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Shared Our Profit Sharing Model

Now that our 8th ConvertKit team retreat is wrapped up, we often get questions about profit sharing.

By running with a relatively small team for our revenue ($20M ARR & 48 people) we are able to distribute profits in addition to the equity grants.

We're over $1.8M total now!

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The total profit sharing pool depends on how much profit we do in the six month period. 52% of all the company profits go into this pool.

In 2019 we spent aggressively to grow the team in the first half of the year and made far more profits in the second half.

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Because we had double the pool size and the same size of team (we were -1 and +1 on team members for no net change) the average check we handed out this week was $11,462!

This is 25% based on time with the company, 75% consistent for everyone. The largest was nearly $16k!

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Originally the formula included a bonus for performance, but the team decided to remove that so everyone is rewarded equally. We all win together.

Low performance is handled separately from profit sharing.

In 2020 we made a deliberate decision to lower profit in order to launch and grow a free plan. The team is all in on making the short term trade-off for the chance of long-term gains!

Original Twitter thread: https://twitter.com/nathanbarry/status/1231227773114441728

  1. 3

    "Originally the formula included a bonus for performance, but the team decided to remove that so everyone is rewarded equally. We all win together."

    From the perspective of an employee if you consider the incentives from a game theory perspective if the choices are:

    1. Compensation directly tied to performance.
    2. Compensation not directly tied to performance.

    Its quite obvious why it would be in some individuals best interest for it to be #1, but is this the best set of incentives on the whole to motivate people to maximize their energies on an individual level?

    If an individual believes that if they work harder than their peers and meet these performance expectations and drive growth to the company that their bonus will reflect that, then each of them will work harder within their individual capacity to drive growth so that they in turn can have more.

    But when the incentives tell them: even if you exceed your performance expectations and work harder then everyone else to enable the growth of the company, the benefit will be spread evenly among everyone - your not taking into account the potentially disparate individual efforts and performance which resulted in that growth and when you do that the individuals will learn that they don't really stand to gain as much for what they have to pay (with their time, stress, effort, responsibility, accountability, risk) and hence not work as hard as they otherwise might have - they might just work enough the meet basic expectations (or slightly above) and perhaps try to lower them to make them easier to meet but not really try to maximize their individual efforts and performance to the level that it could possibly be. This often results in the exodus of the top performers who leave to find more rewarding work, and if this kind of culture of stagnation is allowed to fester, there is no easy way of going back.

  2. 2

    This is really cool. Profit sharing is the way to go give every employee a skin in the game.

    What is the profit sharing formula by the way. Length of time in company * their level or something ?

  3. 1

    Thanks Nate for sharing. This is really interesting to see, and I imagine you have low attrition because of the model. Keep up the great work!

  4. 1

    I assume they do not get a salary then right? It is strictly based off of company profits? (I have never heard of this, just wondering.)

  5. 1

    Thanks a ton for sharing this, Nate. This is clutch and something I hope our company can offer to our team in the near future :)

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