Should You Share the Profits With Your Team?

[00:00:01][music] >> I've always wanted to share our profits with [music] our team. And I've done it a whole bunch of different ways. And about the only thing I'm sure of is we're going to change it. We change it all the time. But we're always going to be sharing.

[00:00:18]>> [music] >> Now, I'm not into corporate gimmicks or handing out extra money just because it's the end of the month. I've always believed that if you kill something and drag it home, you should eat some of it.

[00:00:28]That's life and that's business. So, if you show up, do the work, create value, and serve customers, [music] and there's something left over, then the people who helped make that happen should also benefit from it. Profit sharing is a way to say, "We appreciate you. Thanks for all your hard work. You're one of the owners." And we made the decision to talk about it openly as a company.

[00:00:52]Nowadays, we do it every single month because when your team understands how [music] profits work, something powerful happens. They stop acting like employees and they start thinking like owners. But the moment profit sharing [music] becomes expected, entitled, instead of earned, it stops doing what it was meant to do.

[00:01:12]On today's episode, EntreLeadership's head coach John Felkins is sitting down with Ramsey Solutions CFO Jeff Williams to talk about how we share the profits with our team and how to do it in a way that builds culture instead of entitlement. Let's get to it.

[00:01:30]>> Hey Jeff, thanks for being here today.

[00:01:32]>> Glad to be here. Thanks for the invite.

[00:01:33]>> One of the hottest topics we get when we're talking to business owners in EntreLeadership is profit sharing.

[00:01:39]That's something that we do. A lot of questions. A lot of questions about how.

[00:01:43]I just want to start with should people be doing that and why should they be doing it?

[00:01:48]>> if your business is healthy enough to where you can reasonably put aside some money to share with your team, you should do that every chance you get. You may not be able to do it from the very beginning, Uh but I I would say having an aspiration to doing that over some point in your growth path, I would encourage you to do that. I hear a lot about, you know, I got a Christmas bonus. Why don't we just give a Christmas bonus? How how is it different than that?

[00:02:10]>> Well, you could do that, but it takes away the connectivity and the alignment with how the company's doing. If you call it profit sharing, if you actually calculate it that way and treat it that way, it makes the team feel like they're part of what's going on. Much more connectivity than oh, I just got a handout from the the boss for Christmas.

[00:02:32]It feels way different, and so that's why we we paid out every month. We talk about it every month, and it's it's cuz it's a big part of who we are. It's a And I'll tell you, it's something incredibly unique. I've never been in with a company that paid profit sharing down as far down in the organizations as we do.

[00:02:46]>> You actually just talked about it at a staff meeting. Talk a little bit about like what goes into that, what you share with the team, and and if you could uh just go ahead and mention which team had the largest profit growth uh that you shared this morning.

[00:03:00]>> Um are you talking dollars or percentage?

[00:03:03]>> Uh just that say the big number and which team >> Percentage? Oh, okay.

[00:03:06]It was on tree leadership. That was yeah.

[00:03:08]>> Okay, go ahead.

[00:03:09]>> Okay. Yeah, we put a lot of effort in uh into how we communicate that, how we celebrate that, because we want the team to know that what the the outcomes of their efforts looks like. And and then also feel the connectivity in their own pocket to their to the work that they've done.

[00:03:26]And it's hard sometimes. People that are in uh within a business unit here that are doing work directly with customers, they can see it very easily. Somebody who sits in the legal department or HR department or something like that, they may not be able to see it as close, but we want them both to could be connected to it. And so, we talk about that uh in in our weekly staff meetings. Once a month I'll get up and after we close the books and talk about how we how we did versus this same month last year and then the month before what we just ended just so they can see here's the way things are going. They can see for themselves some level of visibility into how the company's doing.

