7 ways to incentivize staff member performance

This post was inspired by a question I was recently asked on Twitter:

“Do you think giving staff a percentage of profit is a good incentive to improve work?”

Properly incentivizing staff can be a powerful motivator to improve performance, however care must be taken to devise incentives that will elicit the specific performance outcome you desire, while fitting within the margins of your business.

A percentage of profit may very well be a good incentive, for the right individual with the right responsibilities. An across the board percentage of profit for all staff is likely a bad idea however.

Profit is bottom line, and in this scenario you are essentially tying your staff to all revenue streams less business expenses. This could make sense in the case of an operations manager or other individual who is intimately involved with both managing expenses and overall growth and success of your business. However, a regular staff member whose singular responsibility is coaching great classes is likely not the best candidate to incentivize with a percentage of profit.

Quick note on manager pay:

Many micro gyms and fitness studios don’t have the means to pay managerial salaries. Another way to compensate these key staff members is to directly tie them to the revenue category that governs the specific work they are doing. In this way they can see how their actions directly affect the bottom line of the company as well as their own bottom line.

Ok, back to staff.

First things first: what SPECIFIC outcome do you want?

We need to know exactly what is meant by “improve work.” When considering ways to incentivize staff it’s important to be very clear about the outcome you are trying to elicit. What specific duties do you want your staff to perform better or what business goal are you hoping the incentive will help you realize (ie better On Ramp conversion rate, hitting a membership target, etc)? This will help determine how you structure incentive based pay.

Start by making a list of staff member responsibilities and put a star by those areas you are looking to incentivize better performance. Next, you’ll want to look at what revenue categories govern those specific responsibilities to determine if there is room for some incentive based pay. Again, the key to determining incentive based compensation is to tie it to the specific performance you are trying to elicit.

The following 7 ways should spark some ideas on how to best incentivize your staff:

1. Desired outcome: Increase conversion of leads to sales.
Incentive: Commission based bonuses

If you have a staff member who is in charge of new client inquiries, new client consults, converting phone calls and emails into sales, a percentage of first sale may be a good compensation strategy. Commission based membership sales people are typically seen in larger “globo” type gyms, but it can work in a micro gym as well, for the right individual. This person’s primary responsibility is to engage the client in those first contacts and get them to sign up for one of your services. You can track the effectiveness of the staff member by tracking how many leads (phone, email, walk in) are converted into sales.

2. Desired outcome: Hit membership target

Incentive: Target based bonuses

These can be specific to the employee’s role or can be global across your coaching staff. For example, let’s say you have a target of reaching 150 group clients and you have a staff of 5 coaches, each of who contribute equally to member retention (for example these staff members are responsible for calling/following up with missing clients, etc). You can globally set that target and an associated bonus for each staff member if your team is able to reach it. Alternatively if you have a single staff member or manager who does the bulk of work with regards to member retention you can set an individual target.

3. Desired outcome: Increase conversion rate from On Ramp to regular membership

Incentive: Conversion bonuses

This is a great one if you have staff members that are intimately involved with helping your clients move through the path of your business. For example, if you have an On Ramp or other beginner workshop that is the primary point of entry for new clients, you can reward the coaches of these critical classes in a couple of ways:

A flat rate bonus if they achieve or exceed a given conversion rate for each workshop (this may be more of a carrot, for if they don’t meet the target conversion rate, there is no bonus.)

A % of each converted clients 1^st month membership dues – this one has the possibility of rewarding mediocrity. If only 30% convert they are still making extra cash.

4. Desired outcome: Grow a stagnant program

Incentive: % of growth of specific program

Let’s say you offer 3 programs in your fitness business: yoga, CrossFit and boxing. If you have a staff member who is spearheading a fledgling program and is responsible for attracting and retaining members in that specific program, you could tie him to a % of growth for that program only. For example, let’s say your boxing program is currently bringing in $3000 per month in revenue, but growth is stagnant. You could create a position “Director of Boxing” with specific duties related to growing the program and pay him 10-15% of growth of that program. If he grows the program to $10,000 per month, he is earning an additional $700-$1050 per month.

5. Desired outcome: Get coaches to review roster and consistently sign clients into classes

Incentive: Attendance based bonuses

If your goal is to encourage your staff to consistently sign clients into classes (Part of their job description and necessary for accurate business data), a nominal per head attendance based bonus may be appropriate. In this example a nominal per head on top of a flat class rate is likely best. For example, let’s say you pay your staff $20/class with a per head bonus of 0.25. A 20-person class represents an additional $5 in pay for that hour.

If you opt not to do a flat rate + nominal per head bonus and instead just offer a larger per head rate as staff pay, it’s important to be careful. Anytime you are paying per head you limit your ability to scale as a business, as costs increase with each new client. Be particularly careful if you have several comped, trade, or other zero revenue clients, for when they attend a class it actually COSTS you money! (Quick example: a family member who trains for free on an unlimited membership may come to 15-20 classes in a given month. Depending on what you are paying per head (let’s say $4.00) this represents a significant monthly cost ($60-$80) Now imagine your costs if you have 10-20 non-paying clients).

6. Desired outcome: host profitable events

Incentive: % of event based profits

If you have a staff member responsible for organizing events or running paid challenges you can tie him to the profitability of those specific events. In this case tying him to profit not only incentivizes him to make it a great success, but also to keep expenses under control.

7. Desired outcome: grow a profitable online store

Incentive: % of retail profits

Retail director - A staff member who is in charge of retail, inventory, and shipping online orders can be tied to that specific revenue category (products). You’ll need to look at your margins across your products, but offering a percentage of profit can be a good strategy here. This person will be motivated to bring in items that will be hot sellers, as well as manage all aspects of retail in your business including keeping cost of goods sold in check. You can give them inventory limits ie, no more than $3000 of inventory on hand, which will encourage smart product choices (they won’t want to be sitting on $3000 of inventory as they won’t be able to bring in any new product.)

Some other considerations:

Not all staff will be incentivized the same way and some will simply be hourly employees. Remember, it should be based on the desired outcome and is often based on the individual’s specific role within your business.

Be sure to clearly delineate the exact responsibilities the staff member is responsible for. “Growing a program” is sort of nebulous; make sure there are specific duties that are helping to bring about program growth. You and this person can sit down and create a plan of action together.

Unfortunately, there are some people who will do a mediocre job regardless of what incentives you lay out. And there are also people who aren’t at all motivated by financial reward. The book Strength Finder 2.0 is a great read (get one for everyone on your team). It will shine light on your staff member’s strengths, what each person is motivated by, and ultimately may give you insight on how best to incentivize particular people on your team.

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