Profitable Online Business Depends on Bonuses to Survive

A profitable online business has more potential for staying healthy if it puts a heavy emphasis on bonuses rather than salaries.

This is especially true for business owners. If they defer money from during the year to the end of the year, they avoid the risks of unexpected downturns in revenue. They should take only the amount of salary they need to survive.

Consider two scenarios with different approaches to paying the owner, the staff or both.

The first business produces $12,500 a month in revenue with $10,000 available for owner and employee compensation. That compensation is some combination of salaries, benefits and bonuses. The remaining $2,500 is split between profit and operating expenses.

It spends all of that $10,000 on salaries and benefits every month and keeps none of it for bonuses at the end of the year.

The second business produces that same amount of owner and employee compensation. But it spends only $8,000 each month on salaries and benefits. It plans and hopes to have $24,000 available at the end of the year for bonuses.

The first business suffers from an extreme case of overconfidence. Confident small business owners who work in an online environment often get that way because they may have several good years of steady revenue and profits.

Online survivors know better. They have gone through at least one or more phases when the revenue suddenly takes a painful dip along with profits. That high monthly expense for salaries and benefits look like a bad idea after all.

Even if they haven’t gone through a dry spell, they will see others who do go through one or more of them. Some of them survive and most don’t.

Online Bonus Strategy

That means an online business strategy must include long-term planning for a combination of revenue, profit and compensation.

It forces a business owner — whether a solo business or one with employees — to plan for the unexpected downturn.

One simple way of preparing for such a downturn is a bonus plan that pushes a healthy percentage of compensation into the end of the year when it is safe to pay out the money.

A disciplined solo business owner has the greatest control over such a strategy. The owner of a business with a staff has a more challenging issue: hiring staff at lower pay but with the promise of a lucrative bonus at the end of the year.

The owner can’t offer a $50,000 salary to one employee with no bonus or a $45,000 salary with the potential for a $5,000 at the end of the year. Such a deal is all risk and no reward for the employee.

Instead, for example, the owner has to offer $45,000 with the potential to earn up to $10,000 or even more at the end of the year depending on the final results of the business. That way both the owner and the employee share risk and reward.

Even better, it incents the employee to work harder and focus on getting results. With such a plan, the owner now has much more potential for surviving an unexpected downturn than the business with an aggressive pay plan for its owner and employees.