Can Sharing the Profit Make You More Profitable?

Can you make more money by giving it away? Yes! Investing in your employees can cause a chain of actions and reactions that perpetually create more profit!

Rejecting the Typical Profit-Sharing Plans

When I started my first business competing with my former employer, I set out to create a culture that would be healthy, and happy, and where every employee felt like the company was theirs. As a single mom with only a high school education and no formal business training, I pondered HOW to make that happen – to ensure that everyone had a vested interest in our success, something that would keep them from becoming complacent…or worse.

How about a profit-sharing plan? After hours of research, I rejected the typical corporate plans for a few reasons. First, most are based on a percentage of salary – the higher your salary, the greater your share of the profits. Second, many plans allow for annual distribution, not monthly, so there was no real connection to the individual or departmental work.  Finally, the net result, the actual distribution, seems unconnected to recent performance – in fact – in the typical plan, the corporation can arbitrarily choose not to make any distribution, regardless of company performance.

A New Type of Profit-Sharing Plan

For those reasons, I created my own profit-sharing plan—the single-best business idea I ever had! It was a profit-sharing plan unlike any other, one that changed behavior because it connected the dots between an employee’s actions and the company’s bottom line, thereby creating an atmosphere that rewarded and incentivized the employees to make the company more profitable.  Here’s the plan I developed…

Share your P&L with your team

Once a month, we’d gather all the employees together for a review of the previous month’s financials. Yes, we shared the P&L. We showed them how much revenue we brought in and how much profit we made, and discussed the factors involved. When we had a good month (because everything went according to plan, and everyone did their part) the results would show it. And when the month wasn’t so good, we’d discuss why. Because the discussion was about what we did last month, we knew where we’d screwed up and what to change to get back on track. There was a direct association between actions (or inactions) and the bottom line.

Distribute the Profit Evenly

Next, we took 10% of the net profit and distributed it EVENLY among all employees, regardless of title or tenure. That meant that the CFO received the same amount as the receptionist. Why was the split equal? Doesn’t it seem like the executive team members should make more money? Listen…they already do!  They had a higher salary which was tied to their level of education and experience. Instead, the profit share was split evenly to let each person know that they were just as important as anyone else when it came to our reputation for delivering high-quality service. If you think I’m wrong about that, think about the last time a clerk in a coffee shop or an expensive boutique ignored you, leaving you to fend for yourself. How did that make you feel about the brand they represented? Or do you think the custodian shouldn’t get an equal share? That their work isn’t that crucial? Well, how eager are you to go back to a restaurant when you see how dirty their restrooms are? Every person and every role matters! You’ll have a hard time convincing me that any one member of the team is more important…or less important than any other. And that’s why we shared our profits equally.

Put It On Paper

The third factor that made our profit share a game changer was that we issued a paper check, handed out right there at our monthly meeting. Though we could have just added the amount to the regular payroll, the physical act of handing someone an envelope, and watching them eagerly tear it open, was part of the fun and the reward. You know why? Because WE did it, WE worked together to craft that profit and WE shared it equally. Whether the checks we received were for $50 or $500, the celebration was just as loud, just as real.

For more details and stories about my profit-sharing plan, watch a recording of my workshop “Profit Sharing: A Plan That Creates More Profit”:

A Successful Profit-Sharing Plan Will Change Behaviors

How did the profit-sharing change behavior? Much of the change came from the transparency of the process. When we shared the financials openly, it gave the employees a critical understanding of how we made money, thereby giving them insight into their own role and how it could be used to effect change. Since you’re an entrepreneur, the money-making part of the equation probably comes naturally to you: it’s part of our DNA. But the others don’t think that way automatically. Not until you show them why it matters to them and how it can impact their lives. Then, they’re all in. Now, they have the power and the desire to make better decisions and the confidence in their own ability to be part of the solution.  And then to benefit from the changes they make.

The profit-sharing also incited thoughtfulness. I recall a time when a department was asking for two additional people, claiming they just couldn’t handle the increasing workload. (We were named an Inc. 5000 company for ten consecutive years, so we were constantly growing). I approved the notion of hiring a few more people but asked the manager if he’d considered how the profit share would be affected – dividing the profit with two more people. The next morning, he bounded happily into my office to tell me he’d worked out the shifts and the workload… and that only one person was needed! He and his team found ways to be more efficient, allowing us to scale, allowing us to be more profitable, with everyone benefitting.

…And Attract the Best Employees

Finally, we were thrilled with the way the profit share attracted and retained the very best people. Think they’re going to be lured away when you’re investing in them by sharing the profits? Not a chance!

If you’re hesitating, thinking you don’t want to give up some of your profit, you’re looking at it the wrong way. You’re not GIVING anything. This is an INVESTMENT. If you invest 10% of the profit back into your team, they’ll help you grow that profit! It’s the best ROI you’ll ever receive.  Fully engaged employees with a vested interest in the company’s success take better care of the customer. That creates loyalty with the customer, which then translates into higher profitability. The better the profit, the better the reward for ALL stakeholders.