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What is Revenue Sharing?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 01 September 2016
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    Conjecture Corporation
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Revenue sharing is a business arrangement that makes it possible for two or more parties to share in the profits and losses realized by a business operation. The exact structure of the revenue sharing strategy will vary based on governmental regulations that may apply in the jurisdiction in which the business is located, and the terms and provisions found in the contract that establishes the working relationship between the concerned parties. This approach may be used to compensate employees of the firm above and beyond the usual salary or wages, or be used to provide compensation to affiliate partners in an online business venture. Revenue sharing can even be used as a means of sharing funds collected by a national government with the states or provinces that are part of that particular nation.

Within a business setting, revenue sharing may take place as part of a limited partnership arrangement. Here, the partners agree to share in the profits and losses sustained by the operation, with specific provisions on how those profits and losses are shared each accounting period. Essentially, the general partner has the responsibility of reporting the level of profit or loss incurred to the limited partners, then compensating them according to the terms found in the partnership agreement.

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The advent of the Internet provided another expression of revenue sharing. With this approach, individuals provide some type of services or support to the site owner in exchange for receiving a certain amount of the profits that are generated from online sales, the amount of traffic to the web site, or possibly from ad revenue that is generated when visitors to the site click on ads residing on the site’s pages. Typically, site owners will share the profits with providers, with a specific percentage of those profits going to the site’s partners or affiliates. For example, a web site may provide an outlet for affiliates to post short articles for free, then compensate the posters by splitting 50% of the monthly earnings generated by views of the article by visitors to the article, or revenue generated by visitors clicking on ads that are placed on the page along with the article, or a combination of the two.

Governments have sometimes engaged in revenue sharing as a means of improving the infrastructure of a nation. With this application, a national government may choose to divert a percentage of taxes collected to states or provinces within the nation, basing the amount of the sharing on factors such as total population of the state or province. This in turn provides the state with additional funds that may be used to handle various expenses at that level, or to share some of that revenue with counties or parishes within that state. This approach has been used successfully in a number of different nations for limited periods of time, and may often help in the effort to stimulate a sluggish economy or otherwise protect the quality of life for citizens of the country.

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