Business question

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1

i have a client who is giving me 15% of all “net revenue”.

so lets say we’re getting a $10,000 sponsor. he wants to give 10% to charity. so is the net revenue:

$10,000, ie before the charity is taken

or is it:

$10,000 - $1,000(the 10%) = $9,000.

should i be getting 15% of $10,000 or $9,000? which total does “net revenue” define here?

2

bwh2, do you know of a good definition that’s online somewhere?

3

http://www.moneychimp.com/glossary/sales_revenue.htm
http://www.google.com/search?q=define%3A+revenue

that’s fine.

4

what’s the difference between “gross revenue” and “net revenue”?

5

well, gross revenue is higher up the stream than net revenue. basically…


  Gross revenue
- Allowances for returns, undeliverables, etc.
  -------------------------------------------
  Net revenue

basically in accounting, you can’t recognize revenue until you earn it, meaning you’ve delivered some good or service. so if you can’t deliver something or it gets returned, it’s not really “revenue/net revenue” but it counts as part of “gross revenue”. gross revenue doesn’t really mean much to be honest.

6

were you aware that they were giving part of it to charity before you started?

net generally means gross minus taxes and operating expenses.

so this guy’s true net would be gross received from client, minus his payment to you, minus his payment to charity.

if no mention of charitable donating was mentioned when you started work then net would mean whatever is left after taxes you would get 10% of that amount…he can then take his share and donate what he wants.

how big is the donation? is it significant enough to dimish your share to something that isnt worth the work?

also in your contract what is defined as net? is charity mentioned there?

if the donation doesn’t adversely nor extremely affect your income, then morals would say to let him do it…but if 10% of 10,000 suddenly becomes 10% of 2,000 that would pose a problem.

7

alright, i’m confused now. in our terms, it says:

“[FONT=Arial]will receive 15% of the net revenue”[/FONT]
[FONT=Arial][/FONT]
[FONT=Arial]so here’s the situation:[/FONT]
[FONT=Arial][/FONT]
[FONT=Arial]as of now my employer is receiving $X from one sponsor. we also know that my employer wants to give 10% of the $X to charity.[/FONT]
[FONT=Arial][/FONT]
[FONT=Arial]so, initially, i was under the impression that i would be receiving $X*(0.15), right?[/FONT]
[FONT=Arial][/FONT]
[FONT=Arial]now my employer is saying that i am to receive ($X - $X*(0.10))*(0.15).[/FONT]
[FONT=Arial][/FONT]
[FONT=Arial]so which one is correct and should i expect any other deductions before my 15% is cut?[/FONT]

8

You should not have any deductions from the money pulled in. If your client pulls in $1,000,000, you receieve 15% of this money. Charity does not count. Expenses do not count. Taxes do not count. Revenue is the amount of money pulled in, profit is the amount of money pulled in after all expenses are deducted.

9

are you sure? do you know of any good online definitions?

10

i’m not really here to toot my own horn, but i’ll do it from time to time when i think it’s necessary. you should probably listen to the person with the university degree in accounting and soon to be CPA (me). i don’t know the backgrounds of everyone here, but being that this is basically a web design forum, i doubt you get many people with a strong business background.

the key word in “will receive 15% of the net revenue” is not “net”; the key word is “revenue”. revenue is sales. it’s the starting point of an income statement. it’s how much money is coming in the door, not how much is going out or the difference between the two. revenue comes before expenses. revenue is not affected by charitable contributions, expenses, taxes, or interest.

if the agreement is you “will receive 15% of the net revenue,” then your employer owes you 15% of sales. his decision to contribute 10% of charity is irrelevant to the agreement you have.

again, i don’t mean to sound pompous or know-it-all, but i know what i’m talking about. if you have any questions about defending your position to your employer, i’d be happy to answer them.

11

bw2h is 100% correct. I work in Wealth Management, and concur with him. Simple terms:

Revenue = The money coming IN
Profit = Whats left from your revenue after all your bills, what can go OUT

Gross = The raw starting figure, i.e. $10k.
Net = What is actually left (tax & costs aside).

When considering NET with REVENUE they are mutually exclusive really… Revenue is always your starting number (the only time this can be different, is if you have an agent collecting your revenue and they take a fee BEFORE passing into the firm… but that’s unusual, is usually a fee service mechanism).

The fact that he wants to give to charity is cool, but his issue. As long as there is no mention of the charity donation in your contract terms, then you are entitled to 15% of the 10,000. That then becomes your Gross Income, from which you must pay tax (etc…) and what is left is your personal Net Income.

Forget the Net/Gross issue… the focus is on REVENUE vs. INCOME/PROFIT. It would be a completely different ball-game is your contract said “15% of Net Profit”.

However, up-to-you if you want to be super-strict on the terms… may lose future repeat custom!

12

Another way of looking at this…

Would he try to give the charity 10% AFTER he’d paid your 15%?? You can’t distribute revenue sequentially in that manner, you have to pay out revenues in an accumulated fashion.

I suggest you tell him to pay the charity 10% of Net Profits (instead of Revenue) and then that means your bit always gets sorted out first.