Sharing Profits to Engage Your Team
Sharing Profits to Engage Your Team
This topic came up last week with a client. (Actually, this comes up with almost every client.)
They struggle to know and identify the key metrics. These will give them something to focus on so they can decide what to share. They want to share the profits, but it can be confusing.
This will change the dynamics in your company. It will also inspire motivation and focus for the team.
“Give me an example”, is what I get asked.
When we sell something, we assign costs to come up with a selling price.
The difference between what we sell something for and our cost is the gross profit (GP).
Let’s walk you through some calculations on GP, Labor, SalePrice and Cost.
You can use any example for any work that you do. Whether you are selling just your time or selling your time and materials (a solar project), the rules are the same.
Example: 6kW residential solar project at $2.50/W
Sale Price: $15,000 (6kW x $2.50)
Cost: $10,000 (This is what it cost you to do the work, turnkey)
GP (Gross profit) = Sale - Cost = $15,000- $10,000 = $5,000
GP/Man-Hour = GP/ Man-Hour = $5,000/ 24 (hours to do the work) = 208.33
GP% = GP/Sale * 100 = $5,000/$15,000 * 100 = 33%
Ok, we have those basic calculations.
If you know you make $5,000 on each project like this, how many do you need to do in a month to cover your overhead? Once this is covered, you will then know how much you can share.
And on the labor, if you create metrics, like the 208.33, then you can start to group projects into categories. Like in this example, you would be able to communicate to the team, that these kinds of projects have this kind of “score”.
When I say score, I’m using a sports analogy. Sports are littered with metrics, but the one we all pay attention to is the score. During the game and at the end of the game. It is a way to tell us how we are doing. Use this same metaphor in your company.
Back to sharing profits.
What can you share or what do you want to share?
Some basic guidelines:
1. Know your GP goals as they will drive a lot of what you do; you will be able to predict what a good job is going tobe and how many jobs in that category will cover your overhead for the month/quarter/year.
2. Cultivating ownership thinking takes time.Education and adoption is slow. However, you will sculpt your next generation of future leaders in your orbit. Make the time to go over this with your team.They will then know what is at stake and either participate in the group and its success or you will find new team members that want to be part of your tribe. This is about everyone’s future.
3. Track the numbers like a pro sports coach. The math will be your flag to follow. People can debate your style of leadership and management, but the math will be the equalizer to getting the team focused on the right activities and direct the company towards solidarity.
4. Set aside 33% (or about 1/3 of what you make to pay the taxes (or determine what this number needs to be- ask your accountant).Out of what is left, can you share the rest 50%-50% with the team? Consider investing a percentage back into the company for the rainy-day fund and other activities.
5. Make GP your “religion”. People often needs rules to govern how we live and behave. When there is money left over after each project (profit), then you can do more. You can pay better salaries.Better benefits. Be able to serve your clients 24/7. Attract top people. More for community projects that are important to you.
Lastly, when your team is focused on these metrics, itallows you, the owner to focus on long term strategy. It also gives you time off. Most business owners that I know and work with, often wish for this morethan anything. Working Monday to Sunday is not fun. It makes you question why you got into the business in the first place.
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