Are you interested in more profits in your business, but maxed out on the amount of hours you can work?
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Today we are talking about money and financial impact to your business, and specifically about how to increase your earning potential by leveraging a profit share incentive model.
Profit Share Incentive Model
If you are a service provider on the operations side of a business, the most common ways to charge are either:
- flat fee/retainer wage: same fee every month for a specific deliverable
- hourly (check out Episode 85 which discusses moving from an hourly to a outcomes based model)
- project based model
Regardless of the way you are getting paid, what these models all have in common is a cap. Whatever you charge is the maximum you will earn for delivering the exact same work.
Our counterparts on the marketing side of the business are typically the ones who can earn commissions… it’s standard for them to be able to earn commission, a percentage of sales, or even a bonus. This makes sense because their work generates sales, which brings in revenue to the business.
While the marketing side generates sales, the operations side is hard at work containing the expenses of a business, finding efficiencies, increasing productivity, optimizing the delivery of products and services, and managing the team. Both arms are needed for sustainable growth and scaling, but it’s most common for the marketing arm to have the uncapped earning potential. There is really no risk for marketers to ask for an increase in compensation if they exceed their goals.
When I was working as a Director or Operations (DOO), I became resentful that the ability to earn more wasn’t available to me like it was my counterparts on the marketing side… even though I worked equally as hard, drove results, and consistently worked more hours in the business. One day as I was reviewing the financials for a client, I had a breakthrough. I realized that their profit margins continued to increase quarter over quarter since I joined the business as a Director of Operations. It changed everything for me… my excitement for my role, my commitment to my business, and it gave me the confidence to ask for what I wanted.
I’ve always found that I’m much more comfortable in conversation with leaders when I’ve had success in my performance and the relationship between me and the leader is productive and positive. Once I hit my groove, I am able to see myself as a valuable asset in the business.
How to Address Leaders
The biggest barrier that DOOs experience is how to address the leader, and there are ways to have this conversation with the leader so it can be a possible tool you can use for incentive pay and increased compensation.
- Access to financials. If you don’t have access to financials, this proposal isn’t possible. If you don’t have access yet, you will need to work to get to the point where you are a trusted business advisor.
- Review the financials. Make sure there is a positive scenario that would support your request. If you’ve been in the business for a while and the profit margin has jumped around, I encourage you to look at it quarterly or in 6 month increments and to note traction and growth from your impact in this business. From the time you have shown up in the business, quarter over quarter can you see that there is growth and an increase in profit margins?
- Model the percentages. For example, I’ve seen everything from 3-15% of profit share proposals. It depends on what the business looks like, revenue, and profit margins. In the DOO certification program, I’ve developed a detailed process for this.
Make sure you schedule this meeting and put a lot of thought into it. Do not piggyback off an existing meeting. Be prepared to share the impact you have in the business and also what the impact of moving to a model like this would do for the business.
For instance, you will have a greater dedication to the business. Also there is no risk to the leader; if the profit margin doesn’t increase, they won’t be paying you additional money. It gives them the ability to incentivize you without cutting into the overall finances. Often service providers will want an increase after 6 or 12 months because of the outcomes they’ve achieved. You can do this in two ways:
- The safe way: a profit sharing proposal
- The risky way: a flat fee increase which they may or may not get a return from
Moving to this model allowed me to earn more, and be “all-in” in a business. Business owners are longing for service providers to be ‘all-in’ in their businesses.”
It also kept me focused on one business, rather than having to serve multiple clients, which allowed me to focus on outcomes from a profit margin perspective. I was learning new strategies that would benefit the business, and I spent lots of time designing strategies that would show returns.
- I became extremely cautious with spending and became a trusted partner in critically reviewing purchases. I was all in to make sure we had a safe profit margin.
- I created systems to collect payments. When payments failed, I was putting processes in place to get that revenue back in the door.
- I looked at how we designed our pricing models.
- I created processes to make sure the team worked efficiently, which reduced overhead.
I was able to move from a flat fee retainer, to this creative and easier sell for the business owner because it was so low risk to them. Clients are frustrated with turnover, and they want you to be invested in their business for a long time, so this is a win-win solution that I hope you consider as you develop as an operator.
Weekly Ops Activity
Do you plan to incorporate profit sharing in your pricing model? Do you have a client that you can bring this to? If not, will you commit to developing your leadership skills so you’re able to acquire access to financials?
Previous Episodes Mentioned
Episode 85: Up-level by Transitioning from Hourly to Outcomes Based Pricing
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