Celebrity endorsements can be an efficient way to expand your audience and boost sales. And, of course you want to negotiate the best deal possible. One way to pay less up front is to share equity in your company. But, you should know that when you share equity, you are bringing on another member to your team, and that comes with its own additional considerations. Here’s what you need to know before sharing equity in your company with a celebrity.

Celebrities are looking for endorsements, too

The prospect of sharing equity in an up-and-coming company is appealing to many celebrities, who often have business interests aside from their performances. If you have a product that is already somewhat successful, they are likely to see the possibility of growth in your business. That is why start-ups are appealing.

Celebrities understand that your company may be in a position to need investors, and at the same time they have an opportunity to watch their equity grow. This makes equity sharing a win-win situation. Agreeing to profit sharing for an endorsement gives the celebrity the possibility of steady income from their endorsement efforts. The success of 50 Cent and Vitamin Water led to celebrities want to take an interest in a company instead of just taking cash up-front.

That being said, celebrities don’t want to invest in just any product. They want to invest in a great product that looks good for their brand, too. And, often, it’s up to you to determine whether the partnership will be a good fit.

Understand how a celebrity endorsement can boost sales

 
Agreeing to share equity provides incentive for the celeb to do what it takes to help your business grow because the greater the profits your business makes, the better their own profits are. Of course, you choose a celebrity who wants to be a part in growing your business. If the celebrity is truly invested in your business, that is not just with their financial contribution but with their time, they can be a valuable partner.

Put simply, you should not settle when selecting celebrity endorsements. I don’t mean settling for a smaller or local celebrity—I mean settling for someone who, regardless of their level of fame, does not care about what your company does. If you really do believe in your product and you’ve made it the best it can be, then you don’t need a celebrity to sell it. Don’t get me wrong. Celebrity endorsements can definitely help, but only when you already have a quality product and you are working with the right person.

When a celebrity partner believes in your company’s mission, they help your clients or customers to believe. There are several benefits they lend to the sale of your product or service:

• * Reputation—Every celebrity has some kind of reputation. Determine what your company needs from the endorsement. Often, the best type of reputation is honesty. When your audience believes that the celeb is sincere, they trust the endorsement and the quality of what you offer. A reputation for a particular attitude can also be valuable. For instance, if a sports figure is known for being tough, that reputation may help sell a product’s durability.

• * Values—Another way that celebrities boost sales is by showing that your company’s values align with theirs. Celebrities already have a built-in following, and often that audience shares similar cultural values with them. A performer who, for instance, is known for being environmentally friendly brings to your company an audience that is already aware of the issues your product or service can solve.

• * Reach—The primary reason you are seeking a celebrity endorsement is likely to expand your company’s reach. Just remember that the way to maximize your audience reach is not necessarily to reach the largest audience. Successful lead conversion is about reaching the right people. You could reach 1 million people and only get 5,000 conversions. Or, you could reach 50,000 people and still get 5,000 conversions while saving money.

Realize that an endorsement doesn’t mean instant success

Even if everything is going right with your celebrity partnership, an endorsement is not a magic solution. You’ll still need to do as much marketing and product development as you would if you didn’t have a celebrity partner. Work on making your product or service the best it can be before you approach a celebrity. To get the most benefit from an endorsement, you want their efforts to give your company exposure when you’re ready to provide a top-level experience for your customers. Otherwise, your business gets five minutes of fame followed by a lot of disappointment.

Also, keep in mind that everything does not always go right. The reputation of a celebrity can change quickly, and if your brand is attached to theirs, it can affect your sales. You don’t want to be the brand associated with the next big scandal. But, even smaller snafus can hurt credibility, like when Oprah herself took heat for tweeting an endorsement for Microsoft Surface from her iPad. This is why it is so important to take care in choosing a celeb who wants to work specifically with your company and acts professional.

What to watch out for before giving a celebrity equity

Sharing equity in your company has long-term consequences for your business. Before you jump into an agreement, know to avoid these situations:

• * Celebrities who think shared equity is quick money, but don’t really care what your product is.

• * Hiring a celebrity who doesn’t understand how start-ups work or what goes into growing a business. Remember, sharing equity is different from simply paying a celebrity for their performing expertise and reputation. They are invested in your business.

• * Depending upon the celebrity for sales. If your product or service is mediocre, a celebrity endorsement may provide a short-term boom, but it doesn’t help in the long run, and that equity sharing you just signed up for is long-term. Do you want to share mediocre profits for 5 minutes of success?

• * Making a deal before your product is ready. You may convince a celebrity to sign on, but by the time your product is truly improved enough to generate larger sales, the celebrity may have moved on to a new project.

Best profit sharing agreements

 
In the best case scenarios, you will find a celebrity partner who can provide the following benefits.

• * They have a personally vested interest in the mission of your company and look for innovative ways to promote growth and awareness.

• * They want to be on board for long-term success and won’t bail out when things start to get tough or they don’t see instant financial gain.

• * They take an active role in generating buzz. This can mean mentioning updates about the product on social media, or wearing or using the product in public. To make profit sharing worthwhile for your business, you want a partner who works with you and actively supports company goals rather than just doing the bare minimum.

• * They have business sense. You may not be thinking about this as you look for a celebrity endorsement, but if you plan to share equity, you should.

Bottom line

Shared equity is a long-term contract, not a one-time payment. Before you partner with a celebrity, be sure that they are serious about being a partner in your company and they believe in your company mission. That said, shared equity is an appealing offer for many celebrities, so don’t be afraid to use it when you head to the negotiating table.