My daughters have started a bow-making business. One daughter is the crafty bow maker. The other is the outgoing marketer selling the bows to her friends and bringing in the orders. They are having a hard time deciding how to split the profits. The production daughter believes it should be at least a 60-40 split. The marketer believes it should be 50-50. My husband and I have been around and around with the girls explaining how this all works. Any advice for them from an objective panel?
You must be so proud to have such clever and independent daughters.
My suggestion is 50-50 for they are equal co-founder, but with a right calculation of cost. The cost will include:
Hope these will help them to feel fair and be more productive.
I suggest that each look at her BATNA (best alternative to a negotiated agreement). They are very close, only 10% away, so the question is whether holding out for an extra 10% is worthwhile, particularly if the alternative is zero or something close.
But if they really need help getting over that last 10%, the question is: what is the impediment to greater profit for both: sales or inventory? My guess is that the cost of production is static or goes down with each additional unit, whereas the cost of making each additional sale probably goes up (it may be easy to sell bows to friends, but once you get past the low-hanging fruit it gets more difficult).
To properly incentivize the seller to go after increasingly difficult sales, maybe they should have a variable profit sharing ratio. For example, the first amount of bows sold earns the marketer 40%, the next level 50%, and a level after that earns 60%.