Advise on profit share for freelancing startup company

Percentages are up to you.

If profit shares are driven by the number of hours billed, you have to make sure the number of hours billed remain honest or you will lose your customers.

If profit shares are driven by "We had approved $400 and you did it in 2 hours perfectly, here's the $400 anyways", that's a far better profit share. By setting a fixed price on the cost of something that everyone agrees too, you can build in the profit share as you go.

The bigger and better the developer actually is, the more they can make. The ones who cut corners to try and do this will be caught up dealing with bugs and not making new money.

Profit sharing is a difficult way to incentivize employees in a small company. Typically most profit gets plowed back into the company for growth (new equipment, more head count, a founder's salary increase, etc.) so there is typically little left to distribute. This can lead to resentment. A commission might be a better way to go if you want to encourage people to bring sales to you and that structure eliminates their interest in how you invest in the business.

I was freelancing for many years - mostly blue chip multi-nationals. I worked via a company for tax purposes and legal protection etc etc - they took 5% of my money, but also (because of their size and deals with the tax man) got me a lot of tax breaks (such as claiming food allowances and car milage back from tax) - which more than made up the 5%.

However, I worked alongside a smallish company for almost ten years in one major retailer. All their workers were good contractors - none were paid a perminant wage or got any employee type protection or bonuses (profit share etc). What they did get was agreed contractual rates with the umbrella company (that is what I would call them) and they didn't have to hunt around for work. The unmbrella company did the deal with the contractors after doing a deal to supply contractors en-bloc to the businesses. That way, the deal between the umbrella company and the retailer is not relevent to the contractor and umbrella's contract.

The umbrella company works out the margin, takes the risk, pays the contractor (with escape clauses in case the project closes early) and takes in the profit. In some way at looking at this, it is no real difference between any shop buying from a supplier and selling at a profit to the public - the supplier could make more selling direct (and some do of course), but that is harder work, piece-meal, riskier and requires premises etc - so each rubs the other's back.

The difference here would be that you would be doing the bidding on ODesk (which is good as the rep builds continually against your group name and not half a hundred individuals) and once awarded you choose the contract and sub contract the work.