Asking your employees if they know how your company makes money might seem like a simple question. Still, an even harder question is how we maintain profitability. A lack of understanding of these similar but potentially complex questions can have consequences to any size organization.
I have been trying to finish this article for several months, changing my perspective multiple times. At first, I wanted to address the lack of junior staff’s awareness of shareholder value, then about how the company makes money and ultimately settled on how a company remains profitable, which everyone contributes to its success or failure.
A Wake-Up Call at a “Nonprofit”
My first job after leaving the Marine Corps was at a company that reviewed medical records for the federal government. My first week on the job, I asked my team a straightforward question: How do we make money?
One person confidently answered, “We’re a nonprofit, so we don’t make money.”
I followed up: How do we generate income to pay salaries, overhead, and keep the lights on?
Their answer: “The government pays us to review records.” This is a true statement and does indicate that we know who pays us and for what, but that was the extent of their knowledge. For many, that may be enough info.
So, I asked my manager. She clarified that we were paid (technically reimbursed) per the medical record reviewed. Later, a senior leader added that we earned more when we reviewed records faster—a tiered compensation model based on speed and volume. The quicker we reviewed the record for accuracy, the quicker changes could be made before payments were made to hospitals and medical providers. This made the process more accurate and efficient by not needing to make adjustments later, so they paid more when records were reviewed in the optimal window.
I could not shake the fact that there was no specific focus on meeting these review timelines, nor really any actions I could see to make the process more efficient. When I dug into our monthly reports, I saw that we were only hitting the highest payment/reimbursement tier about 10% of the time. Suddenly, it made sense why we were struggling financially—we weren’t operating in a way that aligned with our income model, and most employees had no idea.
Over the next two years, my team implemented several process changes and automation, increasing that reimbursement rate to nearly 90% AND reducing the costs per review by another 75%. To reduce the review cycle, we initiated barcode tracking and who was doing the reviews to identify lagging records so we could nudge them. Additionally, the reviewers use multiple methods of reporting their findings, typically by transcription (2 to 3 extra days) or handwritten notes/preprinted slips. By giving them computers with error selectors, letters were generated for them to review and attach for signature.
On the cost savings side, every record sent to a specialist or physician reviewers was sent by same-day courier even when there was not that level of urgency. I was told it was “easier” for the receptionist to write the doctor’s address and a courier ticket than to address them, weigh them, and send them by USPS. An even simple cost reduction was copy paper. We used a pallet of paper each week from a vendor whose contract had not been renegotiated in several years. Shifting to another vendor and getting a month’s worth saved us almost 60% each month.
These changes took time and patience but became easier when we explained why we were doing them and how they benefit everyone. We highlighted that they directly benefited from performance bonuses and other perks we could offer because of the increased “profit” available.
Seeing the Numbers Changes the Game
During an agency advisory call, I asked one of the partners if/how they tracked staff utilization rates (AKA Expense-to-Revenue Ratios). They didn’t know what those were or how they were doing. Any company that generates revenue by selling the knowledge and skills of its team members either hourly or as a collection of tasks must understand its individual and collective utilization rates. An employee utilization rate is a simple formula that tells you, by the employee, what percentage of a person’s time is billable.
Utilization Rate = Total Billable Hours ÷ Total Available Hours * 100
After pulling the timesheet data and what was invoiced, we found that most billable employees were billing only a fraction of their available time. Once that insight became apparent, they set off to increase the billable time. Over the next few weeks, we identified multiple contributors:
- Lack of knowledge to do various tasks—This lack of training and expertise led to procrastination or taking time to learn how to do some of the functions, which led to delays that cost the company money. Helping employees understand the financial implications of these delays often changes behavior more effectively than abstract performance metrics.
- Lack of Tools—They found delays, especially for reporting, due to only one or two tool licenses, which resulted in log jams. Some employees struggled with monthly reports because they were using a single monitor. Adding a second monitor increased productivity so much that the investment immediately paid for itself.
Agency management focused on training, restructured outdated processes, purchased additional tool licenses, and reassigned tasks, resulting in significantly increased billable time. Circling back to the employees, by giving them the ability to say they did not know how to do something or the latitude to suggest changes in the process, they are less likely to waste time figuring it out and asking for assistance.
It’s Not About Shareholder Value — It’s about Contribution
A few years ago, the CEOs of Panera and Wayfair made two contrasting comments about their employees “not caring about shareholder value” that were taken out of context and generated a bit of controversy on social media.
“No employee ever wakes up and says, ‘I’m so excited. I made another penny a share today for Panera’s shareholders,”
Ron Shaich, Founder Panera
Indeed, most employees don’t think about shareholders. As many stated on social media, it is not their job to care. They’re thinking about doing their job well—serving customers, solving problems, and finishing tasks. If you want to connect with them, don’t talk about shareholder returns—talk about how their role impacts revenue, efficiency, or cost control.
Similarly, Wayfair’s CEO sent a year-end memo to the staff to motivate them. I believe that most who read it in the spirit it was intended did think that, but it made for fantastic clickbait across the internet, suggesting they work harder and laziness is not rewarded. It was this quote that I thought was powerful.
I would also encourage you to think of any company money you spend as your own. Would you spend money on that, would you spend that much money for that thing, does that price seem reasonable, and lastly – have you negotiated the price?
Niraj Shaw, CEO, Wayfair
He gave an example of the company being invoiced for $1600 to add an ethernet drop. He explained that no one questioned it, yet when asked, most felt it was overpriced. After getting more details and negotiating with the vendor, the price dropped to $300 per drop. That was his point: if it were your money, you would have tried to reduce the cost, but what about when it is the company’s money? If there the same drive to save money? There needs to be a culture shift where people are allowed to question and given latitude to challenge what and how things are done.
The Takeaway
When employees understand how the business makes money — and how their role contributes to that — they may make better decisions, solve problems faster, and often uncover improvements leaders would never see from the top down. Getting the focus on profitability by increasing efficiency and reducing costs without sacrificing productivity and employee morale can yield even more significant gains.
Clarity matters, whether it’s knowing which tiered revenue targets you’re trying to hit, how billing works, or even how tools like dual monitors affect productivity. Business literacy isn’t just for executives; it should be a shared language across the organization.
If you want smarter decisions and better results, start by ensuring every employee can confidently answer one question: “How does this company make money and generate a profit?”