How does rev share work?

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Asphodel Kioku
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How does rev share work?

#1 Post by Asphodel Kioku » Sun Nov 06, 2016 2:02 pm

Hi!

I saw many recruitment for commercial posts, saying that payment would be made via rev share. I know what this is: it's basically sharing the profits made from the game, I suppose? There is something else I wonder though, about how rev share works on a deeper level. I would appreciate if anybody drop down an answer to these questions!

  • 1. How does the percentage work? Does it work something like: after the game's profits reaches $100, I would pay a certain percentage of that $100 to you (and then payment would be made every $100)? Is there any other way to do this?
    2. Is payment always made via PayPal by direct person-to-person transactions?


Once again, answers are really appreciated! I am a bare newbie on the financial things regarding these games, so I would prefer a definitive, clear-cut answer. Thank you for your time on reading this, and I hope to hear your reply soon!

Best,
Asphodel.

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Re: How does rev share work?

#2 Post by KittyWills » Sun Nov 06, 2016 4:56 pm

Disclaimer: I personally don't recommend using revenue share, unless it is someone you trust quite a bit such as a partner in your company. Most people use it because they can't afford to pay for art/music/ect. It's not professional.

-gets off soapbox-

All numbers will be based on $100 in company.

With that said, this the way I do it with my business partners. We use a monthly set up, the first monday of every month, I check the sales from the last month and do the math to see who gets what. Doesn't matter if it's 50. or $50 dollars, they get a check end of business hours. Since we all live in the US, I use a check. Paypal is evil and I use it for as little as I possible can.

As for percentage, in most cases I would assume most would get an even cut. If you have four team members they all get 25% of revenue. This way would avoid the most drama.

We use a stockholders systems. ie. how much you put in the company is how much you get out. Say I put in $50 and my two partners put in $25 each, when paying people I get 50% of the profits while they each get 25%. This prevents me from getting screwed over if I end up buying say all the art for a project and they only pay for our hosting fees for the year.

Now back to Paypal. If you are planning to use this as your main way of paying people. You aren't going to want to toss out checks that are under... probably $10. The fee's won't make it worth it. But you will need to keep very close track of how get's what and I would recommend at least telling your team members what the funds are at each month even if it's not enough to pay them yet. Keeps you honest.

I hope that helps, I sure others do it differently, but this has worked pretty good for us so far. ^__^

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Re: How does rev share work?

#3 Post by Aviala » Sun Nov 06, 2016 5:02 pm

Hey there,
I haven't ever done rev share before, but the way we're planning to do it in our current project is that each month everyone gets a share of the profits made that month. Unless the amount is really small, in which case the share will be paid when a reasonable amount (like idk, 20 USD? 100USD? depends on the project's scope) has built up.

Paying every time you reach a set sum seems really work-heavy, paying monthly until the profits die out seems more reasonable.

Again, haven't done this before, so there might be better ways.

About your second question, all my teammates live in the same country (Finland) so it doesn't really make sense to go through Paypal when we can use simple bank transfer. I don't know how things like that work in USA for example, but here bank transfer is the way to go. For foreign affairs I'll still use Paypal because it's convenient and safe(ish).

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Re: How does rev share work?

#4 Post by Taleweaver » Mon Nov 07, 2016 3:12 am

Rev share works just like all involved parties agree upon it. Weekly, monthly, bimonthly payments, or based on reaching a certain turnover: whatever you decide to do. Same for the way of payment: PayPal is a convenient channel open to many (not everybody, though), but if you find another way, use this.

Personally, I'm currently involved in one rev-share project together with someone I trust enough for them to send me some money whenever he thinks enough has accumulated. Of course, that arrangement won't work for someone whose livelihood depends upon getting paid from his rev-share projects.
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Re: How does rev share work?

