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How to incentivize your team with profit sharing

Excel file and training we used to launch our profit sharing plan at our $3m ARR SaaS company.

  • Created by: Bridget Harris
  • CEO of YouCanBookMe
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Assets

video
9 classes, 2 minutes each
slides
55 slides + resources
Resources
Excel file profit sharing model

Course Overview

  • Free excel file to model profit sharing across 10 employees
  • 8 page document I used to explain profit program to team
  • How profit sharing helped our company become more profitable

Most Viewed Slides and Resources

Course Content

Introduction

Icon angleClass 1: The Profit Stack

IconSection 1: Company Stack; profits, R&D, Direct Costs

IconSection 2: Business Stack, expansion, LTV, CAC

IconSection 3: People Stack, tenure, career paths, recruitment

Icon angleClass 2: Metrics That Matter

Icon angleClass 3: Sharing the Profit

Instructor

Bridget Harris

Co-Founder and CEO of YouCanBookMe

Bridget Harris is the CEO and co-founder of YouCanBook.me - an online scheduling tool that helps businesses manage their customers and calendars. Bridget is the co-founder of YCBM, launched in 2012. Before then she had a career in parliament, government and politics as an advisor.

Revenue:$3m
Team Size:28
Average Customer Pays:$136/yr

Fast growing SaaS companies offer this course to their employees

Excel file and training we used to launch our profit sharing plan at our $3m ARR SaaS company.

Fast growing SaaS companies

Transcript

Introduction (00:05):

My name's Bridget Harris, I run a company called YouCanBookMe, and as he said, I'm here to talk about, with my fellow Bootstrapped founders, how we have grown to around five million dollars ARR using profit sharing and open salaries to motivate the team.

What does YouCanBookMe do?

YouCanBookMe is an online scheduling tool. We have just over a million accounts. We got about 22,000 customers, and over the last 10 years, we've got 82 million bookings. We do around a million and a half bookings a month. We're busy!

Who uses YouCanBookMe? (00:37):

We have customers like MindBody, Shopify, Uber, Tesla, and Yelp.

They use our tool for team scheduling, customer success, onboarding sales, that kind of thing. I'm sure you're familiar with it.

The first 5 years of building YouCanBookMe:

Have you ever heard of Gail Goodman's long slow ramp of SaaS death? That's where we were. We didn't have people like Nathan and others to talk to us about raising money.

We got to about the one million pound mark, and we made our first £105,791 in profit.

Like Nathan said, especially if you're bootstrapped, you need to get money from somewhere, VCs aren't giving it to you so you need to make it yourself, and we've been very, very profit motivated ever since.

What this course covers (01:21):

Over the next 20 minutes I am here to talk to you about three things: first of all the profit stack.

I've put this together, specially for this conference, so this won't be the last you hear of it, because I wanted to start to think about strategically how we have done that, because profit doesn't just come from selling a five pound product for 10 pounds, it actually comes from a much more strategic idea about how you build your company.

Second, Metrics that matter. The kind of things that will indicate whether your company is profitable. And lastly, how we share that profit.

Why VCs don’t care about your profits (01:54):

Let's just talk a little bit about profit because as [Nathan] said, VCs don't talk about profit very much.

Only if you're really motivated to make it, you really understand what it is. Because the news for founders is this: business profit is not how investors intend to get a return on their investment.

I don't want to overthink this, but hands up if you agree: the founder business plan is basically invent something, make money. Really, that's basically what we were trying to do, that's our end goal.

The VC business plan feels like it's the same, but it's not: Invest in stock and trade, make money. 

Yeah sure, we're all aligned to the same goal but it's very, very different to be investing, and share is basically the value of shares going up versus making profit off a product that you can sell to customers.

This has been our mantra as founders for the last 10, 15 years. I'm sure you'll know this guy Jason, he talks about it. Everybody recognizes this whole kind of SaaS subscription economics, which is you absolutely hammer your sales and marketing, you grow as fast as you possibly can, kind of numbers Nathan was just talking about.

Then you basically IPO, you exit, you do what you want to do to get it up, and that is what they have done.

Why do profits matter? (03:10):

This is some data that I found which shows that a lot of public companies, they've IPO'd, they've done their big exit, they're still not making any profit. They're still trading in the value of the shares of their company, they're not making a business profit, it's the value of their shares where they make money.

The problem is that for a lot of people that is not good enough, because that VC model is, if you're being a little bit mean about it, you'd call it a Ponzi scheme, because people have to lose.

Recently in the last couple of years those people who are losing, are losing big. Over 168,000 people have lost their jobs in the last couple of years from this spread bet, and that's because those guys didn't realize that they were working for a bet rather than a business plan.