[00:04:00]>> So, you just hit on a little bit but I want to I want to slow down a little bit here. I'm not asking you to share the the actual numbers but could you just walk through literally like we share this and then we share this and the metrics that you're looking at financially that you want the team to know cuz I think a lot of people watching this they they get the idea of profit sharing but they don't actually know how to do it or what they should be sharing.

[00:04:22]>> Yeah, what we typically try to go with is a I start out with just giving some shout-outs and and we here divide them up by teams.

[00:04:30]This past month as you rightly said on Trey was one of the top ones in terms of their percentage growth year-over-year.

[00:04:36]We want to help them see kind of how we think about the the profit statement as well and so whenever I talk about any business unit that I'm giving a shout-out to I'll talk about how their top line grew and then how their bottom line grew. And not everybody understands that connectivity but what I try to do is if the top line's growing at 10% and the bottom line is growing at 25% that means that they're managing their expenses really well too. And so I want them to see cuz a lot of times on the expenses that's where a large portion of the our team sits because they they don't deal directly with customers and but we want them to at least think about that math of here's the part that I can do. I can save some expenses and we talk about it in terms of the business units at that level and so whenever we get to the whole company-wide percentages that we put up for the whole team that's a little bit further down the profit statement after everything else has been paid. It's really how much cash is left over and how much did it grow year-over-year because that's the profit we were able to distribute out to all the team and it's it's a lot of money.

[00:05:30]>> It is and you've said it a couple of times. I'm curious why. Why percentages?

[00:05:35]Why do you use percentages?

[00:05:36]>> Well, for us what we what we've tried to do from the beginning is to let everybody feel how they're connected to it but again we're not a public company and we don't want our financial information out there on the street for other folks who may or may not like how much money we make or how much how little or much we make. And so we we try to keep the the visibility of what the dollars are as across the company to a very small group of folks from a control standpoint.

[00:06:00]>> And there's always something that you do at the the end of every every meeting.

[00:06:05]What is that? What what's that statement that you just like you hammer us with it.

[00:06:09]>> Well, I want to make sure they they again they feel the connectivity and so I always say y'all remember how this takes place, right? Profits are created when revenues go up and expenses go >> down.

[00:06:19]>> Remember you're all self-employed and so that was something that was you know predates me. I just started doing it whenever I was given the opportunity couple years after I started here. But again it's a reminder at the end the last thing we want them to remember >> Mhm.

[00:06:33]>> is that this is how profits are created.

[00:06:34]>> Okay.

[00:06:35]>> They're they're you can create them two ways. You can either add more in revenue or you can save some in expense. It has no chance to get to the bottom line if it doesn't come in the top line.

[00:06:43]>> Yeah.

[00:06:43]>> But once it's here how we manage it down is really really important.

[00:06:46]>> I feel like people get squeamish when they start talking about profit or just the finances of their business but but we don't do that. Dave hasn't set that that tone. Why do you think that is?

[00:06:56]What connection is Dave making between the finances of the business and what's happening with our customers?

[00:07:02]>> Well, part of it's about trust. We want them to know we trust them with this information and we want them to see how they relate to that information and he has always been somebody who's very very transparent as much as he can be on how the businesses are doing and all those kinds of things because it's something we want to celebrate and we want the teams to be celebrated in the in the process. But we always finish with remember you're always you're you're self-employed and that is again one of our core values self-employed mentality and we want the team to know that everybody has a hand in how these earnings turn out and we want them to to feel that whenever we making that announcement.

[00:07:37]>> So you want them to to have that sense of ownership. Remember we're all self-employed.

[00:07:44]Talk a little bit about what we hope that actually translates to to the person on the call, on the computer, doing their work day in and day out.

[00:07:54]>> them to remember it. It's the last thing we say before I come off the stage. We want them to remember it because the next time they're on the phone with somebody and that somebody's got a problem or they're needing help our help or they need our advice. We want them to go the extra distance to do that like they were the only one here. It was a one one one person show, what would how hard would they work to make that happen? And it's the same thing for folks who are maybe a far distance from the customer. Someone who's working to something on a legal matter. Um we want them to have the same mindset of the way I walk this out, the diligence that I put in the work that I'm doing going to have a big impact on how much money comes in or goes out. And if we're all walking that way and we seek to do that all all the time, it makes a huge difference in how things go.

