Asking your employees if they know how your company makes money might seem like a simple question. Still, a more pressing question is how we maintain profitability. A lack of understanding of these similar but potentially complex questions can have consequences for any size organization.
I have been trying to finish this article for several months, changing my perspective multiple times. Initially, I aimed to address the junior staff’s lack of awareness of shareholder value, followed by an examination of how the company generates revenue and ultimately settled on the topic of how a company remains profitable, which ultimately 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 cover salaries and overhead and keep the lights on?
Their answer: “The government pays us to review records.” This is a true statement and does indicate they are aware we get paid for the actions we take 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, an HQ Manager 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 Medicare could make changes before payments were made to hospitals and medical providers. This made the process more accurate and efficient by eliminating the need for later adjustments, resulting in higher payments when records were reviewed within the optimal window.
I could not shake the fact that there was no specific focus on meeting these review timelines, nor could I see any actions that would make the process more efficient. When I reviewed our monthly reports, I noticed that we were only reaching the highest payment/reimbursement tier about 10% of the time. Suddenly, it made sense why money was tight. We weren’t operating in a way that aligned with our income model, and most employees were unaware of this. I personally have a hard time reconciling that there were not any efforts taken to increase our performance.
Over the next two years, my team implemented several process changes and automation, increasing the reimbursement rate to nearly 90% and reducing the costs per review by an additional 75%. To reduce the review cycle, we initiated barcode tracking and identified who was responsible for the reviews to pinpoint lagging records, allowing us to nudge them. Additionally, the reviewers employ multiple methods for reporting their findings, typically by transcription (which can take 2 to 3 extra days), handwritten notes, or preprinted slips. By providing them with computers equipped with error selectors, letters were generated for them to review and sign.
On the cost savings side, every record sent to a specialist or physician reviewer was sent by same-day courier, even when there was no 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. Here, we had one of the lowest-paid employees, where 80% of her day was spent with nothing to do. Yes, it makes sense that we spend money making her job easier.
Another simple yet significant cost reduction was the use of copy paper. Our contract was for a single pallet of paper each week from a vendor whose contract had not been renegotiated in several years. Asking why we could not get four pallets and save 15% on a bulk discount and reduced delivery, and it was so the supply clerk did not have to restock as the delivery driver would deliver to the copy room. Shifting to another vendor, ordering a month’s supply, and letting our supply clerk restock saved us almost 60% each month. These changes took time and patience, but they became easier when we explained why we were making them and how they benefited everyone. We highlighted that they directly benefited from performance bonuses and other perks we could offer due to the cost savings.
Seeing the Numbers Changes the Game
During an agency advisory call, I asked one of the partners if they tracked staff utilization rates (also known as 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 on an hourly basis 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, for each employee, what percentage of their 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 perform various tasks—This lack of training and expertise led to procrastination and a delay in learning how to perform some functions, resulting in financial losses for the company. Helping employees understand the financial implications of these delays often changes behavior more effectively than abstract performance metrics.
- Lack of Tools—They encountered delays, particularly in reporting, due to having only one or two tool licenses, which led to logjams. 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, which were taken out of context and generated some 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 provided an example of the company being invoiced $ 1,600 to add an Ethernet drop. He explained that no one questioned it, yet when asked, most felt it was overpriced. After obtaining more details and negotiating with the vendor, the price was reduced 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’s the company’s money? Is there the same drive to save money? There needs to be a culture shift where people are encouraged to question and given latitude to challenge how things are done.
The Takeaway
When employees understand how the business generates revenue — and how their role contributes to that — they may make better decisions, solve problems more efficiently, and often uncover improvements that leaders would not have identified from the top down. Focusing 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 achieve, how billing works, or even how tools like dual monitors impact 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?”
