When an agency shows a profit, one of the first inclinations of the agency owner is to pay a bonus to the staff. I applaud that instinct. But I don’t think you should do it simply because you have a little extra money. I believe you should have a bonus program that serves your agency every single day, whether you pay out any money or not.
I think there are several elements of a successful bonus program:
- They should not be an end of the year thing. They should influence the employees to behave in ways that serve the agency year-round
- It needs to be simple and explained over and over (every month/quarter)
- It should be used to teach employees to think like agency owners (focused on the same metrics you do)
- It should be based on one or two metrics that accurately measure the financial health of the agency
- The metrics should be measured/achieved or not every month
- The metrics should be set in a way that your team hits the goal more often than misses (should be a stretch but a reasonable stretch…ideally they’d hit the metrics at least 7 or 8 months of the year)
- Bonuses should be paid quarterly (with most of the $ accumulated for an end of the year payout) to keep everyone motivated/focused
- The owners should hold an all agency meeting every month to report on financials/success on bonus program for the month/YTD
At AMI, we have a specific bonus program that we teach in our workshops, owner peer networks etc. It’s based on two metrics. The big number in our opinion in terms of an agency’s health is AGI (Adjusted gross income — Look here for more information on that topic.) AGI is the only money you actually get to spend — so that’s the only money that matters to you. You should set a monthly AGI goal and that should be the first number your team has to reach to be eligible for any bonus money to be paid out/banked for a year-end payout.
The second metric that you should base the bonus program on is profitability percentage within the AGI ratios. If you don’t hit at least 10% profit for the month (remember — your goal for AGI ratio is 55-25-20 with the 20 being profit percentage), even if you hit your AGI goal — no bonus money is put aside or paid out. Reason being — the first 10% of the ideal 20% is eaten up in taxes, etc. The reason this metric is critical is that it forces you and your team to run the agency well (not over-servicing clients, not being overstaffed, not going crazy on overhead expenses, etc.)
If you’re interested in learning more about the AMI bonus program, I’m happy to send you a document that describes it in detail. No charge..no strings.
Our Advanced AE bootcamp is filling up — if you want to enhance the skills of your AE crew — it’s September 9 & 10 in Chicago. Check it out here.