Many people think your company makes too much money.
What do your employees think? Do they have guilt about profits?
(Note: this post was originally published on August 29th, 2016. It has been updated to reflect new data.)
According to a Pew Research Center poll in June 2017, 59% of American registered voters think that corporations “make too much profit.” In the same poll, 36% said that corporations make a “fair and reasonable amount of profit.”
None of my business owner clients think they make too much money. However, based on the Pew survey, nearly six out of ten of their employees probably believe that their companies make too much profit.
When employees think that a company is making too much profit, many of them likely feel guilty. That guilt about profits impacts pricing, customers interactions and efficiency. That situation is pain for a business – pain that is likely reducing profits.
Do you have that pain in your business?
What causes a gap between the views of business owners and employees?
I think the answer is simple: a lack of understanding.
- Employees do not experience the sleepless nights of business owners.
- The employees’ long-term well-being and wealth are not tied to the performance of just one business.
- Employees have not embraced risk and uncertainty in starting the business.
- Employees have not invested cash in the business.
The good news is that this lack of understanding can be fixed. This week and next week, I will show you how.
First, let me explain my reason for optimism in bridging this gap about profits. In the last two weeks, I have reminded you of the “goodness” of business. Fortunately, when asked about their view of business, most Americans agree.
In a June 2012 survey, Pew Research found that 72% of Americans agree that “the strength of this country today is based on the success of American business.”
Employees who believe that businesses make the country stronger can certainly be taught and come to understand the importance of profits. That is good news.
Let’s discuss why Americans might think companies make too much profit. In a May 2013 Reason-Rupe poll, people were asked, “Just a rough guess, what percent profit of each dollar of sales do you think the average company makes after taxes?”
The average response was after-tax profit equal to 36% of revenue!
I suspect your company’s after-tax profit is nowhere near 36%. That number equates to a pre-tax profit margin of 55% If only! Now, we start to see the root cause of the problem – a lack of understanding of the economic reality. We can solve that type of problem with education.
How do your employees view the business’ profits?
Here’s how to find out. Ask these questions:
- Just a rough guess, what percent profit of each dollar of sales do you think the average company makes after taxes?
- Do you think profits are essential for a company to succeed?
- If you answered yes, why do you think companies need profits?
- In a free market with lots of competition, can a company be “too profitable?”
- If you answered yes, how much is too much profit?
You could ask them in casual conversations, in a regular company meeting, or in using a SurveyMonkey.com survey. Survey Monkey has an easy to use, yet powerful free plan here.
If you feel your employees could benefit from some instruction in this area, have them review this post about the Seven Purposes of Profit, or check out the Seven Purposes of Profit posters I have available as educational aides.
Remember: If your employees feel guilt about profits that your company earns, then the company’s growth and profit will suffer.