Solar Profit Sharing: How to turn your employees into owners

Solar Profit Sharing: How to turn your employees into owners

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If there’s one thing we’ve learned in running a consistently profitable solar installation company, it’s that this is a team sport. No one person has all the answers, and success is largely based on the extent to which you can democratize decision-making, delegate tasks, and empower every single person to build and improve the business autonomously.

So once you get over the trance of thinking that you as the business owner know everything and can solve everything, the the business can grow and succeed.

We have talked to countless solar business owners who are still trying to get over this trance, and it’s a constant struggle for them to realize this simple truth - as it was for us, for many, many years.

After the trance is over, a related epiphany might (and certainly should) arise: if you as the business owner don’t have all the answers, and need to lean heavily on your team with a flatter structure - doesn’t it follow that you should share the love?

We believe that profit sharing is absolutely essential to the success of a small solar business, which is why we have been implementing it for years. The real question is what model of profit sharing makes the most sense for your business, is easy enough to administer, and provides the right reward and incentives for action to your team members.

Full disclosure: this is still an area of discovery for us at Ipsun Solar, and we are evolving to find the right model. So here we’ll simply present the models of profit sharing that we’ve heard from other successful solar businesses and let you decide which makes the most sense for you and your team.

1. Flat percentage of profit divided by time in service over fiscal year:

At Ipsun Solar, this is what we have today. We simply take a flat percentage of the annual profit (20% in our case), and share that with all the active, full-time employees once we close the books on the fiscal year (which is also the calendar year for us).

The profit pool is divided amongst those active team members based on their time in service for the year.

We add up all the months that our active team members were with the company in the fiscal year and each team member’s payout is a function of their months in service divided by that larger total.

Pool Size:

$60,000

Profit Share per month in service:

$120

For instance:

If we made $300,000 in profit and want to share 20% of that with our team, we would have $60,000 to distribute.

Then we would multiply the total amount of 50 team members who spent an average of 10 months in service for 500 total months in service across the team.

And divide that by the profit pool available to distribute.

This results in a profit share of $120 per month in service, or $1,200 for someone with 10 months in service.

Incidentally, we reinvest every penny of the remaining 80% of the company’s profit back into the mission:

Growing the company to fight climate change.

2. Flat percentage of profit divided by time total time in service:

This is a model similar to the one described above, but where you take all the months in service all-time for all active team members as the denominator and not just over the past year. This heavily favors those who have been with the company longer, and heavily disadvantages new hires. But the obvious advantage is that it should significantly encourage retention, because of course the longer you stay with the company, the higher your profit share. Some call this “ghost equity” because it has the effect of giving longer serving team members a growing share of the profit pool, the longer they remain with the company. Not bad, huh? At Ipsun Solar, we’re contemplating switching to this model.

3. Revenue Sharing:

We’ll be the first to admit that this is perhaps the most creative method of profit sharing we’ve encountered - in large part because it doesn’t depend on profit making in the first place! Revenue sharing can be done with greater frequency, such as monthly or quarterly, whereas profit sharing tends to be annual (or quarterly at most), in part because we have a seasonal business. Revenue sharing simply provides a percentage of all the revenue brought in over a period of time, generally monthly or quarterly to incentive short-term productivity (e.g. sales and installs).

For instance, if you brought in $1M in a month and had a revenue share of .01% per team member, they would each receive a $100 bonus every month. Funny, because that $100 multiplied by 12 month equals the same bottom line amount that you see in example 1, which is generally in line with what we’ve experienced at Ipsun Solar (an average profit share of around $1,200 per team member).

So the question here is, does revenue sharing really increase productivity more so than annual profit sharing, and are you willing to take the risk of providing this benefit even when the company doesn’t make a profit?

4. Other models of employee ownership:

Some companies find that equity ownership, either in the form of an ESOP (Employee Stock Ownership Plan), cooperative model or otherwise, is the best way for them to “share the love”. This is of course a very personal decision that comes down to many factors, including the structure of the business itself, the long-term goals, and the size of the business.

When Ipsun Solar explored the ESOP model, we found that our size simply didn’t justify such a big, complicated transaction - at least not yet.

ESOPs are great for broad employee ownership and sharing profit through actual equity, but they require a fair bit of legal and administrative work to setup and maintain. There are also countless other types of employee ownership out there, with varying degrees of complexity.

If you’re interested in exploring the ESOP model, we had a positive experience with Project Equity and would recommend them to others. You also need to know if you want to share ownership or share profits, which in itself is 2 distinct things and legally also different.

Whatever you do, find a way to share the love that is genuine and sincere for your type of business and culture. Any business that is growing profitably and maintaining positive morale almost certainly is doing it with positive reinforcement like good benefits and/or profit sharing.

These are what great team members and talented solar professionals can and should demand of their management.

And once you realize just how much of a team sport this is, it’s what you as a solar business owner should demand of yourself.

From "aha" to "oh crap", we’re sharing everything on our journey to install 1,000 kW in residential solar per month.

We’re learning a lot and so will you.

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written byJoe MarhamatiCOOJoe is the Co-Founder and COO of Ipsun Solar – a top residential solar installer in Washington DC with 60+ employees and $10M+ in annual revenue.Read more »
Joe Marhamati

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