Revenue sharing takes many different forms, although each iteration involves sharing operating profits or losses among associated financial actors. Sometimes, revenue sharing is used as an incentive program – a small business owner may pay partners or associates a percentage-based reward for referring new customers, for example. Other times, revenue sharing is used to distribute profits that result from a business alliance. Revenue sharing is also used in reference to Employee Retirement Income Security Act (ERISA) budget accounts between 401(k) providers and mutual funds.

What Is Revenue Sharing?

The practical details for each type of revenue sharing plan is different, but their conceptual purpose is consistent, using profits to enable separate actors to develop efficiencies or innovate in mutually beneficial ways. It has become a popular tool within corporate governance to promote partnerships, increase sales or share costs.

Private businesses aren't the only ones that use revenue sharing models; both the U.S. and Canadian governments have used taxation revenue sharing between different levels of government.

Types of Revenue Sharing

When different companies jointly produce or advertise a product, a profit-sharing system might be used to ensure that each entity is compensated for their efforts. Several major professional sports leagues use revenue sharing with ticket proceeds and merchandising. For example, the separate organizations that run each team in the National Football League (NFL) jointly pool together large portions of their revenues and distribute them among all members.

Revenue sharing can also take place within a single organization. Operating profits and losses might be distributed to stakeholders or general/limited partners. As with revenue sharing models that involve more than one business, the inner workings of these plans normally require contractual agreements between all involved parties.

The growth of online businesses and advertising models has led to cost-per-sale revenue sharing, in which any sales generated through an advertisement being fulfilled are shared by the company offering the service and the digital property where the ad appeared. There are also web content creators who are compensated based on the level of traffic generated from their writing or design, a process that is sometimes referred to as revenue sharing.

Tracking Revenue Sharing

Participants in revenue sharing models need to be clear about how revenue is collected, measured and distributed. The events that trigger revenue sharing, such as a ticket sale or online advertisement interaction, and the methods of calculation are not always visible to everyone involved, so contracts often outline these methods in detail. The parties responsible for these processes are sometimes subjected to audits for accuracy assurance.

Some types of revenue sharing are strictly regulated by government agencies. The advisory council for the Employee Retirement Income Security Act formed the Working Group on Fiduciary Responsibilities and Revenue Sharing Practices in 2007 to address perceived issues with the practice of revenue sharing for 401(k) plans. The Working Group determined that revenue sharing is an acceptable practice, and new rules related to transparency were implemented under the authority of the Department of Labor. The Working Group also determined that it should take the lead in formally defining revenue sharing with regard to defined contribution plans.

  1. What types of revenue are taxable?

    Learn about all the various types of taxable corporate revenue and how different revenues are designated and differentiated ... Read Answer >>
  2. How do companies calculate revenue?

    Revenue is the amount of money a company receives in exchange for its goods and services. The revenue received by a company ... Read Answer >>
  3. What is the difference between earnings and revenue?

    Understand how a company makes revenue and how it makes earnings. Learn the difference between revenue and earnings and how ... Read Answer >>
  4. What is the best way to calculate profitability for startups?

    Understand how evaluating profitability at multiple levels is beneficial for startups, including learning the calculation ... Read Answer >>
  5. What is the difference between revenue and income?

    Revenue is simply the total amount of cash generated by the sale of products or services associated with the company's primary ... Read Answer >>
Related Articles
  1. Managing Wealth

    Revenue Analyst: Job Description & Average Salary

    Learn what a revenue analyst does and what skills are needed to succeed in the position. Determine the education and experience required to work in this field.
  2. Personal Finance

    Revenue Analyst: Career Path & Qualifications

    Learn more about the duties of a revenue analyst and the qualifications needed for the position, along with the career path for these professionals.
  3. Trading

    Stock Analysis Basics: How To Forecast Revenue and Growth

    Forecasted revenue and growth projections are important components of security analysis, leading to a stock’s future worth.
  4. Investing

    S&P 500 Index: A Revenue Case Study

    Discover the breakdown of aggregate total revenue of S&P 500 companies, including how much revenue is earned by country, industry and geographic location.
  5. Personal Finance

    Common Interview Questions for Revenue Analysts

    Learn more about the role that a revenue analyst plays in a company and common questions asked during job interviews for this position.
  6. Retirement

    Is Your 401(k) Plan Suffering From Hidden Fees?

    Plan sponsors are responsible for finding 401(k) fees that are in the participants' best interest.
  7. Investing

    Calculating Economic Profit

    Economic profit is the difference between the revenue a firm earns from sales and the firm’s total opportunity costs.
  8. Investing

    Revenue Projections Show Profit Potential

    Examining how a company makes money can offer clues about its earnings potential.
  9. Trading

    World's Top 10 Trading Companies

    Which are the top trading firms of the world? Here is the list of the ones with highest trading revenue.
  1. Revenue

    Revenue is the amount of money that a company actually receives ...
  2. Operating Revenue

    Income derived from sources related to a company's everyday business ...
  3. Per Share Basis

    A measure used in the financial world to illustrate the quantity ...
  4. Recurring Revenue

    Recurring revenue is the portion of a company's revenue that ...
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  6. Revenue Act Of 1862

    This act increased taxes and implemented the first federal income ...
Hot Definitions
  1. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  2. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  3. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  4. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  5. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
  6. Restricted Stock Unit - RSU

    A restricted stock unit is a compensation issued by an employer to an employee in the form of company stock.
Trading Center