Yeah, it’s a bit more complicated than people initially think. Always best to clarify everything before whipping up and signing any agreements. Things to consider before any partnership…
Who uploads the item?
Are they exclusive or non-exclusive?
Can they change from non-exclusive to exclusive or vice versa if they want to?
Who will set the price?
What if they want to increase or decrease the price at a later date? Do you have to give approval?
If the person uploading is at 70%* should the partner benefit from that if the item itself hasn’t yet sold anything?
If the person uploading is at 50% royalty rate, but increases to 70% over the course of the partnership, should the partner benefit from that increase, if the item they have partnered on has only contributed a very small amount to the $75K they earned to reach that 70%?
Is the commission split before or after tax?
If the agreement is entered into due to the author being in a 0% tax withholding country (and the partnership split is on earnings after tax) what if the author wants to move to a country that has a 30% withholding rate? Is he not allowed to?
And probably the most important one…
If an author has US tax withheld, and their country has a tax treaty with the US, then they can offset the tax paid against the tax they have to pay in their own country. As the author with the item in their portfolio, it is their responsibility to pay tax on the earnings, and by doing so, they fulfil their obligations with regards to tax. However, if you get 30% of whatever left, although the tax has already been paid for that item, you are still responsible for the tax on that 30% which could take it down as low as 18 to 24% that you’re ending up with.
Example. 70/30 split on a $59 Wordpress item where the exclusive author has a 30% withholding rate and a 50% royalty rate, and you have a 30% personal tax rate (and you’ve agreed the 70/30 split will be after taxes). You’d end up with $3.20 from each sale after tax. Imagine if they were non-exclusive! But then, if the author can offset the 30% back from their tax authority, and write off your 30% split and the author fees as business expenses… (and if they also have a 30% personal tax rate as well), they’ll get $18.32 from each sale after tax. Quite a difference… makes it more like 85/15.
Still… just some bits to think about.
*I know it’s not 70% any more, but a percentage of the item price for authors fees… but easier to just say 70% for clarity.