Hi Bryan.
I like the concept of what you are trying to do. Basically you wish to partner with someone, gain positive results then share the profit. It sounds great. Below are some reasons why the two approaches you propose aren't the right ones for you nor the SEO.
Option A (buy a SEO package) is a good deal for the SEO, but not for the client. My suggestion would be to avoid most SEO "packages". From a marketing perspective, a SEO package sounds good. The provider and client both have a clear, measurable understanding of what is involved. Most packages involve quantifiable results such a produce 5 articles, 200 backlinks, reporting, "setup" of blogs/landing pages and many other seo related functions. An example of such a page: http://www.seogodfather.com/seo-packages.php
I wish to clarify I have never used the above service and I have no feedback about the company, good or bad. I am using the link solely as an example of a common form of seo packages.
Frankly, I dislike the concept. Why? Because the provider can offer every one of those services and the client may not receive any tangible benefit (i.e. increased sales/profits).
When I began offering SEO my primary focus was rankings. Backlinks, articles, and other SEO "stuff" mostly were a means to an end, and the purpose of performing those tasks was to earn better rankings, right? Or so I thought until I had worked with a client, earned great rankings but the client was still unhappy. A similar story to my experience can be found here: http://www.searchenginepeople.com/blog/seo-better-webdesign.html
TL;DR - A main reason for SEO packages is so a SEO company can say "hey, I did my job. Look at the checklist." Your SEO results will be better if you avoid the packages and retain a knowledgeable SEO who is focused on improving your sales/profits, not working on a package checklist which may not help you achieve your business goals.
**Option B **(offer a % of sales increase) is a good deal for the SEO, but not necessarily for you. The SEO's incentive is sales. One proven means to obtain sales is by using AdWords or other online advertising. At the SEO's direction you spend $50k on AdWords and maybe you earn $60k in sales, but since you have operating expenses you take a loss, but still have to pay the SEO their $6k fee. There are many other ways this scenario can be manipulated but the end conclusion is a sales-based contract is probably not in your best interest as a business.
The next logical suggestion would be Option C, a profit-based contract. The goal of your business isn't just to improve sales, but to profitably grow sales. You could adjust your contract to account for profits. You would face challenges similar to those mentioned above. You would need to open your books up to the SEO. All aspects of your offline business could be analyzed and this line of thinking may take you to places you really don't wish to go.
Some random thoughts on the SEO / client relationship.....
SEO works best when the provider becomes entrenched in your business. EVERYTHING can impact SEO. You can have #1 rankings in search engines, a great site and then have a customer service issue which is completely outside the scope of the SEO's responsibilities. In a worst-case scenario, the customer can complain to the BBB or otherwise provide online complaints which can rise almost immediately to the top of search results and cause major SEO issues. There are many other means by which this can happen to varying degrees ranging from product quality issues, customer service issues, market changes, etc.
Normally the SEO and client have clearly defined roles, but when you offer a sales or profit-based contract then many offline practices come into play. This can be a benefit as the SEO can analyze your business and offer feedback to be considered. The challenge is most SEOs are not necessarily trained nor experienced at the offline aspects of your business, and you may not desire feedback on your company's offline operations.
From the SEO perspective, there are often challenges where recommendations are made but the site owner either doesn't make the requested changes, or doesn't perform them in a reasonable amount of time. This lack of responsiveness can impact the SEO results.
So the question is, how can a SEO-client relationship be formed which is fair to both the client and SEO? How can the client ensure they are obtaining the best value? I have two suggestions on this topic.
Option 1 - a traditional money for services agreement. This agreement is really no different then when you see a doctor, lawyer, accountant or other professional. You are paying for advice and indirect access to the expert's tools. If you are satisfied with the results, you maintain the relationship. If you are not happy with the results, you find another expert.
The risk with option 1 is there is a lot of upfront work in SEO. A typical first month will involve a thorough analysis of your website, business model, keywords, competitors and industry. The amount of work involved can vary substantially and it offers no immediate results. The information gathered is very important as it is the basis for all future work. The information gathering offers no tangible benefits in and of itself. In other words, you will pay for month #1 and not see any sales nor profit increase. From a business standpoint, you wont like the first month but you need to TRUST the SEO.
The second month is where the change recommendations are implemented. It may take time to modify or rebuild a website. Sending legal papers such as trademark infringement notices to competitors takes time as well. The actual SEO work which will benefit your site has begun, but you probably wont notice the impact yet.
The third month is where you MAY begin to see the benefits of the SEO work. It depends on many factors and it may be more months before the results are actually seen. There is a lot of variability here. During these months you simply need to TRUST the SEO. Trust is very hard to earn. As for myself, I send a thorough report to each client at the end of the month. The report covers all work performed during the past month, along with plans for the following month. This report, along with constant communications via e-mail and telephone are what help establish and maintain the trusted relationship.
Option 2 - a variation of option 1 where the contract is divided between a standard agreement and an incentive agreement (i.e. sales increase).
To summarize, you HAVE to trust your SEO. You are free to measure the SEO's performance in any manner, but ultimately you need to trust the SEO and follow through on the recommendations offered. I am not suggesting blind trust, but a significant measure of trust is required to make the relationship work. Personally, I don't work with contracts. If a client is not happy with my service I do not wish to enforce a contractual relationship with which they are unhappy. I work upfront to understand the client's needs, I provide an upfront analysis of how I will work on their needs, I maintain an open line of communication throughout the month and follow it up with a summary at the end of the month. In essence, I am fighting for my job each month. If the client is happy with my work, they can "re-hire" me again the following month. There are risks on my end from this type of relationship and it wont work for everyone.
As a postnote, some of my peers may be unhappy with my viewpoints on this topic. I welcome any feedback and criticism. I like the question which has been asked and it is one which all of our clients face. The ultimate question is, what is the best form of financial relationship between a small or medium sized business and a SEO. The relationship should be fair to both sides and measurable. If you disagree with the suggestions above, what do you recommend?