Post a new topic
    8 Replies Latest reply on Dec 26, 2007 9:40 AM by northpole

    Correctly Calculating Compensation

    northpole Newbie
      Hi All - first timer here. Been reading for a while and there's a lot of great information here, so I wanted to throw something out there to the community and see if I can generate some ideas. I've been a sole proprietor of a design studio for 7 years, specializing in developing illustrated/animated/interactive maps for ski resorts, amusement parks, waterparks, etc. Somewhat recently, I've been working with independent contractors (now 3) and moving more towards growing my business through their assistance. I've got one solid designer and sales & marketing guy who have been very helpful and active contributors towards building a new division of my main business. In other words, although the new division has been a concept of mine for a long time, these guys have stepped up and contributed time and additional concepts to help build the division into something that can really become a source of financial substance for each of us.

      I'm on new ground here in trying to best determine how to compensate my IC's moving forward, making it worth their while, and ensuring that they'll want to commit to growing this new division to it's full potential. Do I propose an equity-based scenario based on each IC's projected involvement? My designer would be providing assistance with the creative devlepment & implementation; while my Sales & Marketing guy would be managing new accounts and business development, both of which hopefully will evolve into sizable roles. I can't afford to 'hire' and salarize & provide benefits; but they certainly see the opportunity ahead and what it can turn into. I just want to make sure I'm providing a valid offer to incentivize both of them to motor forward. Is there a formula out there that I can apply? Any suggestions on how to calculate the best compensatory direction woudl be greatly appreciated. I'm accustomed to paying myself and my IC's on a per project basis vs. a long term opportunity that will return profits from a number of avenues. Insights welcome!!! Thanks in advance. Hopefully I've provided enough information to the get a discussion rolling.
        • Re: Correctly Calculating Compensation
          LUCKIEST Guide
          Compensation is alway a interesting subject and yes you have provided lots of information to the get a
          discussion rolling. In business to make money, you have to spend money.
          Do you have an Accountant?? When you hire you do not need to provide benefits.
          Are you going to pay a Salary (with deductions) or are they independent contractors.
          Have you developed a Business and Marketing plan??
          Good luck, LUCKIEST
            • Re: Correctly Calculating Compensation
              northpole Newbie
              Hi Luckiest, I appreciate your quick response! I do have an accountant, but primarily to help at tax time. The folks that I work with are considered (& contracted) as IC's. However, moving forward, they would still be IC's but with a more targeted interest in developing our new division.

              RE: A business & marketing plan - guilty. I'm going to get hammered on this one I know, but I have not developed a business plan per se. That is not to say that I would'nt like to very soon. I certainly see the value in developing both. However, time & timing is always an issue.
            • Re: Correctly Calculating Compensation
              Lighthouse24 Ranger

              You didn't mention your business structure. If you have a C corporation, you can offer stock in the company to your ICs, of course.

              Whether or not stock is not a part of the "formula," the project approach you have taken so far is right on track. I've been where you are with four enterprises myself, and the process always began with project planning -- the work associated with each revenue-producing customer "deliverable."

              Part of my project planning process was a meeting to determine how the revenue from each deliverable would be shared. Obviously, I had to retain a portion of it to cover the cost of the project itself, a portion had to cover operational overhead, and a portion was kept to build the business and win future projects. The rest was available to divided among the IC s and me according to some formula.

              The formula I started with involved two dimensions: 1) what percentage of the total planned hours of work on the project/deliverable was each individual accountable for, and 2) what percentage of the project/deliverable's success or failure was on each person's shoulders. For each person, I added the two percentages together, divided by two, and that's the percentage of the total shared profit that each person expected to receive. We reviewed and refined the formula at each major milestone -- so it changed as we developed and grew, but the changes were always a group consensus decision.

              Hope this helps. Best wishes.
                • Re: Correctly Calculating Compensation
                  northpole Newbie
                  All good points! Sorry for the delayed reply - HoliDAZE you know. I hope everyone here had a wonderful holiday!!

                  Lighthouse24 - I have a LLC set up actually, so along the project lines - I think staying on that track would be the right call. In as far as the IC-standing issue is concerned as well. Tony.ALF - I try to keep that point on-point at all times and do my best not to cross the lines. Each project my Designer works on, he has creative freedom to develop it along with the client. I review the progress of e/project to make sure we're on track with it, but mostly, he works hand-in-hand with the client and works primarily from their feedback. I will say I throw in my 5 cents here & there to maintain my 'branded' process & product, but mostly, I allow for the Creative Freedom to rule. I'll certainly review the link you included however to solidify my awareness of that line :)

                  I appreciate the insights on the 'formula' you were using in your endeavors Lighthouse24. That's a big help and it sounds like a fairly close representation of the structure that I can & would apply to my scenario.

                  It also reinforces the fact that I really need an overall business plan to help guide me along the right path/s. He shoots, he SCOREs!! I'll be talking with them early in the new year!

                  Additional insights welcome!
                • Re: Correctly Calculating Compensation
                  Tony.ALF Newbie
                  "My designer would be providing assistance with the creative devlepment & implementation; while my Sales & Marketing guy would be managing new accounts and business development, both of which hopefully will evolve into sizable roles."

                  It appears to me that you are on thin ice as whether these IC's are true IC's or whether they are really employees. Do they get direction from you for the work they perform or they allowed independent freedom to perform the work however they choose?

                  You should review,,id=99921,00.html carefully.

                  Good luck with your new division!