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The Shopkeeper’s Journey – A Tale of Incentives

a tale of incentives

After years of toiling away with manual labor, Cole decided to open a shop in his medieval village of Stonebridge. With a passion for travel, Cole set out to collect unique items such as exotic spices, silks, dyes, precious stones, and other treasures from around the area.

He secured a loan from a wealthy merchant and opened his shop in the heart of the village. At first, he relished being in the shop, working from open to close every day. But eventually, he wanted to expand his business. So he hired three helpers.

After training them, he slipped on his green tunic, brown boots, and matching belt, and then he ventured off to nearby villages to collect new goods for his shop.

The First Challenge

Two weeks later, he returned from his travels and was disappointed to see that his standards had slipped. Dust piled up in the corners, his product wasn’t organized. His team also looked bored, which led to poor customer experiences.

To remedy this, Cole came up with a checklist for the staff to follow during his next trip to ensure his standards were maintained.

After restocking the shelves with all the new goods from his latest trip, Cole set off on another two-week journey. However, when he returned from his second trip, he found that the checklists hadn’t been followed. Frustrated, he hired a supervisor to oversee the team and ensure the checklists were completed properly. But even with a supervisor, Cole found that his team still wasn’t completing everything when he returned from his third trip.

This time, Cole decided to pay his employees based on commission. Hopefully this would motivate them to work harder and think more like owners.

However, this created a new problem.

With the new commission structure, his staff began fighting over who focused on sales. No one wanted to do non-sales tasks like cleaning or merchandising because they paid less. As a result, the shop’s standards dropped even further, and customers complained about feeling pressured to buy things.

A New Focus

Determined to make his team feel and act like owners, Cole thought deeply about what motivates an owner. He narrowed it down to two things: profits and customer satisfaction. If the store made a lot of profits, but the customers weren’t happy, those profits would soon evaporate.

With this in mind, Cole shared his plan with his staff. He promised to put 10% of the store’s profits into a pool to share with the staff every month based on their hours worked and individual performance. In addition, he set up a customer survey card outside the store, asking customers to rate their experience. The staff would only receive their share of the profits if most customer feedback was positive.

Cole returned from his next trip to find that his new approach had finally worked. Non-sales tasks such as cleaning, merchandising, and even promoting the store all contributed to the store’s profits, so everyone was willing to help. They even came up with new ideas to help the store grow.

Furthermore, with the team’s newfound excitement at sharing in the shop’s success, Cole no longer needed a supervisor to enforce the checklists. As a result, his sales increased and expenses decreased, even after accounting for the profit-sharing.

With this successful strategy in place, Cole’s shop became a thriving and happy community hub, where employees and customers alike felt valued and invested in the store’s success. All thanks to the power of incentives.

THE END

Nick’s Notes

Incentives drive results. Other than getting the right team in place, providing the right incentives is the most important thing a leader can do. Incentives should be simple, easy to understand, lucrative, and fully align everyone’s interests.

For my current companies, being in retail, I put a percentage of the gross profits (sales – COGs) into a pool and then apply a modifier based on labor. These are all factors the team can control vs something like our monthly rent.

At the end of each month, that pool gets split between the supervisors based on hours worked. Then, the manager gets a percentage of the supervisor’s bonus pool, and the District Manager gets a percentage of all the managers’ bonuses.

This completely aligns everyone’s interests so everyone’s rowing in the same direction and has led to a substantial increase in our stores’ success.

With the right team and the right incentives, little else matters.

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