Momentum Podcast: 616
Create a Successful Profit Share Program
by Alex Charfen
I get a ton of questions about incentive programs, bonuses, and profit share for teams. It makes sense because entrepreneurs want to pay people for the results that they want to get in their business. There is a consistent way that I advise entrepreneurs to profit share that works consistently and engages teams.
In this episode, Alex will show you the frameworks we teach to implement this program into your business, and why we have seen it be so effective. This is a dynamic way to inspire your team to focus on what matters in your business and help drive the profitability of your company from the top down.
Full Audio Transcript
This is the Momentum Podcast.
Incentive programs, bonuses and profit share for teams are a dynamic way for entrepreneurs to pay people for the results that they want to get in their businesses. In this episode of the momentum podcast, Alex is going to take you through a consistent way that he advises entrepreneurs to develop a profit share program in their business that works consistently and engages teams. I hope you enjoy.
I'm Alex Charfen and this is the Momentum Podcast made for empire builders, game changers, trailblazers, shot takers, record breakers, world makers and creators of all kinds. Those among us who can't turn it off and don't know why anyone would want to. We challenge complacency, destroy apathy, and we are obsessed with creating momentum so we can roll over bureaucracy and make our greatest contribution. Sure, we pay attention to their rules, but only so that we can bend them, break them, then rewrite them around our own will. We don't accept our destiny, we define it. We don't understand defeat because you only lose if you stop and we don't know how. While the rest of the world strives for average and clings desperately to the status quo, we are the minority, the few, who are willing to hallucinate there could be a better future and instead of just daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters, clearly the most important people in the world because entrepreneurs are the only source of consistent, positive human evolution and we always will be.
About a week ago I asked the question in one of our groups who has any questions on how to grow your business, on expanding your business, on growing your team right now? And the question that I got was one that I get often. How do you use profit share bonuses, incentive plans to get your team to help you grow the business and what is the best way to use incentives, profit share bonuses in order to grow your business? So I wanted to take a minute and answer this question because here's what I want you to know, especially in this market, even in the middle of a challenging market, even in the middle of a transitionary market, even in the middle of a recession, there are businesses that are growing. There's businesses that are succeeding. There's businesses that are hiring people, paying bonuses.
I've been there in 2008, 2008, 2009, 2010, 2011, Cadey and I ran a very successful business where I can remember more than once where we would give somebody a bonus or they would get a raise or they would get a really big profit share check and more than once people expressed something like, "You know what? It's so awesome that this happens here. I can't even tell my family about it because everybody else is having such a hard time." So I want you to know that paying profit share, paying bonuses, paying incentives is something that I actually really appreciate. It's something that I encourage most entrepreneurs to do. It's something that unfortunately I think the vast majority of entrepreneurs do absolutely wrong.
So let me jump in. First, just why pay profit share and why should you have an incentive program like this in place? Let me break down how we pay profit share and why I think it's so important. So here's how we do this in our company. Any month where our business is profitable, we take a percentage of profits and split it on our team with everyone who does not have incentive compensation. So let me clarify that for you. So if we have a group of people on our team and we have a commission sales rep or we have somebody in leadership who's on a leadership compensation package, they are not part of the profit share pool. Everybody else on our team is. So if they're an assistant, a customer service person, a graphics designer or a copywriter, whoever else is on the team is going to be placed in a profit share pool.
Here's what we do. Each month that our company is profitable, we share a percentage to everybody in the profit share pool and it's paid out every single month. Now that is a really important part of why we pay profit share. It's the how and the why. We pay it on a monthly basis and here's why. Each month in our company, we have a very transparent company, I recommend you should too, which means each month we get together with our entire team and we have what we call our monthly all hands meeting. In our monthly all hands meeting, we share everything. We share top line, we share expenses, we share exactly how much the company made that month and in addition to how much the company made, we also share what is the average profit share everybody in the company who gets profit share is going to get.
So here's what I'm conditioning my team to see. We had a good month for the company. Everybody gets a check. We had a good one month for the company. I got a check. We had a good month for the company. My check amount went up. The company didn't have such a great month, we're not getting profit share checks. So I'm creating a scenario whereas we pay out profit share, I'm actually paying my team to pay attention to how our company is doing. So first and foremost, the reason why I pay profit share is I want my team to be focused on the profitability of my company. The reason I pay it out every month is I want to create a pattern where a company has a good month, I feel a good month, company has a good month, I feel a good month. Company didn't get a profit, I don't get a profit. I want the team, I'm actually paying them for the awareness of what's going on in the greater organization.
When you look at how a lot of organizations pay profit share, they might take it and pay it quarterly or they might use it at the end of the year. Now those are different ways of maybe keeping people involved with the company or making it so that they don't leave as often, but the reason that I'm paying profit share is I want to pay for behavior and here's the behavior I'm paying for. I pay profit share so that my team is focused on profitability and here's why I feel it's like one of the most important reasons to pay profit share. If you imagine the org chart for the normal organization, that pyramid org chart, and you put the CEO or the owner or the entrepreneur in charge at the top of that org chart, and then you put the leadership team at that top of that org chart, in most organizations, only the top of the org chart is concerned with expenses and profitability and what's being spent and are we doing the right things, are we making the right choices?
