long as everybody understands what’s going on and can do good work together.
That last part is really what it’s all about. Doing good work together. When I think of a commission system for web design on a Shopify store, the reason I find it attractive is because I see it as a way to get really talented web designers working with people who make and sell great products so they can work together to build businesses that neither could have made on their own.