How to take into account cost of work at startup?

Started by Djohnavid021, Mar 30, 2023, 07:48 AM

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Djohnavid021Topic starter

During the startup development stage, we are considering the possibility of securing investments. An important aspect to consider is how these investments will be distributed and how they will generate income. From the investor's perspective, only a portion of the money will be contributed, while from my side, I will contribute both money and work. I would appreciate your advice on how to properly account for the value of my work in relation to the investments made. This way, the cost of tasks such as design, layout, and partial coding can be included in the overall investment share of the project.

Regarding the design aspect, I have a couple of questions. Firstly, when it comes to design, should I calculate it based on the average market price per hour or my own higher hourly rate on platforms like Upwork? Alternatively, should I consider a lower price since I am doing it for my own project without any additional charges for profit?

Another question related to design is about the different stages involved, such as sketching, wireframing, prototyping, creating mockups, and final design. If we discuss this topic, there might be a suggestion to simplify and categorize all these stages simply as "design," which could potentially reduce both the time and cost involved. I haven't decided yet on the best approach for discussing this matter - should we prioritize doing everything correctly from the start, or opt for a quicker solution using default templates like Bootstrap, and then refactor and improve once the project gains traction?


When bringing an investor on board for your project, it is essential to immediately establish the percentage of interest they will receive in the company. Remember, the investor is not a co-owner but rather a financial contributor. Typically, investors receive a share of around 5-10%, leaving the majority for you. Additionally, if necessary, you can consider sharing your portion with subsequent investors.

It is important to note that only monetary value is typically considered when assessing the worth of a venture. Factors such as man-hours, mental effort, communication, and even coffee consumption are often overlooked. Unfortunately, the work you put into the project may not yield significant returns in the long run.

However, once the product starts generating profits, you have the option to assign yourself a salary, provided you have a position within your own company. Some owners choose not to actively work but instead enjoy the benefits of profit distribution.

Remember, your work should not be solely evaluated based on an hourly rate; it is crucial to assess the product's value by comparing it to similar market offerings or its potential profitability.


Detailed tracking of working hours is unnecessary and no one will compensate you for it.

When it comes to investments, especially in your own project, it's more practical to evaluate progress in larger increments, such as every six months. This approach allows for a clearer assessment of the overall project rather than getting caught up in the minutiae of individual working hours.

In the case of a partnership, it's essential to establish clear terms and avoid any imbalances. While one partner may contribute extensively, the other may benefit without putting in comparable effort. Therefore, it is crucial to stipulate and agree upon a fair distribution, such as a 50% split, to ensure equitable outcomes. Remember, leaving the partnership should not be the only solution; open communication and negotiation can lead to better outcomes.


There are two options to consider when managing finances in a startup. The first option is to pay yourself a salary at the market rate if there is a budget available. Alternatively, if there is no budget for a salary, you can give yourself a "promissory note" instead.

A classic approach in managing multiple investors is to create a plan outlining the required funding, projected profits over time, and how these profits will be divided among investors based on their initial investments.

However, this approach can lead to complications if the expected profits are not met or if additional investments are needed. Disagreements may arise concerning the recalculations of shares, resulting in disputes and conflicts. It's essential to have clear agreements and communication to avoid such situations.

The second option involves incremental funding for specific tasks rather than seeking the complete development budget all at once. Expenses are allocated to individuals who cover specific costs, such as purchasing equipment or paying freelancers, until the point of self-sufficiency is reached. At that stage, the product's cost is fixed, and percentages are calculated based on the contributions of all participants. Net profits are distributed according to the agreed-upon shares. This approach follows a logical progression and ensures fairness among the stakeholders.

It's important to keep communication open, establish clear agreements, and continuously adapt and reassess financial strategies throughout the startup journey.