What's the best way to implement a profit sharing structure in a small agency?


The key is to keep it simple at first and focus on rewarding the right behaviour.

You can start by setting a gross revenue goal for the quarter, share with the team, and tell them if we hit that, that everyone will get a bonus.

So in some sense, it's not about profit sharing at first. The reason for this is, profit can be manipulated and nothing most employees do can effect this.

Also, you may not want to share profit with all your employees.

So here's my suggestions for thinking through this
- who's going to participate (founders, senior staff, everyone)
- set a goal that you can all contribute towards. (Customer satisfaction, Gross Rebenue, etc)
- Get a baseline for the current number (what was the gross Rebenue for the previous quarter)
- Start simple and small and see if it impacts performance of the team. If it doesn't, then it's not working.

Pro tip: Report on the goal as frequently as you can so everyone knows as soon as possible if you're on track or not.

Hope that helps.

Answered 11 years ago

You want to reward both the activities which you believe have the highest potential to drive good outcomes - and the outcomes themselves. Why? Because sometimes the outcomes don't happen by no fault of the person doing the activity, so you want to reward that. That said, just rewarding the activity and not the outcome doesn't put the right emphasis on making the outcome happen. So, put about 33% of the reward on the activity and 66% on the outcome.

And make the payout structure simple and clear. Tying it back as a percentage of salary, tiered against % accomplished, is a good one. Also, consider payiny twice a year instead of just once. One payment could be cash, the other could be equity, say. This keeps focus on the outcomes top of mind.

Answered 11 years ago

2 Simple ways are by dividends and by contract. Either you give them shares and divide profits by issuing a dividend, or you have a legal contract that stipulates such.

However, as a business owner - I would suggest that you think twice before profit sharing.

You should pay fee's for contracts, salaries for employment, or commissions for sales.

Sharing profits should be reserved for shareholders.

However, in my opinion, private companies should reinvest profits to grow the company and not suck out profits.

Doing so will make it more difficult to find investment or grow/sell the company.

Answered 11 years ago

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