Splitting the pot
How to divide among the team in a way that’s fair and motivating?
Say you start a partnership with 1 or 2 other freelancers. How do you split the pot?
The simplest way is to go 50–50. Each getting exactly half of whatever you make. This way you both gain the same by each business success you have. The incentives are the same for both of you.
An added benefit is that because you get the same, you treat each other as equals.
Note, this works best when both of you invest the same amount of time and assets (money, experience, network). That is, it feels fair to get the same when you put in the same.
Equal per hour
So, what to do when that isn’t the case? Which it rather often isn’t. For example, one of you keeps a day-job, or already has other projects going on. This gives that person less time to put in.
Well, you could simply divide based on time spent on it (for example 2/3 to the one spending 4 days a week on it, 1/3 to the one spending 2 days a week on it). That way, none of you are held back to spend energy on the project.
Or, you don’t pay out the first day a week you spend on it. But you divide based on everything spend above that. This works for teams with lots of volunteers. Because it’s easier to free up the first day of the week (you still have 4 left to make money with something). But when spending more on it, it needs to start earning you money.
Alternatively, you can agree to only divide the part of the profit based on hours spend that is left after you first give yourself a baseline of income. This gives a little more security and accounts for that perhaps the first hours you put int are the most valuable.
Tracking the hours you put in precisely can prevent some awkward conversations later. The numbers are clear then, can’t argue with it. But, when those conversations would have been awkward, when you would have been arguing of 15 minutes here or there, the problem is not with the rule or the numbers. It’s with trusting and valuing each other.
When organizing it this way, it’s important to decide what hours count in dividing up the pot. Besides direct work for projects, do you include entrepreneurial work (marketing, sales, etc) and managerial work (administration) in the hours?
It’s all necessary work, so don’t differentiate too harshly. Because, if you do, who is going to spend the time to get new clients when it isn’t rewarded? And if that’s the case, why work together?
So, when you differentiate, make sure that part of the budget is still allocated for work done that benefits the whole. Make a plan how to get new clients. Agree on what’s necessary/worthwhile to do. And come up with a number (percentage or profit of projects) that makes you both feel incentivized to do that hard work.
But just as important, it’s possible that when one of you has a day job, that gives so much security that it becomes less of a priority to make sure your shared project succeeds.
If that’s the case, you NEED to talk about that! It’s an energy drain and it might even be smarter to decide not to work together!
Alternatively, you could add the income of the day-job/other projects to the communal pot and split the whole 50–50.
This allows you to start from a clean slate. To be pure partners that receive from and own what you build up in an equal fashion.
But watch who says no to this. That gives a whole lot of information that you might want to have before you start off.
But, what if equal (per hour) doesn’t feel fair? Say, one of you has more experience in your core business (that took a lot of time to gain that didn’t result in enough compensation). What if one of you already has built an asset. For example network, trust, followers, enrolled students, or testimonials?
How do you account for these differences? Should the one who brings in more, get more? Could be that this is what feels fairer to you.
Try to both individually come up with a number that seems fair to you to receive. Then simultaneously share this number with each other. In bigger teams, this has the magical tendency to result in a total number that equals the total pot.
If you come up with two totally different numbers, explain why you came to your number and try to understand the other person’s perspective. You two might need different things. Or money means something different to the both of you. You might hold on to old pain from previous projects or under-compensated work experiences. You might be trying to use this new project to make up for lost time in previous work, even while it isn’t for that. Do not agree to an outcome before you both can explain the other’s position to them just as convincingly!
A drawback to differentiating in the beginning is that the differences have a tendency to persist and might be hard to get rid off.
So, these were some tactics or models to divide a pot. The exact model is not the most important though. It’s what happens beneath it, in between you, that counts. So:
Have the conversation beforehand.
Listen. See the other. Want to understand the other. Both of you want to feel valued, respected, appreciated and seen.
As is true for all negotiations (and this is a negotiation), the outcome is only successful when both of you are happy with it.
You want your partner to be as motivated and happy with the partnership as can be! Only then can they do their best work. Do what you can to create these conditions. It should feel good to reward to other for the hard work (s)he put in, even though that means you receive less this time around.
You are not the same. Discuss what you consider fair and what is important to you. Share what each of you needs in order to commit to the partnership. Perhaps some of you simply need more income to live comfortably.
Discuss what is important to value and incentivize in your business. Agree on the plan to run your business. Throw in the extra compliment here and there!
Get super specific on the agreement as to how to divide the money. Make sure that how you do so ensures that everyone:
- feels heard and understood,
- feels valued and feels like (s)he belongs,
- feels motivated and rightly incentivized.
Yes, it’s about feelings.
Change the rules when necessary, but agree before to only do so ‘for the next go-around’.
Trust is created over time when working together in tough situations. But, you probably already have a good gut sense. Listen to that.