Why we focus on “Jam Today” at YouCanBookMe (03:59):

Good news, we are all here, Nathan's here, the whole team is understanding to align against something slightly different.

Even the VCs have woken up to the fact that they have to reinvent some really slightly crazy mathematics, which is adding together your profit margin with your growth rate, and if you come up with more than 40%, they'll still give you some kind of valuation. Okay fine, we'll accept that.

I have a different way of thinking about it, which is jam tomorrow, jam yesterday, but never jam today. That's essentially the VC message to people like Alice in Wonderland, which is why can't we have jam today?

What is this whole thing about the delayed gratification, the IPO tomorrow, the exit tomorrow, the share options tomorrow? Wait, everybody burn themselves out today for something that's going to happen tomorrow!

Well at YouCanBookMe, we don't believe in jam tomorrow, we believe in jam today, or as we put it, profit today. This is a really weird face, but that's the story we're in.

Breaking even and never looking back (04:52):

We broke even in 2016, we've not looked back. Basically this was the moment, this was a fantastic moment, and a year later, as we had always promised our team, we paid out £75,000. It was about £50,000 to the five eligible team members who had been working with us for all that period of time.

In fact, we hired a lot of them in September 2015. We told them we were going to do it and we did it. I hope you will allow some of this as well into your companies. I'm very happy as well to talk a bit more about how we did it.

The Profit Stack

The profit stack, this is it, absolutely classic tech. We talk about tech stacks, sales and marketing stacks, all the rest of it. Same principle, you get your degrees of foundational capacity at the bottom and then you build up.

In terms of YouCanBookMe P&L, this is roughly what it is, gross margins. I know in America you include lots more costs into your gross margins, but in the UK we are only required to report on direct costs like AWS and stuff.

For us we run a 95% gross profit margin. Then on top of that you've got your core management, on that you've got your R&D, your engineering team, your product team, and then your communications support and research.

On top of that, if you're a SaaS bootstrapped company around our sort of size, you should be expecting to make 25, 30% profit. Which sounds like a lot, but as I said nobody's giving this money to you, so you need to make it yourself.

How we use the Profit Stack (06:14):

You decide on your cost, you decide what you want to spend on, it's not exactly a tap that you switch on and off, but you decide when you want to spend it. Recently we've just decided to double the size of the company.

What we're doing is we're investing, we're eating into our profit margin, we're not trying to spend money that we didn't have, we make it out of our monthly ARR if you like.

Our Business Stack (06:33):

Our business stack, same sort of thing as you'll recognize.

Cost of acquisition for customers, how much you're going to spend on the product itself to retain and give them a good experience, their lifetime value, whether you can expand them, and then essentially how much money you can make off the top of what they give you.

Now the name of the game here is, I'm not talking about sales and marketing, what I'm talking about is product-led growth, because that is what's going to lead you to profitability.

If you listen to Nathan, a couple of years ago he did an absolutely fantastic 20 minute talk on how you should be expanding your customers, how you should be making more money, from people giving you more rather than trying to expand through growth, through sales and marketing. That is the best economics you can put into your company.

Our People Stack (07:16):

Then the final one is people, HR. What I talk about is high performing problem solvers, which sounds completely obvious, obviously you want to get high performing problem solvers.

But what it doesn't say is that what you don't want to hire is low performing problem creators, because they're going to be very expensive inside your company. How do you do that? Well, you invest in your recruitment, you invest in your turnover and culture, and you look at what the experience is like for somebody working for your company.

You want to incentivize somebody working for your company for as long as possible. You therefore have to work out how you're going to give them some career paths, and promote them, and so on and so forth.

At the end of the day you've got a profit margin there, which what I would call is essentially their ability to impact your growth. Who you hire will have a direct impact on that.

The Full YouCanBookMe Stack (08:01):

Here it is, the profit stack of your classic P&L or income statement, what you're doing in terms of people and team, and then how you're actually going to build a product together to make some money.

Metrics that Matter: People Metrics (08:11):

In terms of metrics, people metrics, this is Anthony and Kelly, two of the high performing problem solvers that work for us in Lisbon earlier this year. What we are trying to do is to maximize the opportunity for high performers to hit their stride.

That is where you're going to get true value out of anybody who works for you, is to get them to work for you for at least two if not three years, and to hit their stride over that time. You have to have a view about what their best work is going to look like.

For the metrics that matter, you need to understand what is your average tenure, what is your turnover, and what is your, as Nathan would say, "your ARR per employee?" You will be able to scale profitability in your company if you do it.

