In my last post I went over how I scaled my company to 8-figures in 1.5 years, and a common question I’ve been getting is: How do you share profits with your team?
It sounds a bit intimidating at first to figure out a way to make money and then find a sensible way to give it to your entire team. Plus the word “profit” is a bit scary…do you have to tell your team how much income you make? Would they get upset? How do you calculate this exactly?
A quick backstory: I’ve been an entrepreneur for 14 years and grew my first company LIFT Enrichment to $10 million in annual revenue with very high margins. I live in Dubai (I enjoy saving money on taxes and living in a prosperous, safe and stunning city). My new company, Clinic Assist, helps dental clinics in Dubai grow their practice and improve their operational efficiency.
I write these articles because I love sharing what I’ve learned and helping others improve their businesses.
One thing I’m good at in business (and life) is to make things SIMPLE. I don’t like complexity, and if I can’t explain a concept to a 12-year-old, then it’s not for me. Here are some EASY techniques so you can confidently share with new prospective team members how you share profits with your entire staff in a way that’s healthy and exciting.
1) Don’t share “profits” but instead share “revenue.”
Revenue is so much easier to track. It’s just the gross receipts you collected in a month or a year. If the annual goal for your company is $2,000,000 in a 12-month period, you can very easily tell the team that there are going to be a few incremental milestones from January to December.
I recommend no more than 10 “milestones.” In this scenario, I’d probably make the milestones $200,000 each in total revenue starting from $200k to $400k to $600k, etc. all the way to $2 million.
If your goal is $500,000 in a year you can make it in $50k increments.
At each milestone, that staff member gets a cash bonus. It doesn’t have to be a lot, and you want to have the bigger milestones shared toward the end of the year, when your profit is better.
Easy example: George is an administrative assistant and your goal is to divide up an extra $6,000 in commissions as your company grows to $2,000,000 in 12 months
At $200,000 in total revenue, he gets $300
At $400,000 he gets $300
At $600,000 he gets $400
At $800,000 he gets $500
At $1 million he gets $500
At $1.2 million he gets $700
At $1.4 million he gets $700
At $1.6 million he gets $800
At $1.8 million he gets $800
At $2 million he gets $1,000
You should also have bonuses at $2.2 million (another $1k) and onward because you want to show there’s no ceiling.
If at the end of the year you hit $1.9 million, you should give HALF of the milestone’s bonus of $1,000 (which is $500) because it’s the right thing to do and you still had an amazing year.
Easy Graph:
Every month you need to show your entire team what revenue you hit that money AND the running total for the year.
Some months, you might cross 2 or 3 milestones…and that’s ok! (We pay out commissions from the previous month usually 10-15 days into the new month)
2) Base + Commission = More than you’ve ever made in your life
I know what you’re going to ask: But how much can I pay them? I can’t afford this (insert high-level position)…like a CEO or Sales Rep or Operations Manager.
Again, let’s keep it easy: all you have to do is have a Base and Commission in which the total is more than that person has ever made in their whole life.
Let’s say you hire a sales representative based in South America who has fantastic English, a lot of experience in sales and is very driven to join a better company. In their last job, they made $40,000 in a year, which is a good salary in that part of the world.
You might think that’s A LOT of money at your current stage of your business. If you could show them how their help will make them $50,000…they will be very excited to work for you.
Now let’s make a BASE + COMMISSION plan that is a win for everybody.
What you could do is offer them a $30,000 base and $20,000 in commission using a structure that I outlined in the first point.
By the end of the year they’ll have earned $50k, which is $24 an hour…but you’re only paying $15 an hour from their base.
(Quick note: Commissions don’t start until after the first 90 days of employment)
Now you can see how you are reducing the risk in the front and rewarding hard work done after a substantial amount of time has passed.
3) Bonuses are for EVERY STAFF member.
In my companies, the entire internal team that are working full-time get access to this type of “revenue sharing.”
If you’re a manager, your total earning might be $60,000 ($40k base + $20k commission)
If you’re an admin assistant, your total earning might be $40k ($25k base + $15k commission)
And so on.
Just make it available for your entire staff and it shows them, with real dollars, how their work impacts the entire company. This makes them more invested and EXCITED to hit any target you desire.
4) Make the Bonuses based off of CASHED revenue.
I made this mistake years ago.
I had the bonus for my sales team based on “booked revenue” or “signed clients.” The problem is that you haven’t received a dime and now you have to pay bonuses based off of cashed reserves.
