Bonus plans sound like a good idea…
Done right, they’re the ultimate employee motivator and alignment tool.
Done wrong, and they can suck a company’s cash flow dry. (I once had to write a personal check just to cover employee bonuses. Never again.)
That’s why we created our Profit-First Bonus Plan, a simple system for ensuring that employee bonuses are paid from actual profit…not your personal bank account.
Here’s how it works…
Step 1: Set the Profit Trigger
Before you share a dime, you must protect the foundation. That means covering your true cash obligations, not just what shows up on your P&L.
We call this threshold where bonuses begin your Profit Trigger. It includes taxes, retained earnings, debt payments, and, yes, your own distributions.
Quick example: If your business needs $250K/quarter to keep the lights on and fund growth, your team’s bonuses kick in at $250,001…not a penny before.
Review this number quarterly and adjust it annually as needed. Never, I repeat NEVER, skip this step. (NOTE: This step is a biggie, so here’s a video where I cover it in even greater depth.)
Once you're over the trigger, what percent goes into the pool?
10 – 20% is typical, and if you want to go big, 30 – 50% can work in lean orgs with high-margin teams.
Here’s your North Star: A motivating bonus should add between 5 – 15% to someone’s base compensation. That’s enough to move the needle without bleeding out your margins.
Step 3: Determine Who’s In
Who’s in the bonus pool? Just the leadership team? Full-time staff? Anyone with a pulse and a pay stub?
Our advice: Start small. Launch with your leadership team, then expand once you’ve validated the plan.
IMPORTANT: Make performance a prerequisite. If someone is on a Performance Improvement Plan (PIP) or if they’re brand-new to the company (i.e. less than 90 days), they probably shouldn’t be eligible for a bonus. If you choose to be generous, you can, but make it clear in your plan what’s required to be eligible for a bonus payout.
Step 4: Pick a Payout Method
This is where fairness and function collide. You’ve got four options:
% of Wage: Higher comp = higher share. (Most common.)
Equal Payout: All participants receive the same amount. (Good for small teams.)
Share-Based: Like phantom equity: 1,000 total “shares” distributed based on tenure/performance. (More sophisticated but also more complicated.)
Hybrid: A combination of % of Wage and Equal Payout rewards both personal contribution and team cohesion. For example, we like 60% salary-based and 40% equal payout. (This method is our favorite.)
Step 5: Choose the Payout Timing
Monthly = too frequent.
Annual = too far away.
We go with quarterly payouts with a 20% year-end holdback.
That holdback buys two things:
Cash buffer (which protects your reserves)
Retention booster (which encourages people to stick around to get that final check)
We’ve seen this small tweak reduce regrettable turnover by 30% in some portfolio companies.
Remember, if your bonus plan isn’t funding itself, it’s feeding off you. That’s not sustainable, that’s martyrdom, so if you’re going to implement an employee bonus plan, make sure it’s a Profit-First Plan.
⚡ Action Step: Look at last year’s P&L. What’s your real quarterly cash obligation? That’s your Profit Trigger. Then decide: What percentage above that are you willing to share? Then, run a shadow plan on paper for the previous quarter (or two) and decide if you’re able and willing to implement a Profit-First Bonus Plan now, or if you’d rather wait another quarter to see how things pan out.
Want help crunching the numbers? We built a free tool for that, and you can get it here.
Stop letting broken systems hold you back. Let’s create a plan that “de-bottlenecks” you from your business so you can scale your company…without sacrificing your soul. Schedule a free “Scale Session” today.
Quick Hits
Here’s some other content from the Scalable network you might have missed:
🧰 Tool of the Week: Use this free “IncentiveWise Planner” template to design a motivating employee incentive plan that drives performance without straining your company’s cash flow.
💰 20 years of cash flow lessons in 20 minutes (including how much you should pay yourself as a CEO of your own company)
🎭 Your employees are probably “outsourcing” their jobs…are you ok with that? (Business Lunch Podcast)
🤖 Are you worried AI will disrupt your industry? Are your employees worried it might take their jobs? This article has answers…
🤑 6 minutes on how to buy a business…without paying for it upfront.
Tweet of the Week
From $0–$1M: Sell like crazy.
From $1M–$2M: Systemize delivery.
From $2M–$10M: Scale the team and get out of the way.Every stage has a focus.
Lose it, and you stall.— #Ryan Deiss (#@ryandeiss)
5:36 PM • Jun 24, 2025
Want more from us?
Whenever you’re ready, here are 3 ways we can help you scale your business (without sacrificing your soul in the process):
Download the “$200M Operating System Case Study.” This 46-page “manifesto” (and accompanying video) reveals how we’re scaling six (6) different businesses simultaneously inside our $200M holding company using the Scalable Operating System™.
Get a free copy of my book. If your goal is to own a business that can run and scale without you, then Get Scalable is your playbook.
Work 1-on-1 with me and my team. If you’d like direct, 1-on-1 support systemizing and scaling your business, you can get more information and schedule a complimentary Scale Session here.
