Finding Freedom From: Going it Alone
Are you profit sharing?
Welcome back, Autotask Warriors. I’m glad you are here for another week’s discussion of growing your MSP and developing a happy, Zen-like environment with top-notch Service Delivery.
If you smile just a bit every time I say, “Welcome Back,” and think of that late 1970’s sitcom, then you’re my kind of people. And so are those of you who think this column could also be called MSP Meets World.
But we can’t sit here talking about TV all day. As Mr. Belding from Saved by the Bell says: “Go to Class. Learn Something.” Sounds like a pretty good idea and what we try and do around here every week.
Although I’ve been known to take a trip down memory lane from time to time, today this is intentional. We’ve been talking about TV shows having an A, B, and sometimes (looking at you, Love Boat) a C side to tell a story while driving some character development. In our case, this means having enriching personal lives while enjoying some MSP internal development while improving our Client experience. We’ve also borrowed some material from Craig Groeschel and Darren Hardy and talked about the need to Focus Relentlessly on MSP leadership because you have to Focus, Care, and Commit. As a reminder, “Busy leaders don’t change the world. Focused leaders do” (Groeschel). Remember that you need to obsess about your MSP?
While I often talk to MSP Owners, I’ve been talking to all the Leaders in an MSP recently. I highly recommend checking out the last few weeks, as I’ve talked about how MSP Leaders need to drop all the busy work, plan their schedules, and focus. “Apathy makes excuses. Obsession finds a way” (Groeschel).
I’ve been asking how committed you are to your MSP. Have an answer yet? You better be committed, obsessed, and focused. As Mr. Johnson from Abbott Elementary says, “A dream can be a distraction just as easy as it can be a goal.”
I ask about your commitment because many times I’m asked to commit to helping grow an MSP that the Leaders in the MSP aren’t as committed to. I’ve told you 100 times you can’t care more about your Clients than they care about their businesses, and I can’t care about your MSP more than you do.
Now, anyone who knows me knows I can help you with that MSP butt kicking. I’ve got programs for MSPs of any size, the Gladiator’s Community, weekly calls to answer your questions, and a team of Autotask, Datto RMM, and IT Glue pros to fill in the blanks. If you’re willing to work hard, I will roll up my sleeves and work right there beside you in the trenches of growing an MSP business so your entire team can lead that satisfied, fulfilling, and financially rewarding life. But you have to be willing to do the work.
Remember that we want to 1) Focus, 2) Care, and 3) Commit to our MSP. Last week we hit on #2 and discussed the mental health of the ownership AND the team. We covered how to get help, that turning work off after-hours is critical, and I covered some ways to use Autotask to free techs from being overloaded.
This week I want to hit all 3 in one shot by talking about how MSP owners can get the entire team invested in the future of the MSP. So let’s talk about profit sharing.
Profit-sharing is a company program where employees receive a share of the company’s profits. This share is typically distributed in addition to their regular salary and can be given in various forms, such as cash bonuses, stock options, or contributions to retirement plans.
While there are about as many ways to implement profit sharing as there are to sell a managed services plan, a common approach is:
Profit Calculation: At the end of a financial period (usually annually), the company calculates its total profits.
Allocation: A predetermined percentage of these profits is set aside for distribution among employees.
Distribution: The allocated profits are then distributed to employees based on a formula, which might consider factors like salary level, job role, or tenure with the company.
Profit sharing can have many benefits:
Increased Motivation and Productivity:
When employees know they will directly benefit from the company’s success, they are more likely to work harder and be more productive.
This sense of ownership can lead to higher levels of engagement and commitment.
Improved Employee Retention:
Profit-sharing plans can enhance job satisfaction and loyalty, reducing turnover rates.
Employees are more likely to stay with a company where they feel valued and rewarded for their contributions.
Alignment of Interests:
Profit-sharing aligns the interests of employees with those of the company. When the company does well, everyone benefits.
This can foster a collaborative work environment where employees are more willing to support each other and work towards common goals.
Attracting Talent:
Offering profit-sharing can make a company more attractive to potential hires, especially in competitive job markets.
It signals that the company values its employees and is willing to share its success with them.
Financial Flexibility:
Unlike fixed salary increases, profit-sharing payouts are tied to the company’s performance. This means that during lean years, the company isn’t obligated to make large payouts, helping maintain financial stability.
Tax Advantages:
Depending on the structure of the profit-sharing plan, there can be tax benefits for both the company and the employees. For example, contributions to retirement plans can be tax-deductible for the company.
