Running a Rails Consultancy- experiments on profit sharing

We recently announced our first yearly profit share for our employees. I have talked about it a couple of times in the past, as well as list it as one of the Employment benefits. This post tries to summarize a bit about how it went for us this year, as well as some of the discussions with our team members during this process.

Why?- Ownership

Last year I had posted, how the profit-sharing model helps us bring some ownership to our employees.

Some of them were:

• An increased sense of ownership.
• Brings stocks/profits philosophy from Product companies to a Consulting business.
• More relatable career growth.
• The company’s success is your success!

These were primarily some of the reasons we had started Saeloun as a long term experiment.

What was the announced amount?

Post expenses, we announced around $274K (2 Cr INR) as a “profit” for the year ending March 2021.

How did we come to a profit amount?

We came to this number based on available cash at-hand.
Generally, we are 1-2 months behind in client payments that are between $150-200K in receivables. We processed our January 2021 salaries and announced 2/3rds of the remaining funds as a “profit” share.

Profit vs Bonus

Note the use of “profit” at all places. After having used this to describe our revenue distribution, I realize this really is an employee bonus. The Company is sharing surplus revenue with the employees based on Company performance. The Company and the employee incur their own taxes, but for the Company, it’s a revenue share wherein we pay employees bonus pre-company tax. (According to Indian law we do still maintain our Company profit margins pre-revenue share)

What % was shared with Employees?

According to our policy, we share 25% of this announced “profit” with all employees.

Who was eligible?

Around 8 employees were eligible this year for this. Each had completed or would complete a year by 31st April 2021.

How was this divided?

This is one question everyone had on their minds. We didn’t have any set rules for this division. Since this was pooled for the last 2 years, we divided it a bit depending on the duration of the employee being with us. Other factors we looked at:

• Impact someone had on respective projects
• Company/Team involvements
• Duration of work

We avoided using % of someone’s salary as much as possible to be more equitable in distributions.

How did it compare to % of an employee’s salary?

That brings to the next question: how did it really compare to % of employee salaries?

Adjusted to yearly salary(post-2021 increments), this turned out to be in the range of 16-30%.

How did everyone feel about this?

One thing I lacked to get a better idea was how everyone looked at these bonuses. Were they happy, content, or did not like what they received. This was amplified by the fact that we did this process via calls(and non-video at that).

In follow-ups, the feedback I received was that this is in everyone’s “expected” distribution and that they were “mostly content” by the process.

In the future, I would like to better understand, how to improve on this feedback cycle related to distributions and ways we can change.

What the future looks like- financially?

We generally try to reserve upto 6+ months of salary runway in our cash-flow to avoid any surprises. The remaining 1/3 of the funds from profits goes towards these reserves.

In our endeavor to be more bootstrapped and “only hire when needed” we lost lots of opportunities to grow this year. Our interview process also can take time leading to some slow onboardings.
We’ll try to focus more on being more aggressive in this area as we grow.

At the time of this writing, we are currently looking for multiple Rails Developers to join us!

Summary

We hope to report back next year, on how our experiment changes or expands next year as our team size grows.

Hopefully, this post can be useful for some others trying to experiment with this mixed consultancy/profit share model.