One time we were reviewing a list of all the credit card charges for my business and I noticed something interesting…Some services charged fixed fees of $50 per month, $100 per month, or even $500 per month. For other services, some no more valuable to us than the others, the fees scaled with usage costing us up to $5,000 per month for some.
What was the difference? We paid for performance.
If you can tie your compensation to the value you bring to a person or business, you have far higher earning potential than if you get paid a fixed fee for your time.
For example, say you run an advertising agency. If you charge a fixed fee per month of $10,000, you won’t make any more money if your client makes $30,000 or $3 million in sales from your work. Either way, your client pays you the same.
Alternatively, if you charge a percent of profits or revenue, such as 5%, you can make far more money if you deliver great results. At $30,000 in sales for your client, you make only $1,500. However, at $3 million, you make $150,000 or 15 times what you would have made on the fixed fee arrangement.
Whether you own a business or work for someone else, aim to tie your compensation to performance, not time.
Even if you sell a physical product in an ecommerce business, you can still use this concept. The value you provide likely isn’t saving or even making money. However, you do provide some other value such as health, convenience, peace of mind, beauty, or safety. If you use a performance-based guarantee to back up the value you provide, you indirectly tie your compensation to performance.
Let’s say you sell a high-quality flashlight. You provide peace of mind that in the event of an emergency, your flighlight will work. So, for a guarantee, you say that if your flashlight ever stops working in the next five years, you will give a refund for DOUBLE the price paid back. This performance-based guarantee will result in more sales.
Align your interests with your customers, clients, or employer, shoulder some of the risk by tying your compensation to performance, and you both win.