Tag Archives: Profit sharing in the United States

September 29, 2011

Commission vs. Profit-sharing

By Chris LoCurto
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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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12 comments   |  tags: , , , , , , , | posted in Leadership, Small Business

August 19, 2011

What Should You Do With Profits?

By Chris LoCurto
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Recently, we launched the First Ever EntreLeadership Podcast after receiving many requests for it. The goal was to create an additional way of teaching the EntreLeadership principles. The day we started, it went straight to the No. 1 spot for Business Podcast downloads and was the No. 2 Overall Podcast download.

Now that the podcast has debuted, we want to hear from its listeners. I will answer some of the questions via the podcast, as well as through my blog. One of the first questions we received at podcast@EntreLeadership.com was:

I own a small financial coaching business on the side and average about $2,000 worth of sales each month. I do not have any employees at this time, and I am unsure what to do with the income in regards to profit. Is there a formula I should use to allocate those remaining dollars after operating expenses for things like advertising, retained earnings, paying myself, etc.?

That’s a fantastic question that so many people ask. Here are a few steps you can take:

  • Take it home! - Now, when I say, “Take it home,” consider whether you actually need the money at home. If so, take what’s necessary for a living wage (how much you need to live on). If you don’t need the money, you still probably should take home something small so you emotionally feel like you’re winning. Otherwise, look at all the places inside your business where you can grow.
  • Piggybank it! - You need to be saving money and building up retained earnings that equal 50% of your annual expenses. That number should be whatever it would cost you to keep your doors open for six months if you didn’t obtain any new business. It’s not overhead and the expenses of your current orders. If you don’t have any new work, you don’t have to pay those expenses.
  • Grow it baby! - Where do you need to spend money to grow your business? Most likely marketing, possibly advertising, or, even better, sales people! Can you invest into team members who bring money in the doors? If they’re commissioned sales people, it doesn’t take much from you to get them going.
  • Look out! - Or better yet, look ahead. If you’re good on the previous three options, start looking at a percentage of your income to put into an HR fund. This amount could be for profit-sharing, Christmas parties, special outings, helping team members with needs, etc. Obviously, it’s not needed if you don’t have a staff. But as you grow a team, you should take care of them.

Percentages are really based on your needs at the time, as well as what you’re willing to share. You make the decisions, just always be thinking about your team.

Questions: How have you used profits in your business or what questions do you need answered?

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13 comments   |  tags: , , , , , , , | posted in EntreLeadership, Leadership, Small Business

July 25, 2011

Why You Must Hire Correctly!

By Chris LoCurto
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It is a great honor and a privilege to be able to help so many people with their businesses. And because I love it so much, I always encourage my readers to ask me questions. Doesn’t matter what it is, I will do my best to answer it. So many great questions turn into posts that I’m able to share with everyone else.

Here is one of those posts. David Branch has attended both our EntreLeadership Master Series Dave taught in Cancun, and the EntreLeadership I taught here in Nashville. He brought three of his top guys along with him to my event. Let me say, that was the right thing for him to do with his business. Getting those guys on board gave him a huge advantage.

In Q & A On Profit-sharing and Q & A On Profit-sharing Pt. 2, David and I discussed how he could pay his team more money from profit-sharing than from high salaries, which were killing his bottom-line. After we talked that through, we discussed his need to offer lower salaries and the opportunity to make a lot of money through bonuses to potential new team members. We also talked about the importance of taking the time to find right people, not just offering a high salary to get someone on-board.

Below are two emails that I received from David. The first was not too long after we discussed his need to change his interview process. And the second is one month to the day later. Enjoy:

6/12/11

CLo: What are your thoughts on what we talked about?

DB: In my view I will pass up a whole lot of potentially great people because they have past financial sins that do not allow them to take a risk.  What about the guy who feels the risk is worth it, but has a mortgage, car loan and three kids and a wife, and has to make $50k or more to just meet his bills?  Not knowing enough about our company, he may not be in a position to take that chance.  

I know it may be worth it, but hiring has gone from what used to be a single interview to see if I liked the candidate, and if I did I made them a salary or hourly wage offer.  This new way will prove to be better, but it’s a total “pain in the butt.”  I have thrown away hundreds of resumes and had numerous interviews and hired nobody. Am I asking too much? It’s almost as if I’m looking for someone who doesn’t exist.

