This brief article explains how a CEO turned to profit-sharing with some customers instead of service fees.
During an industry downturn in 1992, Stan Brannan, chief executive of Brite Voice Systems, a voice-processing-services company in Wichita, Kans., started negotiating profit-sharing deals with some customers rather than fee-for-service payments.
Explains Brannan, "We look for situations in which a customer is going to use our equipment to generate new business, and then we offer to take a cut rather than a one-time fee." Individual contracts detail "shared deductible expenses" (such as the cost of installing additional telephone lines); net revenue is then split equally between both partners.
Thanks in part to Brannan's scheme, Brite Voice's revenues skyrocketed from $35 million in 1992 to $47 million one year later. "Previously, our revenue stream was often unpredictable, with cyclical highs and lows that our investors didn't like," says Brannan. Now profit sharing can provide a steady income stream. At present less than a third of Brite Voice's business is done that way, but Brannan plans to push that to 50% of revenues.
Brannan's strategy, which relies heavily on trust, should work for any company that can afford what is essentially an extended payment schedule in anticipation of higher revenues over the long run. In the rare cases in which partnerships have failed to meet Brite Voice's minimum profitability goals, Brannan renegotiates terms to include a minimum monthly fee (which depends on how badly the deal has underperformed).
Says the Brite Voice CEO: "It's important to remember that your company's revenues are at risk in these ventures. If your partner doesn't promote the new business as much as you would like, your own people may have to get more heavily involved than you might first have imagined." To stay on top of those kinds of problems, Brannan requests monthly results reports from his clients, as well as updated business plans.