Measuring Tenure (08:54):

Now, metric, tenure, SaaS benchmarks, this all comes from SaaS capital. I am going to come with a slight contradiction of what Nathan said, but you can certainly, all of these sources, and I hope that they're going to be shared in the documentation that you got.

SaaS capital will do metrics about bootstrapped companies, VC funded companies for different sizes. I've taken them for a company YouCanBookMe size, benchmark is two years, YouCanBookMe 3.3 years, and it's only 3.3 because we've just doubled the size of the company recently, normally it was about four years, four and a half years.

People stay for YouCanBookMe for a long time, which means that we get a lot of value out of what they do for us.

Measuring Turnover (09:28):

Turnover, this is the voluntary last 12 months of turnover, 9.2%, how many people are just deciding to resign and move on instead of other more negative things, YouCanBookMe at 3.6%.

Then this is what Nathan was saying, they are ARR per employee. The benchmark is actually $125,000 depending on what size of companies, so it can be 250, it just depends. You have to look for your own equivalent, and YouCan Book Me is $200,000. You can just see with that, you can see why YouCanBookMe is profitable.

Let’s talk about salaries (09:58):

Salary metrics. Everybody loves talking about salaries, nobody likes talking about salaries, but I do an awful lot of work on salaries inside YouCanBookMe, and that's because a labor market works the same as any other market at supply and demand.

You have to basically pick your price point, and pick how you're going to pitch your salary rates to other people. I was talking about this with Rory this morning over breakfast. It is really hard to get it right, you have to do a lot of work on it. It's not some of those things where you can just basically pluck a number out of thin air.

One of the things that we do is we have an open salary scheme inside YouCanBookMe, and have done for a long time.

Reward performance (10:36):

Now my one bit of advice about it, other than the other things that can help you decide what your rates are going to be, is to reward performance with high wages.

Hire somebody on a moderate conservative salary rate, if they do really well for you, by all means double their salary if you want to. Don't do it the other way around. A six figure salary does not necessarily bring in a six figure performance from anybody. The two don't follow in reverse.

Implementing an open salary program (10:59):

This was an example of our first open salary scheme, we just basically put people within about $2,000 within each other so they could see, roughly speaking, where they were. It kind of broke down because of the size of our company now, but basically you don't have to overthink it, it's not that difficult. You just have to let people know, you advertise what salary you're going to pay somebody, and then they come in and they know what everybody else gets paid.

In terms of the metrics, market rates, people, the kind of comparisons that we make, we use Glassdoor, and YouCanBookMe pays up to double market rates.

We look at pay ratios, which is the gap between the lowest and the highest paid. Some incredible ratios coming out of publicly listed companies in America. But 201 times is essentially the average. YouCanBookMe is 4.3, and I'm going to come onto that, it's not because we're massively socialist or weird, it's because it's actually a very good logic to why we keep our wage ratio low.

Why is our wage ratio stays low (11:57):

The cost of living in different regions. Numbeo Index tells you how much it costs to live anywhere, and we basically split it into four pay regions inside YouCanBookMe.

Anybody recognize this place? Anybody live there? Six people live there. Nobody else lives there, and that's because it's incredibly expensive to live there. I just put this out as a kind of a general academic question. Who thinks it's good economics to fix salary costs and tech companies to live in San Francisco? I make a lot of money running a software company.

I do not intend to spend my profit on propping up San Francisco housing and landlord rates. I just don't. I'm not going to do it, and that's because of this.

How we adjust our cost of living (12:37):

These are all the countries that we hire in, this is actually pitched to New York cost of living, not even West Coast. I actually think, frankly, and I know I'm a European, basically talking about capitalism to a North American audience, but I think it is anti-competitive frankly to say to people in Romania, Morocco, and South Africa, you have to compete with people working on the west coast who need to pay a whole load of stuff, in terms of rent.

The one bit of leverage you have, which is your price, we're going to fix it to some kind of insane six figure salary. That's just my little mini pitch. If you disagree, please say. I just think it's like a bit like yoga, everybody's saying, oh we pay the same in San Francisco. Why? Why do you do that?

The Cost of Employment Matters (13:20):

That's because the cost of employment matters. This is proper data that's been based on all of our analysis of where we hire. This is what it costs us to employ somebody in France versus the UK, which means that not all salaries are equal as far as the employer is concerned.

Taxes vary widely, benefits vary widely, but also what it costs to the employees, this again, compounding income tax and social security contributions for our employees, it's very expensive for somebody who lives in Portugal, but I love Portugal. Have you ever been? It's beautiful. I'm not saying that they don't have a good life, but it does definitely cost them.

YouCanBookMe rates of pay (13:56):

The point about all of that is that you can still be above market rate in terms of your salaries and compare it to Glassdoor, even if you're not going to do the sort of six figure massive Facebook style Airbnb style salaries.

