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Why and how we share profit

Hugh Francis
Jul 9, 2018 · 7 min read

1. Why we Share Profit

In an agency style business, our accumulated assets are a bunch of desks & monitors in a room. We’re not building inventory, or paying subscribers, and most of the IP we build ends up owned by our clients.

Profit Share is more valuable than Equity (for Agencies)

The real value we are building, however, on a day to day basis, is a collective ability to generate profit on an ever-growing scale. Every line of code we write, and every convention our team shares builds more efficiency & capacity to create profit.

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Team Mindshare by Breadth (Time @ Sanctu) and Depth (Seniority) of Experience
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Profit Share value (Green) vs “Agency Equity” value (Pink)

2. How we Share Profit

Founder Participation by Design

It’s important to note that this plan was designed with my equal participation as a key design choice.

Vesting Profit Share Units (PSU)

The effect someone has had on our collective mindshare is more or less proportional to the time they’ve been at the company.

Normalized by Studio Effectivity

In order to best judge whether we should be using our profits to reinvest in the business, we filter our profit share pool through a scale based on an algorithmic metric we’ve developed, called Studio Effectivity.

Payroll Buffer & Studio Allowances (Plus Tax!)

Of course — we can’t simply distribute our entire bank account at the end of the year, or we wouldn’t make payroll on New Years Day.

Profit Overflows & Reinvestment

For a particularly great year, we’ll earmark some cash for reinvestment (through that same algorithm).

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Money set aside for the following year

What’s the highest possible Profit Share?

In the case that studio is achieving an effectivity of 0.9–1.0, and a person has been at Sanctuary Computer for 4 years (they’ve vested 48 PSU), they will receive $43,200 — $48,000 in profit.

Profit is distributed in December

The most logical time to distribute large wads of profit is right before the end of the financial year — you’re vastly lowering your tax hit in the new year, and giving everyone some holiday spending money!

Salary Cap & Pay Scale

In order to provide a generous profit share program, we need to make some trade-offs. At Sanctuary — that tradeoff is instituting a Salary Cap across the company, that is generally considered slightly lower than market value for a senior developer.

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Without Profit Share, the business takes on more risk, and the team member take on less (with less reward).

PS — It’s not for everyone

Of course, our profit share scheme requires a heavy helping of faith. There’s a variety of things that might go wrong during a year; negatively effecting profit margins.

A better balance

If you’re someone who simply wants a steady, predictable salary, then Sanctuary Computer mostly likely isn’t a great fit for you.

Let’s keep chatting!

Wanna talk more?

Sanctuary Computer Inc

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