Thanks again for the therapy session !!

7/12/11

CLo: How are things down there?

DB: After a lot of prayer and endurance, I have finally found some qualified candidates to hire.  We have been stretched so thin for so long and are getting a bit burned out.  Stewart and I met for prayer a time or two, and we prayed specifically for great people.  We have been hiring for three positions and out of hundreds found NONE.  Then in one week we found people for all the positions. 

Definitely GOD!  Thanks for stressing the importance of being patient and waiting. I found myself wanting to compromise just to get relief, and now I am so glad I held the line. Now I have to pray that our work load sustains and bonuses are good. 

Three keys to David’s success:

  • The right compensations calculation
  • Prayer
  • Lots of patience

We can have the first two, but without the last one, you will find yourself in trouble.

Question: How has hiring the wrong way affected your company?

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16 comments   |  tags: , , , , , , , , , | posted in EntreLeadership, Leadership, Small Business

July 6, 2011

Top 10 Posts and Commenters of June

By Chris LoCurto
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Here are my Top 10 June 2011 posts according to your clicks and forwards. Of the top 10, 2 are guest posts! You can find out how to guest post on my blog by reading You Got Somethin’ To Say? My About page was in their as well, but I took it out of the running. Each of the top 10 commenters will receive a free copy of The Legend of the Monk and the Merchant.

  1. Q & A On Profit-sharing
  2. How To Do Profit-sharing
  3. How To Do Profit-sharing Pt. 2
  4. What’s It Worth To Ya?
  5. Do You Really Care?
  6. Step Over The Line! – Guest post by Louise Thaxton!
  7. Interview with Jon Acuff
  8. Goals? In June? Crazy Talk!
  9. “I’ll Think About It”, and Other Exit Strategies – Guest post by Jana Botkin!
  10. Leadership From Four-star General Stanley McChrystal

Here are my top 10 commenters of June 2011. Thank you for your input!

  1.  Louise Thaxton
  2.  Jana Botkin
  3.  Tom Brichacek
  4.  Chris Johnston
  5. Kim Little
  6.  Misty Gilbert
  7.  Eric Speir
  8.  Lance Cashion
  9.  Emily Plunk
  10.  Jon Edlin

If you are enjoying the posts, please feel free to let others know.

I would love to hear…or read your comments. Please click the link below.

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11 comments   |  tags: , , , , , , , , , | posted in EntreLeadership, Leadership, Small Business

June 14, 2011

Q & A On Profit-sharing Pt. 2

By Chris LoCurto
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David Branch of Branch Contractors sent in a few great questions about profit-sharing. In Q & A On Profit-sharing I answered David’s questions on how to explain profit-sharing to a prospective team member, as well as how to pay it out. Today we continue with the rest of David’s questions:

David – In the probationary period of a new hire, do I offer a higher salary at the beginning, with the understanding that after the probation period, the salary will be reduced due to them being enrolled in the profit-sharing program?

CLo – Absolutely not. The salary range for the position needs to match what the position is worth. The amount in that range that you pay to the new hire should be based on their experience.

Profit-sharing is given freely from the owner/leaders on top of salary as a way of rewarding team members for going the extra mile, as well as a way of incentivizing them to continue to do so. Otherwise, if you want to keep the salary low, but have them count extra moneys as part of their pay, you would need to put them on some sort of commission plan.

David – I hired a guy about three months ago understanding that he would only be temporary, (moving family to Texas) but was hoping he would possibly stay.  I put him on the profit-sharing incentive and he has done well. As it turns out, he is moving July 15.  My question, since he is moving, should he receive a bonus on the 15th? Kinda simple but I’m still trying to get this profit-sharing figured out.

CLo – Another great question. I have no problem with you paying out profit-sharing for the time that he works with you. If the 15th check is for the previous month, go ahead and pay it out. He contributed to the profit made during that time. However, if the he was leaving because you let him go, then I feel you have no obligation to pay him from the profits. Salary? Of course, because he earned it.

Questions: Do you have any questions related to profit-sharing? If not, are there any other subjects you would like answers to? If so, click comments and let me know.