#5 Post by Kuiper » Mon Nov 07, 2016 6:52 am

Asphodel Kioku wrote:Is payment always made via PayPal by direct person-to-person transactions?
Paypal is a pretty fast and convenient solution; it supports international payments, and the money will be usable in your account within a day in most cases. However, Paypal charges a percentage-based fee, which means that while it is popular (and sometimes cheaper) for smaller transactions, people often turn to alternatives for larger dollar amounts (say, above $1000 or so). Wire transfers can take awhile to process (1-2 weeks in some cases), but they usually charge a flat fee, so many people prefer wire transfers for larger amounts. However, the flat fee also makes them less useful for smaller dollar amounts. (Paying a $20 flat fee on a $2000 wire transfer means you are only getting charged 1%, which is less than you would incur with a service like Paypal, but paying a $20 flat fee on a $100 wire transfer feels really bad.)

For most transactions above $1000, I've used a bank wire transfer for most domestic transactions (working as an American with other Americans), and also used international wire transfer several times. I have some international clients (mostly in Europe) who prefer using Skrill or Payoneer instead of a wire transfer.

I suppose you could also pay by sending paper through the mail in the form of a personal check or maybe something like a money order, but I've never had a client pay me this way. I think most people prefer to just have the money sent directly to their bank account without having to worry about keeping track of (or potentially losing) a physical piece of paper, and with a personal check there is also the uncertainty of waiting until the check actually clears (making sure your client's check didn't bounce).
Asphodel Kioku wrote:How does the percentage work? Does it work something like: after the game's profits reaches $100, I would pay a certain percentage of that $100 to you (and then payment would be made every $100)? Is there any other way to do this?
That's up to you and your client to decide. In my case, I have a revenue share arrangement where my share is tabulated quarterly (four times a year, end of March, June, September, and December), and from there I'm paid a percentage of the project's gross revenue. It doesn't matter if it doesn't work out to an even dollar amount; I'm just paid a set percentage, rounded to the nearest cent.

This quarterly payment schedule is "worse" for me than a monthly payment schedule, as it means that have to defer payment until the end of each quarter. (If the project receives revenue in February, I don't actually receive any of that money until April.) However, this isn't too much of a downside for me, as my personal finances are not dependent on the revenue from this project (and I think it would be pretty irresponsible for me to budget around the project, considering that there's no way for me to perfectly predict its future revenues). And even though I have to wait longer to receive my money under this arrangement, I'm perfectly fine with it, and it makes things more convenient for my client. Also, decreasing the frequency of payments means that less money gets eaten up by transaction fees.

After a certain number of years, I stop receiving a revenue share. (The date at which I stop receiving revenue is stated as part of the contract, along with all of the other details, like the percentage that I'm entitled to, and the details of the payment schedule.) This is partly because I expect the volume of income to drop off after a certain point, and it would be a real burden for my client to have to continue making payments for a couple dollars each quarter for decades after the release of the project. If I really cared about being part of the project's "long tail" and expected the project to still be generating significant revenue for the next 10+ years, I might have worked out an arrangement where I get paid quarterly for the first few years, and then maybe transition to an arrangement where I get paid annually after that; this would allow me to continue receiving income from the project without burdening the client too much, but I didn't really consider this worthwhile to include in the negotiating process. Ultimately, it's up to you and your client or partner to decide what is a desirable and fair arrangement.

On the subject of deferred payments, there's also something to take into consideration, which is the "time value" of money. That is to say, if you get paid earlier (rather than waiting until the end of the quarter), you can take that money and invest it or stick it in a savings account where it will generate interest. From a business standpoint, a dollar received in February is worth more than a dollar received in April, because the dollar that you received in February will have generated two month's worth of interest in that time. From a personal standpoint, the dollar amounts we're talking about are small enough that I don't worry about this too much, and besides that, savings interest rates are super crappy these days. However, if you are in a situation where you are trying to pay off high-interest debt (like a credit card with a high APR), having the money to make a payment to reduce that debt now (as opposed to two months from now) before it accumulates even more interest might make a big enough difference to you to worry more about the payment schedule. Again, it's up to you and your client or partner to decide what is a desirable and fair arrangement.
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