[00:08:37]>> We'll get right back to our episode.

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[00:09:55]Let's get back to the episode.

[00:09:59]>> What's your advice for somebody who's not doing any profit sharing at all?

[00:10:02]Let's say they're out of debt, they're in a good healthy financial position.

[00:10:06]They got a little retained earnings.

[00:10:07]They're they're safe and they're healthy in their business, but maybe they're just doing the bonus check at the end of the year like Santa Claus. What's your advice to get them from there to a full-fledged profit sharing program?

[00:10:18]>> already been doing that Christmas bonus, they've already got the money accounted for in their budget. And so they can repurpose that and rebrand it if you will from being just a Christmas bonus to being profit sharing. They can divide it up over the We do it monthly. They could do it quarterly, annually. We we've found that doing it monthly keeps the repetitive nature of it. It gets us on the stage 12 times a year talking about this so people remember it better.

[00:10:38]But start small. If you've already got those dollars in there, let's say you haven't been given any Christmas bonus.

[00:10:43]You need to establish over time an amount of money you can set aside that you don't have to pay to yourself, that you don't have to that you can we're just going to put it in retained earnings anyway, and start small. And then work and but don't ever go backwards.

[00:10:54]Cuz once you get up to a certain level and if you go backwards, it feels like a pay cut for folks. Cuz people are going to people are going to believe this is part of their salary at some point unless you really hit it hard the way we do.

[00:11:05]>> But if it's profit sharing, >> Mhm.

[00:11:08]>> it's going to be up There's going to be ups and downs, right?

[00:11:10]>> Yep.

[00:11:11]Oh, and we've had some of those.

[00:11:12]>> Okay, so then what's the difference between ups and downs and going backwards?

[00:11:16]>> Well, the difference between ups and downs is that the the percentage that we put aside, we have a fixed percentage out of the bottom line profits we put aside. That does not change. Okay?

[00:11:25]Whether we're making a lot of money or making a little bit of money. We seldom have months where we don't have like any money. I can't remember once since I've been here. Um, but but but in in in walking it out that way, they can see the going up and going down, which again that there was a bunch of months in 2022 and 23 and early 24 where we didn't grow a lot. We never went under where we didn't have money, but we didn't make as much as we had in prior years and and they get to see that and we get to talk about that as a as a group of of self-employed people and we talk about what why that is and that sparks conversations outside of that room of hey, why is that? Why why are our profits why do we keep going down or what happened this month? It it creates questions that if I was the only if I was the only owner here, I would be asking of my team. What happened? How do we get there and what do we do to change that? So, it sparks great in conversation.

[00:12:18]>> So, you start small.

[00:12:20]You come up with a percentage that you can do, you know, reasonably.

[00:12:25]What should that percentage be?

[00:12:27]>> I don't really have one for you.

[00:12:29]That percentage it it'll vary. Ours has varied over time.

[00:12:33]We want to always try to show growth if we can in the in the business and then by showing growth in the business that that's that grows the amount of money we have to share and then by doing that at a fixed percentage, it it gives us the the the protection of if we if we don't make as much as we thought, we still are going to pay something out, but then we have to have the the conversations of we thought it was going to be this, but it wasn't that, it was something smaller and here's why or we don't know why. Let's go ask those questions. What happened over here? What happened to entree or some other less profitable part of our company so that we can lean in and say these are the things we need to work on.

[00:13:10]So, it creates a lot of good conversations that you might not otherwise get, especially if you're just paying a Christmas bonus.