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3 comments   |  tags: , , , , , , , , , | posted in Leadership, Small Business

June 13, 2011

Q & A On Profit-sharing

By Chris LoCurto
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David Branch of Branch Contractors, an EntreLeadership alum, asked a great question about profit-sharing. I asked him if I could answer it through the blog, and he was happy to share it with you.

David – Hey Chris! I hope all is well.  I have a team math question. I watched one of your videos from Entre and in it you said something to the effect that the new hire should be passionate and excited about the position, and money should not necessarily be the focus.  Well, I try to get that across to the new prospects in sort of round-about way, mostly because I have a hard time explaining a system to them (profit-sharing).  

As you know, I cut salaries and my new policy is to cap them out at $40k.  So, when I am selling a position to a prospective hire (one who I really think I would like) I tell him that he should expect a $35k salary plus profit-sharing.  When they ask the percentage or how it is calculated I tell them they do not get a fixed percentage, but rather I split it up as I see fit based upon each individual’s performance.

This seems to stump them a bit. They are not sure about their target or what it looks like to win with us. The guys who are part of it understand, but the new guy has no idea. And then they always have to sell it to their spouses as well.  In this particular hire, the guy would be moving from Illinois, so I completely understand his concern. Any tips on how to make this easier for them to catch on to?

Thanks again for all your help.  I am trying to get a group together to bring to the July EntreLeadership

CLo – Thanks, David. I believe there are a few pieces I can answer. On the idea of passion, my belief is that you need to hire someone who is passionate about the position, not someone who is only concerned about the pay. That person is only looking for a j.o.b. The person whose eyes light up when you explain what they will be doing will always be focused on the position. If you pay well and they can afford the job, they will make the right decision.

As for the profit-sharing, they have to have a decent idea of what to expect. We always let our prospective team members know that profit-sharing is not guaranteed, but our track record allows us to give them an idea of what it will be. There can be no confusion as to how they are compensated. Otherwise, they can become paralyzed in their work.

As for the percentage they are paid, no team member should ever know what that is. However, I believe you need a solid, easy-to explain system in place. In How To Do Profit-sharing and How To Do Profit-sharing Pt. 2, I discuss how to implement a system that pays according to what you value. We tell our prospects that we pay according to set values and that they can have an effect on each value. Therefore, they are self-employed. The more effort they put in, the more profit-sharing they get.

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Question: Where do you struggle most when it comes to profit-sharing?

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5 comments   |  tags: , , , , , , , | posted in EntreLeadership, Leadership, Small Business

June 7, 2011

How To Do Profit-sharing Pt. 2

By Chris LoCurto
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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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20 comments   |  tags: , , , , , , , , | posted in EntreLeadership, Leadership, Small Business

June 6, 2011

How To Do Profit-sharing

By Chris LoCurto
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Business leaders and owners ask me all the time, “Sooooo, should I implement profit-sharing? And if so, how?” It’s a fantastic question, but there are a few questions I always have before I answer.

First of those is, do you actually have profit? You would be amazed at how many owners or leaders have a huge heart, and want to share with their teams, but it would be at a loss to themselves. In other words, they might not have much of a profit, but they want to give their team a spiff anyway that would come out of their salary.

This is not a good plan. How can you keep your doors open if you can’t keep food on your own table. Trust me, if your team is earning a good wage, they can do without profit-sharing while you and the team work to get profits up. Simply put, you can’t give from that which you don’t have.

The second question is, why do you want to give profit-sharing? Is it because your team is doing such an amazing job that you want to share? We always go with the old saying, “Dance with the one who brung ya!” Or is it fear based? Like, “If I don’t give, I’ll lose my team.” If it’s the first, great job leader. You’re headed in the right direction. If it’s the latter, and that’s what it takes to keep your team, you’re never going to be able to do enough to keep them happy.

If they are there for your profit-sharing, then they are just there to work a j.o.b. What you want are people who are on board because they realize that what your company has to offer is bigger than them. You’re looking for someone whose eyes light up anytime they are talking about the position you’re putting them in. These are the people you share with!

So what does sharing look like? It’s a lot of info for one post. See tomorrow’s post where I will break it down for you.

Question: What issues do you have with profit-sharing? What questions do you have?

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16 comments   |  tags: , , , , , , , | posted in EntreLeadership, Leadership, Small Business

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