Recommended Percentage
Since your developers are contributing to building the software (which is the core product) and you want them motivated for the long-term, profit sharing is a smart idea. Here’s how this usually breaks down:
- Industry Benchmark:
- For a small team of 1–3 developers who handle most of the development and maintenance, 10–20% of net profits is fairly standard as a collective share.
- If they’re not investing their own money (just time), 10–15% is usually enough to incentivize them to stay and maintain the product.
- Recommended Approach:
- 12–15% total shared among the developer team is a balanced starting point.
- The split within the team can be based on role (e.g. lead dev 50%, junior devs 25% each) or hours worked.
- Owner’s Share:
- The owner (you) would retain 85–88% of net profits.
- Note: If they’re also contributing to other areas like customer support or marketing, you might consider a slightly higher share, but 15% is generally the sweet spot.
Draft Developer Profit-Sharing Agreement
Below is a draft developer agreement you can tailor as needed. This is not legal advice but rather a starting point you can share with your lawyer to finalize:
📝 Draft Developer Profit-Sharing Agreement
Developer Profit-Sharing Agreement
This Agreement is made effective as of [Date], by and between:
- Company: [Your Company Name], a [State] limited liability company, with principal office at [Address] (the “Company”)
- Developer: [Developer Name], located at [Developer Address] (“Developer”)
Whereas, the Company desires to engage Developer to develop, maintain, and improve the Company’s software-as-a-service product (the “Product”);
Whereas, the Company wishes to incentivize Developer’s ongoing support and commitment by sharing a percentage of net profits derived from the Product;
Now, therefore, the parties agree as follows:
- Scope of Work
Developer shall provide software development, maintenance, bug fixes, and feature enhancements for the Product. - Profit-Sharing Compensation
(a) The Company shall pay Developer [X]% of the Net Profits generated from the Product, calculated on a quarterly basis.
(b) “Net Profits” means gross revenue actually received from Product subscriptions and transaction fees, less (i) direct costs of goods sold, (ii) payment processing fees, (iii) marketing and sales expenses, and (iv) operational expenses directly related to the Product. - Payment Terms
(a) Payments shall be made within fifteen (15) days following the end of each quarter.
(b) The Company shall provide a detailed statement of Net Profits calculation with each payment. - Ownership of Intellectual Property
(a) All work product created by Developer shall be the sole property of the Company.
(b) Developer hereby assigns all rights, title, and interest in any code, documentation, and intellectual property developed during the term of this Agreement to the Company. - Confidentiality
Developer agrees not to disclose any trade secrets or confidential information related to the Product or Company. - Term and Termination
(a) This Agreement shall remain in effect until terminated by either party with thirty (30) days’ written notice.
(b) Upon termination, Developer shall be entitled to any accrued profit share but shall not be entitled to any future profit share. - Dispute Resolution
Any disputes arising under this Agreement shall be resolved through mediation or arbitration in [State]. - Governing Law
This Agreement shall be governed by and construed in accordance with the laws of [State].
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
[Your Name], Owner
[Developer Name], Developer
👀 Notes:
✅ Replace [X]% with 12–15% (recommended)
✅ Confirm with a lawyer for final review and local law compliance
✅ You can replicate this for multiple developers, or have a single agreement with multiple signatures if they’re a team.