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Chris LoCurto

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September 29, 2011

Commission vs. Profit-sharing

September 29, 2011 | By | 12 Comments">12 Comments

Commissions should be paid whenever you can show how someone has generated revenue for the company on a consistent basis. So much that is violates the law of common sense to not have it as a commissioned role. All other positions can have a profit-sharing plan attached.

In How To Do Profit-sharing and How To Do Profit-sharing Pt 2 , I explain how to implement a system that works. The whole goal is to incentivize your team to cause expenses to go down and revenues to go up, which, in turn, creates profit. As the team starts to take responsibility for how the company is run, they begin to see increased paychecks. This creates buy-in and ownership by team members.

In a medical practice, you can easily point out the areas where the team can cut expenses. But finding increased revenues is a little harder. In pediatrics, the most effective way to increase revenues, in my mind, is to absolutely super serve the customers. There’s probably not a single parent who doesn’t know other parents with kids the same age as theirs.

Therefore, as you go over the top serving your little patients, parents will spread the word on how well you take care of their children. Like a great mechanic, every parent needs an excellent doctor, and they have no problem referring one to their friends. The more referrals, the more revenues. Super serving = happy parents = referrals = profit-sharing in their checks. The more profit-sharing, the more incentivized the team becomes.

However, profit-sharing can only go so far. The rest of the incentive comes when you consistently show your team that they are doing work that matters. They are doing something that is bigger than them. As they begin to understand, your team will work more from passion rather than just working a J.O.B. That’s when you will really start to see your business take off.

Question: How do you incentivize your team?

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  • Nikita Bernstein

    Chris, at my last company (JoVE), I wanted to do a profit-share that feels like equity and came up with a new model. I am now starting a company based on this model called FairSetup (www.fairsetup.com). The main advantage of FairSetup over existing profit-sharing models is that people are paid according to their impact, which makes the profit-share feel more like ownership. Furthermore, this form of profit-sharing does a good job aligning the sales teams with the ops teams.

  • Greg LeBre

    Well it worked pretty well until I found that she was goofing up the books and wouldn’t work with me on some changes. I wanted to put things on a practice software and go to seminars to improve the business. She didn’t want to do either even though I was paying her wages during the seminar, plus expenses, (motel, food, gas). She wouldn’t even do the recorded seminars with pay at her convenience, discussed her mother’s malpractice death with the patients at my front desk. Needless to say she’s gone and so are a lot of patients. Haven’t really found good help since, practice is floundering, working the Ramsey money model really hard to stay afloat and taking your blog suggestions to heart about service etc. Love helping people, not loving the business.

  • http://ginasmom.wordpress.com ginasmom

    Chris, thank you for this post, and all the related links. A friend of mine is in the midst of getting her business on to higher ground, and is strugling with the idea of doing some partneship. I convinced her profit sharing is the way to go, but couldn’t give her the exact details of how to do it. I promised to try and get her some info on the subject over the next two weeks. I’ll look like a hero when i send her this post tonight:), thank you, thank you!!!

    • http://Chrislocurto.com Chris LoCurto

      NOOOOOOO partnerships!! :-) You’re a good friend!!

  • http://lgthaxton.wordpress.com Louise Thaxton

    The incentives I give my team are on closed business. BUT we have just implemented a system where the QUALITY of the file gets graded and could result in a reduced incentive! Because in our business – QUALITY does count!

  • Greg LeBre

    I’d say if they’re happy with it, drive on. I like the idea! If they feel like someone is getting favored, then it’s a problem. One thing that just came to mind might be to have a selection of different, but equal value cards for different companies, so they can choose their reward. You don’t have to worry about whether or not they’re happy with your choice. They could even select it from a list, then you can go get it, so you don’t get stuck and everyone’s happy. Think ‘regifting’ and you’ll know what I’m driving at. Thanks for your reply.

  • Greg LeBre

    As a health care provider, I took some time to figure out just how to reward my staff for helping to increase my patient volume. I do like the idea of gift cards, but how does this person decide which card,for whom and how much.I did more of a profit sharing in that they had an hourly salary as a base and if we exceeded a certain amount of collections they would get a 2% of that ‘excess’ collection. While that doesn’t sound like much, considering they worked 25 hours per week, it could quickly add another $1 or 2 per hour for their efforts. If the numbers went down, I was covered and they weren’t working as hard, so I felt it was fair for everyone.

    • http://www.medicalaccountsolutions.com misty

      Greg, my business is a Medical Billing Agency and we provide various services that are not all based off of a percentage of collections, so making a profit sharing plan right now when employees are new, learning more, taking on new projects, etc this is the way I for now have opted to reward them and give them incentives until their pay will be moved to a base with commissions at a later date when my client base is larger and the employee knows more about the job, duties, customers and has more experience. I find commissions is a hard way to motivate during the training and implementation of usually a very messy client. I welcome more ideas because this may not be the best format, just the one I have used since hiring employees 3 years ago.

    • http://Chrislocurto.com Chris LoCurto

      Sounds like it worked. What was the outcome?

      • http://www.medicalaccountsolutions.com misty

        Chris, This process has worked very well for my employees! I currently do not have full time employees, only part time, which means that their hours our volume and work load fluctuates regularly along with various training for the employees, this has been a welcomed way to be rewarded. I get a list from them of their favorite places to shop or if they had money where they would shop. I rotate between a few places and it has been received extremely well. They know that once they have “learned” the job and client I will be changing them to a base pay and commissions. I know this might not work well for everyone but it has worked for me!

  • http://ericspeir.com/ Eric Speir

    I think the commission system works well because it it a great incentive for employees to perform well. It increases the overall bottom line of the company and it increases the employees bottom line as well. In the economy that we are in right now it seems that not many people are receiving raises so a commission based program would certainly help people.

  • http://www.medicalaccountsolutions.com misty

    As a business that has been in existence since June 2004, I am still growing and my model is changing with the merge of Healthcare Reform. There are days I feel I am back in Year #1. I give incentives to my employees in the way of gift cards to their favorite shops or things they could not afford (spa services) and like incentives. I do this based off of them completing projects early, accuracy and overall attitude at new projects generated from client requests. The employees that give it their all and are dedicated to serving Medical Account Solutions and their client base, have always received this type of “bonus” with awe and it has been met with gratitude. I am not in a position to give monthly profits because the business uses the profits to grow, not increase pay. However, I do want them to know they are greatly appreciated. I would love to hear others ideas and ways to generate buy in from their employees and ideas on how to generate a profit-sharing plan/model that works for you. And BTW Chris, as an Accounting person, I have tried to do the “math” from the post http://chrislocurto.com/2011/06/07/how-to-do-profit-sharing-pt-2/ but I don’t “balance” to your numbers and am lost as to how you “figure” this!