“That sounds great,” you say. “But I’m a small MSP,” or,” I don’t have any money,” or “I don’t know how to do all this legal and accounting stuff.” Well, never a better time to learn to try and keep that A-player from leaving. In many setups, you definitely want professionals involved, but as with anything, you can start with baby steps. As for ways to grow and bring in more profit - remember me? That’s kind of what I do around here. If I had a billboard in your town, it might say, Call Steve, the MSP Growth Guy!”
Anyway, here is a reference framework to implement a profit-sharing plan:
Determine Profitability
Ensure your MSP is consistently profitable and has a stable financial foundation1.
Calculate the percentage of profits to be shared.
Choose a Profit-Sharing Model
Set Clear Criteria
Recordkeeping and Administration
Communicate with Employees
Clearly explain the profit-sharing plan to all eligible employees3.
Provide regular updates on company performance and profit-sharing distributions.
Compliance and Reporting
Make sure you have checked with your accounting professionals on any needed IRS reporting such as IRS form 5500.
Hang with me here, my MSP warriors. I know this sounds scary, but you can do it. There are some things you need to think about, though:
Employee Expectations: Manage expectations by being transparent about how profits are calculated and distributed.
I know this article is getting long, but I don’t want to just drop stuff you can Google on your own and run. Here’s how some MSPs do profit-sharing:
Just chuck every team member $500 or $1,000 at Christmas time as a bonus.
Create a profit goal for the year, and then a percentage of the overage goes to the team. This is very simple and easy to explain.
Some run a Safe Harbor 401k.
Managing partner with full control, senior partners who are also shareholders and get distributions (think like how attorney’s work).
Setting a percentage of the quarterly profit amount into a bonus pool and split it among the employees based on their contribution that quarter, at your discretion.
Have a bonus on everything they sell (includes Techs).
Bonus any team member the first month of MSP billing for a new client.
Incentives for Training and Employment milestones.
Following the Great Book of Business.
There are endless ways. To start, just focus on keeping it simple, make sure it is easy for your Team to understand, and confirm the legality and any tax implications.
Next, of course, you need to determine the allocations of the available profit-sharing. Does everyone get the same %? Do 1-year employees get the same as 5-year employees? That’s up to you, but you should keep it as simple as possible, at least for a while. A common approach is to reward based upon performance, salary, and contribution to that profit. An example would be that 1st year team members get a flat amount per quarter that they have been employed, and 1+ years get a portion of what is remaining, based on the average score of their quarterly performance reviews and their role’s importance (T3 gets more than a T1, and your poor Office Manager probably gets a mint!).
Implementing a profit-sharing plan can be a powerful tool for MSP owners to boost morale, increase productivity, and retain top talent. By aligning the interests of employees with the company’s success, profit-sharing creates a win-win situation that can drive long-term growth and stability. And allow MSP Leaders to 1)Focus, 2)Care, and 3) Commit. At the end of the day, it is totally up to the MSP. If you can tie it to company performance and draw a clear understanding of the entire team of how they directly affect company performance, then it can make sense to implement and help everyone’s bottom line.
Wanna talk more about this? I invite you to hop on over to the Service Delivery Gladiator’s forums and share your experiences or ask questions about profit-sharing plans.
Wrap Up
I hope the above helped. I am in no way a tax or legal professional, so you will certainly need to talk to some in addition to your peer group for assistance. Once you have an idea where you want to go, you’re going to need a plan on how everyone can gain those bonuses. This is where I come in, showing you how to get the most out of the Autotask PSAutomation tool, improving your Service Delivery, and providing that work environment where your Techs WANT to stay and thrive.
Talk to me: info@agmspcoaching.com
Stephen & Co
Resources:
Service Delivery Gladiator’s Community: Home - The Service Delivery Gladiators (agmspcoaching.com)
Unshackled e-book: Unshackled
(Learn how to apply the 6 keys to MSP Service Delivery Optimization)
The Compound Effect by Darren Hardy
Think Ahead by Craig Groeschel
Hey! MSPs with less than 5 techs, I’ve been talking to the team about a major revision in our small MSP improvement program (1-4 Techs). This will be a more affordable program designed to get you up and running in 8 weeks, fix the bad stuff, and get your team on track for the next level – when you have more Techs and a Service Coordinator and can advance into our Service Delivery Foundational Improvement program. If you would like to tell me what you need/want in this program (or be part of the beta), drop me a line at info@agmspcoaching.com.