Since the 2024 halving, mining profit margins have been suppressed. In such an environment, fixed-cost agreements (e.g., fixed hosting fees, fixed power rates) can become unsustainable for either the miner or the hosting provider. This is why profit-split and revenue-share models have gained popularity as alternative financial structures. But how do these models differ, and what are the pros and cons for the parties involved in mining operations? Let’s find out.
Fixed-Cost Agreements
Flat Fee or Fixed Fee
Power Usage or Usage-Based Fee
Performance-Based Agreements
Revenue Share Model
Profit Split Model
Factors Influencing the Determination of the Actual Split
Why Choose a Profit or Revenue Share Model
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Premium Members get access to our downloadable Profit Split Calculator
Fixed-Cost Agreements
Companies use various payment structures for operational services. The most common fee structures are so called fix-cost agreements.
Flat Fee or Fixed Fee
This structure charges a fixed monthly amount for operating the mining equipment. The cost is typically based on the number of machines and their power consumption, as specified on the nameplate or ASIC hardware spec sheet. While this model provides clients with clarity on their expected costs, it can be disadvantageous since actual energy consumption may vary due to downtime and miner performance fluctuations.
Power Usage or Usage-Based Fee
This fee is determined by the actual power consumed by the mining equipment. The hosting service charges a rate per kilowatt-hour (kWh), with actual usage often measured using smart PDUs or power meters.
Performance-Based Agreements
During periods of prolonged low mining profit margins, fixed-cost agreements can become unsustainable for either the miner or the hosting provider. This is why revenue- and profit-share models have gained popularity. However, the terms revenue and profit share are often used interchangeably, despite being fundamentally different. It is crucial to understand what each party means when referring to these models when negotiating such an agreement.
Revenue Share Model
A revenue split model divides the total mining revenue between parties based on a predefined percentage. It does not account for operating costs, meaning each party gets a share of the gross revenue before expenses.
This model is relatively simple to calculate, as it is based on the total BTC mined. The pay-out can easily be managed at the mining pool level, as the majority of pools offer the option to split pay-outs across multiple wallets.
Profit Share Model
A profit share model accounts for operating expenses before distributing profits. After deducting operational costs (electricity, hosting fees, maintenance, etc.), the remaining profit is divided based on a predetermined percentage.
In many cases a power pass through is applied and the operational costs are charged as a flat kWh fee or percentage. The profit share model is a bit more complex than a revenue split but fairer in cost-sharing.
Factors Influencing the Determination of the Actual Split
The actual percentage used in a revenue or profit split depends on several key factors, here are six:
Efficiency and hashrate output of mining hardware. The more efficient and the higher the hashrate output, the higher the split for the party owning the equipment.
High-demand hosting providers with a strong reputation, high uptime and stable operations can negotiate a higher percentage for themselves.
Miners who provide capital investments in infrastructure can negotiate a better revenue/profit split in their favour.
Long-term contracts (24 months+) offer stability, so operator may accept a lower cut in exchange for steady income.
If the hosting provider operates with cheap power, they might accept a lower cut. This is especially true in the case an operator participates in demand response programmes that will impact uptime.
The market conditions also have an impact on negotiation of the split. During a bull market, hosting operators prefer splits because total revenue is high. In a bear market a mining client might want to protect against volatility.
Why Choose a Profit or Revenue Share Model
The revenue and profit share models are often used in hosting services, partnerships and joint ventures. These types of agreements align interest and share risks of the parties involved.
The hosting provider shares some of the risk because their income fluctuates with BTC mining revenue rather than being a fixed payment. If BTC prices drop, they earn less, but the miner is not burdened with unsustainable hosting fees. In return for protecting a mining client from downside risks, the operators benefits from a higher hashprice.
Fixed-cost agreements can force miners to shut down operations when margins get too thin. Revenue or profit splits allow mining to continue at reduced profitability, ensuring that both parties keep earning rather than having operations halted. Hosting providers that offer flexible revenue/profit split deals can often retain clients during downturns.
Premium Members get access to our downloadable Profit Split Calculator—a must-have tool for miners. Simply enter the operator’s share, and instantly calculate your true hosting cost per kWh at different hashprice levels. Don’t miss out—upgrade to Premium today to claim the calculator.
