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Hi, I'm Jim's AI assistant. Ask me anything about how Jim shared the profit, what went wrong, and what he'd do in your shoes. Here are a few questions owners ask a lot.
Please don't share anything confidential. Privacy
Straight answers, from my experience.
How much of the profit should I share with my team?
I shared 30% of the profit above a starting line, and I think that's the sweet spot. It's big enough that people talk about it at home. Much less and people shrug. Much more and you add cost without adding effect.
Set the starting line at the profit you make today. You keep all of that, and the team shares in the gain they help create.
Should profit sharing be equal, or based on salary?
Equal. Salary already pays for differences in skill and role, as long as every role is paid fairly for the market. The share is for what everyone does together.
I tried rating people and I looked hard at prorating by salary. Both turned into ranking people in disguise. Equal shares gave me equal buy-in and healthy peer pressure.
Is profit sharing the same as a bonus?
No. A bonus is usually decided by the owner, often person by person, and nobody is quite sure how it was worked out. Profit sharing runs on a simple formula everyone can see, gives the whole team the same share, and moves with the business.
That changes the question people ask. They stop asking what they'll get and start asking how we're doing.
How often should profit sharing pay out?
Once a year. Smaller, more frequent payouts lose the emotional hit. A year also gives you several cycles of strategy, action and improvement before the score is final.
How do I set up a profit sharing plan?
Keep it simple enough to explain on a whiteboard. Decide what counts as profit: money in, real costs out. Set your starting line. Pick the share and make it equal. Then build a scoreboard your team can read, and talk about it every week.
Launch it with everyone at once. In my experience the design takes a few weeks, and it takes three to five months to settle in.
What happens in a year with no profit?
No profit above the line means no payout. That sounds harsh, but the team has watched the scoreboard all year, so it's never a surprise. Keep up the communication in lean years. There will be plenty of ideas for making next year better.
Who should be included, like new hires?
Everyone, or it isn't this system. Decide your rules before you launch: who's in, from when, and what happens if someone leaves. We included new hires after a short probation, and you had to be employed on payout day to get a share.
How do part-time, hourly and seasonal people fit in?
Same share for the same time. My team was all full-time, so here's how I'd handle it.
Count each person's straight hours for the year, divide by full-time hours, and cap it at full-time. Someone working half-time gets half a share. A seasonal worker who put in four months full-time gets about a third. Salaried people simply count as full-time.
Leave overtime out. Otherwise long hours earn more than good results, and the salaried people who stay late for free fall behind.
One rule changes. Normally you have to be employed on payout day to get a share. For seasonal staff, it's employed on payout day or finished your season in good standing. They helped earn it, so they share in it.