Contingency Contracts

It is always good when you sign a contract, to have an in-build profit sharing model.
1. It builds trust. The other party realizes that you are willing to put in your money where your mouth is
2. It shows you are honest and not only trying to make a convincing sales pitch
3. Since you share the loss in case your product and services does not yield the desired effect, you in effect share the risk with your buyer.
4. There is an incentive for performance. Hence it is always seen that the products and services delivered under profit sharing model are superior.
5. You can also help manage the decision making bias: i.e. the seller always thinks more highly of his product than the buyer. Hence even though you think your product will result in a 100/- of profit (and want to charge accordingly) the buyer rarely would perceive the value to be 60/- and would like to pay you accordingly.
6. Since a revenue/risk sharing contract has higher element of trust, it is very effective when you are planning to pitch an innovative and new design/idea/concept, something whose results and effects are hard to measure beforehand.

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