Here's what's amazing about profit share. By adding profit share into the mix, I actually pay the entire org chart to be concerned with profit share and here's how we break it up in our company, just to give you a little bit of insight behind the math. If you're in the profit share pool, you get a share of profit share based on how long you've been with the company and how well you're doing in your position, so if somebody has been written up or they have a challenge or there's some type of a disciplinary action, they won't get paid profit share, but it's based on time with the business, so the longer you're here, the more of the share you take, that you're doing the right things in the business, and so here's what happens. The people who are in the entry level positions in our company, because they're getting an equal share of profit share, oftentimes entry level positions, the bottom of our work chart is getting a disproportionate amount of how much they make. So for somebody who's in a more experienced position, might be making 60 or $70,000.00 a year, the profit share is a smaller position than our entry level people that are maybe at $30,000.00 a year. They're actually getting a higher percentage on a monthly basis.
Here's why this is so magical. When it comes to an org chart. If you imagine the scenario I just gave you where you have that pyramid org chart, the CEO is at the top, leadership's at the top. That is who is concerned with profitability. See, by creating a profit share program where I'm disproportionately incentivizing the entry level people as a percentage profit share means more to them than everybody else, I'm paying for the entire entry level of my org chart. I'm paying for the biggest part of my work chart. When you look at an org chart, the biggest part is always at the bottom, I'm paying them to be involved, to be engaged, to care about profitability.
Now the outcomes that we've had with this have been amazing because we get together on a monthly basis. We do our monthly all hands and yes, in our organization we share transparently exactly what our gross revenue was, how much total did we make, exactly what our expenses were, exactly how much Cadey and I make on a monthly basis. So I'm just putting it out there, if you're not sharing transparently what's going on with your team, if you're not telling them what the profitability is, if you're not telling them what the results are, how can you hold them accountable for that? Just let that sink in.
See, we share on a monthly basis, and I have entrepreneurs all the time tell me, "But Alex, my team might know that I made 30 or 40 or 50 or $75,000.00 last month." Well, for comparison, Cadey and I in 2010 had a month, a month, where we had over $1 million in profit. It was one of the most exciting things that ever happened to us, like literally, I can remember back to the day we knew it was going to happen. I remember back to the day where the transfer hit our bank account. It was like, "Yes, a million dollar profitability month." That month we did our monthly all hands. We shared it with the entire team. Cadey and I made a million dollars and people on our team had tears in their eyes. They were so excited to be working for a company that was winning. They were so excited that we had a million dollar profitability. They were all so excited, we are going to get some profit share. The average person on our team, I think that month took home like $800 or $900 for somebody who was in a $30,000 a year position. That $900 was a huge percentage of what they were making.
Here's the results that we would get when we did that. So we get together in our monthly all hands, tell people all of the results, share with them what the profit share is and here's what happens in a business when there's profit share. We talk about the less we spend, the more we make. So all of a sudden every person on our org chart is concerned with expenses, is trying to be able to cut things down. They don't want to waste anything. They want to make sure we retain every client. Here's what happens when you use a profit share program. You incentivize every person on your team to understand, pay attention to and improve profitability.
See, on most teams, I can tell you with certainty, a lot of people don't even understand the profitability of the company. By putting a profit share system in place, you're paying for the attention, the focus and the results, and so if you don't have profit share right now in your business, it's not something that will stop you from growing, it's not something that's an absolute necessity, but it's something that you should consider. Because when you pay your team on a monthly basis to pay attention to what is, let's get real, the most important number in the business is profitability. It's what keeps you around, it's what makes you independently wealthy as an entrepreneur, and let's get real. Your business has one responsibility to make you wealthy. Your business should be making you a ton of money. Your business should be making you independently safe financially. Your business should be paying you, and so every month when you pay out profit share, you are paying your team to develop, to increase, to focus on, to make better the most important number in the business, which is how much the business is actually making on a monthly basis so that it can sustain, so that it can scale, so that it can grow, so that you can get the help you need.
So I would absolutely encourage you to look at using some type of a profit share program with your team as you scale and as you grow, pay your team to pay attention to what's most important to you. So pay for their attention on profitability. Pay them to focus on a monthly basis. Pay them to attach. When you have a good month, your team has a good month and you, you will see your business grow much faster.
Speaker 2: If you're ready to take the next step. If you have a business that's growing, if you see an opportunity for growth in your business, if you're ready to build a team, scale to the next level, we are ready to help you. We now offer a three levels of help for entrepreneurs. Our foundation program helps entrepreneurs who are just getting started and are ready to create their movement. Our catalyst program has been created for entrepreneurs who are growing and who need to build a team and our accelerator program for entrepreneurs who are growing their business past seven figures. We want to help you, so if you're ready to take those next steps, reach out to us at predictablebusinesssolutions.com. Fill out a short application for our team and we will get you the answers that you need to get into momentum and move your business forward fast, predictablebusinesssolutions.com.