This is YouCanBookMe rates of pay. We do pretty well. We're not saying that you're going to get rich by working for a salary at YouCanBookMe, but we are saying that there are some logic here which means that people should be able to benefit, and that's to do with that pay ratio. That's the same data but put into a slightly different context.

Hunting for Profits like a Pack (14:28):

This is the YouCanBookMe team, and the ratios of the salaries that we pay. You can see here that in terms of the sticker price of salaries, there's a 331% spread between the lowest and the highest paid.

If you compare it to the actual cost of employment, that spreads much higher. If you look at the take home, that spreads much lower, which means that I have a team 4.3% ratio, 4.3 times if you like.

The whole company, as we get richer, as we get more successful, we can move the whole team along. We hunt for profit like a pack. We are not putting some big outliers at the one end or the other end, because what I can say is, if you stick with YouCanBookMe, and if you are a high performing problem solver, and you stick with us for over a long time, you will get remunerated via profit. That's my logic.

How we share profits (15:17):

Let's talk a little bit about how we share the profit, in my last few minutes. The scheme, this is quite heavy in terms of content, I think it is all printed out. You've got copies of this, I'm very happy to talk about this in detail.

Basically our logic is, you've got to be employed, you can't be on a disciplinary, and you have to have worked for us for at least a year and a half.

We then look at our net profit excluding any sort of extraordinary costs, like foreign exchange currency stuff happens a lot, it's like one-off donations or something, but otherwise we just take a quarterly, three month P&L, and we take 10% of our profit and we distribute it.

Then what we do is, we reward tenure. You get a higher percentage of your eligibility for a share for the longer you stay, and then we basically vest that at four years, and we just pay it into people's paychecks.

Why we chose this model (16:09):

Somebody asked me this morning, why didn't we do share options? Share options are quite good and tax efficient for people in one country, but for us we had to look at a scheme that was going to apply in multiple countries.

This is what it looks like in terms of the employee, you start up at 0.25 points, by a year and a half you've got 1.5 points, and that's when you become eligible. You then get that payment, we will then work out how much profit we've made in that quarter, and we pay it out in arrear.

At the end of the seventh quarter we'd pay it out, then it keeps on going up. Then after four years, as I said, you'll be making the maximum percentage.

How it works in practice (16:49):

This is an illustration. Let's say you've got seven employees. The guys over on the right have just started, just become eligible, the guys on the left have been here for a while. On a $25,000 profit, it would be $250,000 of actual profit, and you're paying 10% out.

If you've been with us for the longest, you'd be getting just under $5,000, if you've just become eligible, you'd be getting just under $2,000. Anybody inside our company can do the maths, they can work it out, the more we grow, the more money we make, their number just goes up, the more cash they have.

(17:21):

As Nathan was saying, that spreadsheet is here, this is how it literally gets done. It's scalable, probably up to about 20 people, after that I'd probably need a new spreadsheet. Nathan has lovingly recreated all the formulas based on the screenshot as well, he knows it as much as I do now, about this spreadsheet.

You also have a copy saved to your fob, and I'm happy to an answer any questions at all about it. The point about it is that once you have got your quarterly P&L agreed, you then basically fill in what your turnover is, this is what we do, what your turnover is, what your profit is, it then does all the calculations, and then it will literally list how much money you need to pay out in people's pay.

What business are you in? (18:14):

My final question to you guys, and we're kicking off the conference here, it's been really exciting to share all this with all of you. I really look forward to answering any more questions, going to the brain dates, listening to all of your stories and learning from all of you as well. My real question to you is what business are you in?

This is the P&L from that moment when we made profit, and basically the year before we were not in business, we made a 28,621 pound loss. As I was saying to Rory this morning, at that point you shouldn't really be worried about that, you should be worried about cash in your bank, that's why people like Nathan and Founderpath exist, is to keep your cash flow going, because as the expression goes, cash is king.

Ultimately, after a while you need to work out whether you are actually in business. That's what we've been at ever since, and we have a fantastic business and lots to look forward to, but at the end of the day. It is about making money.

Wrap up (19:01):

In the last 20 minutes I have talked through my profit stack, how to build a profit mentality into how you design and sell your products, not just about product vision and yoga, it is actually about making money. What metrics will help inform you without hiring? As I said, most of those benchmarks are publicly available, you can look for yourself how well you guys are doing, talk to anybody they like about the impacts of the open salary structure inside YouCanBookMe, I'm a massive fan of it and we just wouldn't go back now. Our profit share matrix, and how we pay out every quarter. Thank you very much.