[00:13:14]>> Have you ever struggled with or have we struggled with people and you referenced this a little bit, but people starting to get entitled and just expect it to to just think hey, this is just a part of my check every month and when it goes down a little bit, this isn't fair. You know, what are they doing with the money? Do you get some some attitude once in a while about that?

[00:13:33]>> It's very rare here. I've had a couple of times where people have asked me questions about, you know, if I had thoughts around what's what's going on why we keep seeing this and I don't mind telling them, you know, because we talked about it from stage, what what creates that. If if it's if it's it's got to be either there's not as much revenue coming in as we thought or expenses have been higher than we thought and you should go ask your leaders that question.

[00:13:56]You don't they're not going to show you the financial statements potentially depending on the level that you are of the in the company but you can at least ask the question, hey, I want this to get better. I want to get a bigger piece of the profits. I want to get more dollars in my pocket, too and it's all it creates aligned incentives across the whole organization, which is huge. It's a lot that's a lot of really good stuff when you get that line to rail really well.

[00:14:17]>> It is. Are there any of the other things that have come up over the years that if you're sitting with a business owner, you're like, hey, watch out for this.

[00:14:23]This is what I would be on the lookout for if I was thinking of doing profit sharing?

[00:14:28]>> I I think an importance of of starting small having it be something that's manageable, but also increase it. If you let's say you get a year where you increase your revenues because you took a price increase or you figured out a way where you can outsource something that you've been doing yourself and you can save some money that way. Share some of that. I know the profits are normally going to go up, but if you can add another percentage to them, it feels like another part of the raise. I mean, it feels meaningful to them and they feel like they're being considered as the as you're making decisions about the company, which is big.

[00:14:58]>> So, that's the interesting thing because sometimes you the leadership team, Dave, whoever it is for for all these businesses they make decisions that the team doesn't necessarily help make, you know, like let's say Dave wants to invest in a big ad spend for a book launch or something.

[00:15:21]Do you ever look at that and say, "Hey, we're going to take that into account in the profit sharing because this isn't the team's performance that has affected this. This is a decision that leadership has made." Or is that Is that not how you look at it?

[00:15:35]>> No. That's a slippery slope if you go down that path.

[00:15:37]>> Okay.

[00:15:37]>> Cuz that'd be like me saying, "Well, okay, I'm going to If I go that path, then I've got to also adjust it if you just have a sucky month."

[00:15:44]I'm just going to take and and and make you pay all of your team less and the other teams get more because you had a sucky month. We win and we lose together.

[00:15:52]>> Okay.

[00:15:52]>> And that's the mindset that we have here. And so, that the team members have to uh have to make the assumption that the decisions that are being made by the leadership team, whether it's a leadership team of of and at Ramsey, if it's a leadership team of one business or the leadership team the board or somebody like Dave making it for the company as a as a whole, he's not going to make that to destroy value.

[00:16:10]He's making that to make it all better and that we'll all benefit from that.

[00:16:14]And you have to trust that. If you don't trust that, then we might have to have different conversation.

[00:16:18]>> Thanks, Jeff.

[00:16:19]>> Hey, thanks. Man, appreciate it.

[00:16:21]>> Profit sharing isn't just [music] about being generous because you can. It's about alignment. You're telling your team, "When we win, you win.

[00:16:31]>> [music] >> And when we struggle, you'll feel it, too." That's ownership. But listen, you can't share the profits that you don't have. Profit sharing starts with [music] margin, revenue up, expenses down. And when your team gets the math, they stop asking, "What do I get?" and start asking, "How do we win?" If you're considering profit sharing, start by teaching your team how the business works. Then, you can build a culture where people don't just work for you, they build it with you. If you want more information about how to create your own profit sharing plan, we've got an article that walks you through it step-by-step.

[00:17:11]We'll put the link in the description.

[00:17:13]And if you enjoyed this episode, be sure to like, share, and subscribe for more great leadership content. I'm your host, Dave Ramsey, and this is EntreLeadership.