One of the most difficult parts of business is finding the right employees.
A great employee can yield a 1,000x return, while a bad one can cost you money.
That’s why when you find a great employee, you want to do everything you can to hold them.
One of the best ways to do this is to give your employees a sense of ownership by including them in profit sharing.
Sharing profit with your staff accomplishes 2 major things:
1.- It Gives Them a Sense of Ownership
In a sense, you are giving them a piece of the business (without giving them equity). If the business is hitting goals, they join in the success. If the business underperforms, they feel they weight of that, too.
Suddenly your staff are thinking beyond their role. Instead…
2.- They Are Focused on the Big Picture Success
It’s easy for employees to get tunnel vision with their role. All they are focused on is their metrics, targets, and goals. While this isn’t a bad thing, the best employees are focused on the bigger picture.
They look beyond their job. They see how their efforts impact other departments and the company as a whole.
The easiest way to give them this expanded view is to incentivize it.
So what is the best way to structure a profit sharing program? I’m glad you asked.
How to Set Up a Profit Sharing Program
1.- Open a separate bank account nicknamed “Profit.” Every time a dollar is earned in your business, set aside a percentage to profit. (If you want to know the right percentage to use, click here to get your specific numbers).
2.- Once per quarter, pay out profit distributions. At the end of a quarter, take 50% of what is in the profit account and pay it to yourself as a profit bonus. You are the most important employee in your business, so you get the larger portion of the distribution. If you have a partner, split this with them based on your owner’s share.
3.- Give your employees a portion of the other 50%. Take a portion of the other half and give your employees a portion of it. Let’s say you have $10,000 in your profit account and one of your employees gets 5% profit share. $5k (50%) goes to you, and they get 5% of the other $5k. So their profit bonus would be $250.
4.- Put the remaining in a vault or emergency fund. Once distributions have been paid out, put the remaining percentage into a vault or emergency fund.
5.- Revisit annually. Put it in your employee handbook that percentages will be revisited annually. As the business grows, and more staff are hired, you may need to adjust percentages.
This benefit isn’t something you need to give out on day one. Nor should every employee receive the same bonus amount. You can drip percentages based on a number of criteria, such as:
1.- Years with the company
2.- Title/Job position
3.- Revenue generated (how much they make the company)
The most important part is making sure it lines up with your values and direction. It’s okay to get creative, and to make changes over time until you land on something that works.
I just helped a client create a profit bonus program in their business and would love to help you do the same. Click here to schedule a free consultation.