Does profit sharing work?
A neighboring business owner was talking with me about the profit-sharing system he implemented in his company. Does profit sharing work in an auto repair shop? How would I go about creating a plan?
Bob Spitz, vice president of production, Management Success!
Well, the first thing I would say is that every shop is different; one thing that works in one shop may not be right for another. There are different factors to take into account, one being your people.
An auto repair shop is a production environment. Obviously, in any production environment, whether you’re producing sales or billable hours, you don’t want to stick with straight salaries, because there’s something called the motivation scale.
If a person is very duty-oriented, well, they’re motivated by a sense of duty, and they’ll do what needs to be done to help the business and the customer. That’s not the usual individual. Money is usually on the motivation scale. A lot of people can be motivated by money. Good people like a game, and paid incentives can create that competitive game for them.
If you have the right people in place then it can be a very strong motivator, and profit sharing can be effective.
Another thing to understand is what it takes for your business to be profitable. Most shops aren’t profitable, and it’s obviously pretty difficult to do profit sharing without any profits, right? So, you need to fully understand what it takes for your shop to be profitable. You need to understand all of your expenses, overhead, and you have to be able to figure out what you need from your staff.
Once you have that number, you have to know how much profit you want. Maybe you figure out that you need to sell 500 billable hours in a month to be profitable. So, you could decide that once your staff reaches 550 billable hours, you will start to give them a percentage of those profits in the form of a bonus.