Jan 11, 2022
Whether it's physical, emotional, or mental health, or relationships, but ESPECIALLY your career path, I think one of the biggest problems plaguing many people is the fact that they're just not that deliberate and disciplined with the journey they're on...
Deliberate with picking the journey they want to go on--and what the steps are--and then disciplined in following it!
Today, I want to zoom out and answer a question--you may have had this question at one point or another and it goes something like this:
Why does my job/position at the company I work at not get paid as much money as others positions in the same organization?
Maybe you have worked somewhere longer or you feel like you work way harder than other people there, yet you aren’t making as good of money as someone that is relatively new to the business in another department.
To try and help you understand why this is, I want to unpack and explain a different model, or map, of how to think about the different roles inside of pretty much every organization, so that you can put yourself on the right side of the equation--where you're most likely to generate the most income!
Now look, if life was fair, then clearly, you might think that the people who've been doing the job the longest, or the people who've been at the company the longest, would make more money than those who are new. Or you might look at the big picture and say that it would be more fair and equal that regardless of what your job title was, that you would make similar money--that people in sales wouldn't be paid an excessively high percentage of compensation, compared to say somebody in customer support.
My goal isn't to argue about fairness in this post today. The world has never promised us fairness. God, the universe, whoever you believe in, never promised us fairness!
While the government might work to create fairness, there simply is never going to be complete and utter fairness. What you need to do is to learn (figure out) what the game is that's being played, understand the “rules,” and use strategy to put yourself in the position to succeed in whatever way that you define success.
So my goal today then, is to really unpack the business model and where companies spend their money, invest their money, and save money--so you can understand what it means for you as an employee.
Now, right off the bat, it's easy for most of us to understand anyone who walked the normal pathway to become a professional. We are talking about the people who were at the top of their class in high school, went to college, got a degree, maybe then went on to get a masters or a doctorate (or some type of license or certification) passed the bar exam, etc--you name it... got the best internship, got the best entry level job and worked their way up through some type of a power structure, like a law firm, an accounting firm, a hospital, etc.
We all kind of understand that pathway, the traditional one that was preached to us about how to make a proper living. So if we didn't take that pathway we understand why we don't get compensated equal to somebody who spent 10 years in school, etc.
But where I think a lot of us struggle is realizing that there all are a lot of different jobs that DON’T require someone to have walked that pathway--to have done all that education and schooling--and CAN MAKE MORE MONEY than other jobs that have those “traditional pathway” requirements!
THIS really is my goal today--to try to explain that for a huge segment of the population who don't have college degrees, or don't have professional “driving” college degrees (maybe you got a degree in humanities or liberal arts where it didn't lead to a direct path into a business profession) that there are different ways to think about how companies reward employees for doing different jobs--so that if you genuinely want a better livelihood, you realize there is a way to get it!
Let's start off with the very first thing I want you to understand:
Rule #1 Your value to an organization dictates how much you get compensated.
Now, that doesn't mean that organizations don't value their lower paid employees. But the value that an individual employee contributes to the organization is generally tied to that company’s reward mechanism, and therefore, how you as the employee are paid. So the less overall “value” that you bring to an organization, the less you're going to make, and the more overall value you bring to an organization, the more you're going to make. Hopefully, that's our first fundamental understanding.
Therefore, if you want to make more money, you need to individually bring more value to an organization.
Rule #2 Value is in the eyes of the beholder
What I mean by this is, I’m talking about the value that you bring in the “exchange” between you and an employer. (As a side note, the same goes if you're a contractor, service provider, or even a business.) We, “the employee” or “contractor,” (etc), have to provide more value than we take away. Therefore, if we want to take away more money, we need to provide more value.
But again, rule number two: value is in the eyes of the person receiving not giving. What does that mean? Well, really quite simply, it's not about whether you think what you do is valuable! It's about what the person who's receiving that value thinks. And in this case, when it comes to employees, this means the business. You have to understand what things businesses value in order to figure out where you should position yourself to receive the biggest reward. If we unpack this (and I'm not going to go deep into financial statements and all that kind of stuff), I'm going to try to explain (generally) businesses fairly simply as a diamond, okay?
This diamond is symbolic of where they (businesses) invest their money and where they receive or pull back--extract their profits. Because when you think about it, at the end of the day, the easiest way to think about a business is that businesses bring in money and spend that money and the difference is their profit. But more specifically, it's a little bit more detailed than that...
Businesses spend money (or invest money) to bring in revenue, and then spend some of that revenue to fulfill whatever it is that their customers are expecting. The difference between the money received in revenue, the money spent on generating revenue and the money spent in the cost of delivery--equals profit. And that really is the easiest way to think about almost every single organization.
Now, while definitely government works a little bit differently, and you can make the case that nonprofits are also a little bit different, most businesses spend money to bring in money. They spend some of that money they brought in to fulfill whatever their promise or obligation was, and the difference--or what's leftover--is hopefully positive (in the means of a profit or carryover or whatever). So what does this mean? Well, we need to think about this diamond--and where we as employees--sit on it.
I'm going to start with the left side of the diamond.
The left side of the diamond is where businesses spend their money, or more specifically, where they invest their money. One of the easiest forms of this investment to understand is the shorter term investment--invested money that goes into the business for the purpose of generating (or receiving) revenue; what I call “generating demand.”