It really hurts cash flow.
Plus, and this sometimes happens, the signed contract changes. I’ve had clients purchase 700 culinary workshops…but then for some reason it got shortened to 600 workshops. It’s rare, but it has happened…and now I have to go and “subtract” bonuses from the sales rep. It gets messy and complicated (and I like things simple!)
Then I CHANGED the structure so that the sales representative had to make sure the money was cashed and in my bank account and THEN they got paid. That, to me, is a win for everyone.
And we all know how time-consuming and annoying it is to chase down those invoices…so sales reps are now incentivized to get those checks!
My cash flow instantly approved with this system and we had HUGE 7-figure months this past year where everyone got paid handsomely (including me)
5) Sales Representatives Also Get Paid Off of New Business
I don’t like it when sales people are ONLY paid off of new business. We all know that clients are hard to get, but you get repeat business off of them. For sales reps, I want them to get paid MORE money off of new clients that they close, but also to enjoy the rewards of repeat clients that they helped bring in the past.
This also helps you delegate clients to sales reps so you, the owner, aren’t the one servicing them.
An easy structure might be for someone you want to pay $50,000 who is a sales representative.
You could make their base salary be $30,000, their “New Business” bonus $12,000 and their “Company Total Revenue” bonus be $8,000. 30+12+8 = 50
For the New Business total, you need to pick their 12-month target.
If they generate $500,000 in business over 12 months, you can break that down into 12 milestones and pay $1,000 each. Or you could break it down into 10 milestones and have it creep up so the first bonus is $500 but the last one is $1,500. Play around with the numbers.
Also know that it doesn’t matter if you make a mistake. If you “overpay” one year, your business still grew a substantial amount! Just try something for 1 year. It’s not a lifetime commitment because you can…
6) Change The Base + Commission Structure Each Year
As your business grows you have MORE costs. More marketing costs, software costs, insurance costs, staffing costs, etc. Inflation goes up. Laws (in the US) force you to add more expenses like Unemployment, Paid Sick Leave, Federal Taxes, State Taxes, Social Security, Medicare, etc.
It makes complete sense to update your base + commission goals each year for your staff.
Just try to show them how they will earn as much (or ideally, more) then last year.
Example: That sales rep who made $50,000 last year should have a structure that allows him to make $55,000 the following year…which is a 10% increase. How many companies would allow that?
However, the new annual target is $4 million in revenue, and you can break that down accordingly in 10 milestones like you did before.
We had one year where some of my staff got MASSIVE bonuses. Some were over $10k in a month!
For the new year, we looked ahead and saw how our Operational Expenses would increase a lot, so we toned down some of the bonuses but still ensured that people made a very good amount of money.
As long as I know my staff is doing far better than any other options…I know they’re inclined to stick around. Call it “golden handcuffs” if you’d like…but it’s a free market! If someone offers them a better salary (and lifestyle), they are welcome to take it.
But I doubt it 😉
7) For Sales Representatives You Can Change The Focus To Suit Your Goals
Here’s a more advanced tip.
Last year, we made a lot of money in California. But I don’t like putting too many of my eggs into one basket (or in this case, one state.)
We focus on after-school grants, and California has a lot of spending for enrichment for Title-1 schools.
I looked ahead and decided that I’d like more of my revenue coming from non-California states, so we had more long-term security. Instead of 98% California and 2% other states, I’d like to be at 70% California / 30% other states in 3-5 years.
We structured the sales representatives bonus plants to be MORE rewarded off of other states this upcoming year. They still get paid off of California school districts, but make even more when it’s from other states.
The sales reps were a bit frustrated at first, because they know how easy it’s been for us to gain California clients, but when we explained to them the WHY behind it, they understood. Our focus is long-term security and progress, not just short-term success.
You can see how my team knows about the internal workings of my companies. They know the monthly and annual revenue progress each month, as well as where we’re heading in 3-5 years. I’ll write more on long-term planning for future posts.
Until then, please share what YOU got from this article. If you have a question, I’m happy to answer it in the comments. (I get a lot of DMs these days, so it’s better to keep it here in the post)
And…I gotta plug in my new company. If you’re a dental clinic in Dubai, we are offering “lunch and learns” in which I will bring you a delicious lunch and share with you the 10 most important key metrics to grow your clinic. It’s free, and you’re going to get a lot of value out of it. Just book a meeting with the team to schedule a meeting with Eric.
Until next Monday, when I drop another long-form article…have a great week!