As Marcus Lemonis put it, “If you don’t know your numbers, you don't know your business.” But how well does the rest of your team need to understand the numbers?
You want them to feel invested in your mission and have clear goals, right? And many employees value the kind of leadership that gives them full transparency into what’s happening with the business.
Still, some would argue that sharing your agency finances with the whole organization is risky and could distract them from focusing on their day-to-day priorities (keeping clients happy!).
So, how do you strike a balance between keeping your employees in the know and not overwhelming them with too much financial information?
In this article, we’ll explore some reasons why you should share snapshots of your profitability with your team and then break down the metrics they actually need, along with the best methods for getting the message across.
Why it's important to share profitability numbers with your team
Transparency leads to trust
If you want to create a culture of transparency at your agency, it has to start at the top. And while transparency alone isn’t enough to build trust between agency leaders and workers, it’s one important component of the equation. Your team is doing hard work and they deserve a clear picture of their impact. The numbers support this idea. In fact, in Slack's Future of Work study, 80% of employees wanted to know more about how decisions are being made in their organization, while 87% mentioned that they hoped their next job would be transparent.
Also, in AdAge's Best Place to Work survey, the winners received high marks in key areas including having "a good understanding of how this organization is doing financially." This research shows how being kept in the loop about the company's profitability is a massive contributor to overall job satisfaction.
Insights can increase productivity
Sharing real numbers with your organization gives team members a tangible way of measuring their performance and helps them find a connection between their work and the agency's overall growth.
Too much information, on the other hand, can cause your team to feel overwhelmed or disheartened. A tip here is to break the information into digestible pieces and try to put a positive light on the update. Even if your agency's profitability isn't where you'd like it to be, you can share information with your team in a way that is honest but allows them to feel optimistic and motivated about the future of the agency.
Sharing creates accountability and ownership
Treating your employees like owners in the sense that they have the same insight into profitability as you do can help your team feel more involved and take accountability for their contributions.
The author of The Great Game of Business, Jack Stack, used a principle known as open-book management. This is when management shares all financial information with all employees so they feel and act like owners.
What metrics should you share with your team?
Although some leaders have seen success sharing all data and finances with their teams, most would agree it’s too much for every day. During our Mastering Agency Profitability webinar with Megan Bowen, COO of Refine Labs, we picked Megan's brain and learned the three metrics that Refine Labs’ leaders pay the most attention to: Gross margin %, Net income, and EBITDA.
Gross margin % = Net sales - COGS (Cost of goods sold) / net sales
As Megan explains it, “Gross margin is really a reflection of the cost of goods and the structure you created to deliver your service. It’s really reflective of ‘Are we being efficient in delivering our service to our customers?’ That’s a key input, ultimately, to profit and net income and there are specific levers you can play with to influence gross margin, both positively and negatively. So, it’s something that we look at closely and something we want to continue to improve so we stay efficient and drive as much profit as possible.”
Net Income = gross income - expenses, such as taxes and interest
“At the end of the day, how much money is the business making? How much is being produced by the business?”
EBITDA: Earnings before interest, taxes, depreciation, and amortization
In Megan’s view, EBITDA “is another way to look at net income. It essentially allows you to look at net income and EBITDA and take things like interest payments or taxes and classify them a little differently to understand your core business expenses versus these other things that happen in the normal course of business.”
Additional profitability metrics to consider sharing with your team:
Gross profit = Net sales - Cost of goods sold
Gross profit differs from net profit as it only reflects the cost of goods sold, whereas, net profit includes all company expenses.
Net profit = Operating profit + any other income - additional expenses - taxes
Net profit is the profits your company earns after subtracting all company expenses such as operating, tax, and interest.
Operating profit = Gross profit - operating costs, including selling and administrative expenses
Operating profit is the net income that comes from a company's core business operations.
When should you share with your team?
Keeping your team up to date with the company’s profitability is essential. iIt gives your employees the opportunity to really understand the company's overall profitability and how their work is making a difference in real-time.
When exactly you decide to share updates may depend on the size of your business. The smaller your agency is, the easier it is to share profitability updates with the team. As your business starts to grow – when you have more employees and the metrics become more complicated –there's more room for confusion.
When Refine Labs first started, Megan describes how simple and straightforward it was to walk through the metrics with the rest of the company. At this point, they would share updates on a monthly basis. Once the company expanded, there was more room for misinterpretation and confusion around the metrics. Now the company’s leaders hold quarterly all-hands meetings that focus on the key metrics covered above: revenue, expenses, and net income.
The best methods for sharing profitability metrics with your team
Once you know what you want to share, it's important that you do so in a way that's easy for every employee to digest and understand, whether they are in finance or marketing or customer support. Remember, not everyone is an accountant, so make sure you’re presenting the information in a way that’s clear and concise.
Use loom videos to explain metrics: When it comes to your profitability, you want to remove room for interpretation. Consider creating short loom videos that have voice-overs clearly explaining how to read and interpret the metrics.
Post to intranet: Make sure you have a secure and centralized place to share updates so employees can quickly find the information they are looking for. Megan mentioned that at Refine Labs they update their intranet monthly with definitions and explanations of each metric.
Use it as a learning opportunity for the team: Explain to your team that understanding these metrics will not only benefit them in their current roles but it is also an opportunity to advance their professional development. Understanding these metrics will help your employees advance their careers or one day start their own businesses.
Take the guesswork out of profitability with Teamwork
Where’s your organization at when it comes to measuring profitability? Do you know where you stand? Do you have efficient processes and systems in place for sharing financial information?
Teamwork’s Profitability Report allows you to capture your net profit with the click of a few buttons and see your remaining budget to determine the best next steps forward. Simply download PDF or excel versions of the report and then share it out, to keep everyone aligned and on track.