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Chris LoCurto

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June 7, 2011

How To Do Profit-sharing Pt. 2

In How To Do Profit-sharing, I discussed how so many business owners and leaders ask me if they should have profit-sharing. Today I’ll pick up with some tips on how to implement a profit-sharing plan, and what it could look like.

To figure out how to reward your team members through a profit-sharing program, start by deciding what values are most important to you.

  • Are you still here? – For us, it’s longevity. If you’ve been with us a while, that means you’ve continued to do better than normal. Otherwise you wouldn’t be there. What’s the number one thing you value when it comes to team members?
  • Oh no you di’n’t! – The second most important thing to us is their personal attitude. What are they like to work with? How do they treat team members? How do they interact with customers? Do they go out of their way to get things done?
  • Show me the money! – Finally, we base it on their departmental profit. We have many profit centers in our company, and it wouldn’t be fair to pay the same amount out to a team that’s knocking it out of the park as we pay a team that’s getting it done, but not necessarily going the extra mile. (Great thing is that we don’t really have to worry about that at our place.)

You may have more or less values than we have. It just depends on your particular situation. Either way, each value has a scale. It can be 1 – 10, 1 – 5, etc. What ever works for you. Assign some numbers to those values and this becomes the matrix through which you distribute your profit. For example, if someone got scored an 8 for longevity, a 3 for personal attitude and a 2 for departmental profit, then their overall score would be a 13. Run the scores on all involved and drop in the total amount of profit being shared.

Longevity # Years Pers. Attitude 1-5 Dept. Profit 1-5 Score
Emily 8 3 2 13
Aaron 4 2 4 10
Lance 5 4 3 12
Score % of 100 P.S. = $1500
Emily 13 37%  $557.14
Aaron 10 29%  $428.57
Lance 12 34%  $514.29
Totals 35 100%  $1,500.00

Does it look right? Look over every team member and make sure you feel good with how much each person is getting. If not, you may have to adjust your matrix. After this, scale the livin’ daylights out of it. What if your company grows like a weed? What will that look like? Do you still like the distribution? Also, if it grows like crazy, you may drop the percentage of what you’re putting in the pool so you can use those dollars to bless your team in other ways.

Now that we are bigger, our percentages are different. We like to take care of the team in fun ways as well. We are well known for our Christmas parties. This past year we gave away 310 iPads to our team members. We have given away cars, cruises, etc. But when we were really small, like when we were less than 20 people, Dave gave us a ham for Christmas. Why? Because we didn’t have the profit yet, and he bartered the hams for some on air talent fees. Because that’s what you do when you’re small —  just what you can.

Questions: Does this make sense? LOL! If not, which part(s)? Is this helpful to where you are in your business? Have you implemented a strategy like this? Click comment below.  

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  • David Phillips

    I love this!!! I am a little confused on how you apply the ranking for the departmental profit. How do you determine who gets allocated what number? Why did Emily get a 2 while Aaron gets a 4 and Lance get a 3?   

    • http://ChrisLoCurto.com ChrisLoCurto

      If Aaron’s department makes 100K, Lance’s 60K, and Emily’s 20K, they shouldn’t get paid the same. You don’t want all of Aaron’s profit to be going to other departments that didn’t make the money. does that make sense? 

  • femi

    Great blog! Lot of useful stuff.
    What of if you want to do profit sharing with only one person. A top class manager who is putting on the table his managerial skills to take the company to the next level and you cannot afford to hire him and he suggested a ”managing partnership profit sharing arrangement” How would this work? or what type of incentive package is suitable for him?

    • http://www.ChrisLoCurto.com Chris LoCurto

      First, remove the word partnership! :-) You can totally do this. As you have profits, share a percentage with this person. Assuming they are growing the profits. I don’t like to tell what the percentage is, because you don’t want anyone to back into your gross numbers. But it’s very doable. Did that answer the question? If not, hit me again.

  • http://www.coyotefinancial.com/ Profit Sharing Plan

    I like that you based your profit sharing scale on longevity first. Seniority should always be accounted for first!

    • http://Chrislocurto.com Chris LoCurto

      Amen!

  • Greg LeBre

    I like this a lot better than what I have done in the past. I operate a small Chitopractic office that was bringing in about 12-15k per month.My front desk person/office manager had been with the practice when I bought it and was making $11 per hour (9years ago). When we surpassed 15k I gave her 2% of everything over that. This doesn’t sound like much but since she worked 25 hours per week, it worked out to a dollar or two more per hour. It was also an incentive to her to collect the fees and help build the business. Was I being too cheap or would that be about right? Thanks for all your great ideas. .

    • http://Chrislocurto.com Chris LoCurto

      That’s not bad at all Greg. Byy calculations, that’s an extra $200-ish a month. That’s not cheap at all, especially for someone working 25 hours. My only suggestion is that you don’t share what that percentage is with team members. In case scaling messes things up and you need to change it. Also, (so it wasn’t my only suggestion) could you just give a percentage of the bottom line that equates to the same amount? That way she watches all expenses and is working to collect as much as possible. Just a thought. What do you think?

  • http://www.blastam.com Charles

    Thanks Chris! This is great.

    Questions:
    – How would you handle overlapping “profit centers”? For instance, we have a small team (<15) and our profit centers and people overlap a lot as we adjust on the fly. Should we act as just a single profit center? Or multiple and come up with a way to compute Dept. Profit?
    – How often do you evaluate Personal Attitude and contribution to Dept Profit?

    Thanks again!

    • http://Chrislocurto.com Chris LoCurto

      Thanks for the excellent questions. On the multiple profit centers, I would pay profits on the company as a whole, and then use departmental profit as one of your values. That’s how we do it. And we evaluate Personal Attitude quarterly.

      Thanks again Charles!

  • http://www.allstate.com/forrest Forrest Jenkins

    Thanks for the clarification, I was trying to connect the dots after EntreLeadership last month and this helps. Now I just need to work on scaling the grid for my operation.

    • http://Chrislocurto.com Chris LoCurto

      Fantastic! Are there any questions that you have after reading it?

  • Em

    Thanks for this resource. I have tried to explain this to other people, but have never been able to articulate it exactly. This is great!

    • http://Chrislocurto.com Chris LoCurto

      Thank you. Now you have a place to send them. :-)

  • Tom Brichacek

    I like the idea of holding back a portion for other blessings. The matrix answers a lot of questions for me. I was trying to base it on just longevity.
    Thanks Chris for all your work!!

    • http://Chrislocurto.com Chris LoCurto

      Absolutely! It’s a tough process to figure out, but once you have it going, it’s incredible.