The demand generation engine for most companies consists of marketing and sales people. That is the normal demand mechanism. Now you might add one extra group of people to that --maybe account management or customer success--as long as these groups of individuals or areas of the business are meant to increase the revenue for a given client.
So that is where businesses “spend” or invest their money shorter term to receive a shorter term return on it. What they are trying to do is spend money to generate revenue, because at the end of the day, revenue is the core kind of fuel that drives the business. If a business doesn't have revenue, if it's not bringing in money, it means it doesn't have customers. Businesses that don't have customers aren't actual businesses, right?
So that's number one--businesses invest short term to generate revenue.
Number two, businesses invest longer term to build assets.
Assets are a product(s) or a service offering that they (the business) are going to provide. So think about it this way, we will use hotels as an example: a hotel will invest marketing and sales money to generate bookings of people who want to come and stay. They invest longer term money to create a facility and amenities that people will want while they're staying there, that's their asset(s) that they're building.
Everything on that left side of the equation is a great place to be (sales, marketing, product development, etc.) because the businesses are “spending” (investing) the money they have--it's not just an expense! The money they are spending is considered a form of investment where they expect a reward to come from--in the form of increased revenue.
Right side of the diamond...
Now over on the opposite side of our diamond, we have the other two core parts of the business…
These include delivery and administration. Delivery is where the people “sit” who actually deliver the one-on-one service to the customer. In a tech company that might be the support team, at a hotel that might be the front desk or the house cleaning people. They're the people that actually facilitate the labor involved in delivering the product or service to the customer.
And then the final group are the administrative people. These are the people that are required to maintain the inner working mechanisms and engines of the business: accountants, lawyers, HR people, and human resources teams--all of those kinds of individuals.
This right side of the equation are what are generally referred to as “cost centers”--and that's not a term of endearment. Some people argue whether that’s true or not, but the simple fact of the matter is, the parts of the right side of the equation are the expenses of the business that bring us to, or net us out to, the profit.
As a business owner (I’m the CEO of a successful software company) I can tell you firsthand, those “right side” expenses are areas that I try to minimize my cost per dollar of revenue I bring in, per customer that I bring in.
I'm not trying to be cheap and not spend money on the right hand side. But as I get more customers and more revenue, I'm wanting to achieve some type of economy of scale, where I need fewer employees per customer, as we get bigger and bigger.
Now, what does all of this have to do with an employee and where they fit in the organization?
Well once again, if life and the world was fair, in terms of people on the right side of the equation (the expense side of the equation) they would love a world where companies invested in their employees equally on both sides--left and right. And while “that” world might be a great place to live for some people, those businesses that tried to do that actually are not as successful as businesses that invest “properly” and follow kind of the default way that businesses go about doing it. And at the end of the day, while short term it might be fun for an employee to work at a company like this, long term working for a less successful company is never fun.
Left Side: Salespeople and Marketers
So what does that mean? Well, here's what you can expect: on the left side of the equation, if you're an employee in the marketing and sales arena (in the demand generation side) you can expect that your company will spend money both with third party providers and with you by provide add on benefits--whether that's commission, bonuses, spiffs, monthly contests, whatever the case may be--to drive short term performance from your area.
This is a great place to be!
It is the front-facing (or outward facing) part of the company that's out there making noise, a brand, and generating interest to bring in new customers. And the closer you are to the actual exchange of money between a prospect and your company, in order for them to become a customer, the more value you are in theory seen as creating!
This doesn't mean the great marketers aren't worth as much money as a great salesperson. It's the fact that the salesperson is closer to the exchange of money, and therefore, they are generally seen as creating more value. Marketers just have to work harder to show their value.
That is a phenomenal place to be an organization--full of lots and lots of parties and excitement! And to be honest, the employees that work in these areas are there taking on the risk and therefore receive the reward of driving that revenue.
Left Side: Developers and Product People
The next stage, the longer term ones, are those that are building our product. In the tech world, these are engineers and product managers. They're the people that actually design: designers who design a product, who build the product, who manage the entire product process (whether it's building a new one or evolving an existing one) we make investments in those teams to make sure that our facility, our product, our service offering, whatever the case may be, is competitive in the marketplace.
And because it's about being competitive in the marketplace, and building up a long term asset that we can use to go out in the world to generate revenue, companies invest long term in those areas, and therefore invest in those employees long term. That's why at a tech company engineers and product managers are compensated so well, because they're building these long term assets.
Another way to think about it, when the people on the left side of the equation leave a business, the value they brought to the business remains in the business and continues to pay back rewards for the business, even after the employee leaves.
Just think about that for a minute.
The leads that a marketer generates, even after they leave, continue to pay money to the company. The customers that a sales person closes, even after the salesperson quits, continue to give money to the company. And the product, the building, the software, the app, whatever it is that a product manager and an engineer build for a company, when those people leave and move on to another company, that asset--that tool, that software--stays with the company and continues to be something that generates revenue.
And so this is the core concept here, that left hand side of the equation is a great place to be as an employee.
Over on the other side, the interactions that happen between a support person (such as a front desk person) are constrained to that one-on-one single time interaction. And while yes, they do have value long term and creating a brand, and creating referrals and those types of things, it's really, really difficult to point at any one of those individual interactions and see that value coming from it.
Right Side: Delivery
Therefore, that's why those individuals are paid less than the salespeople; they're viewed as adding less value. I’m not just talking about inherent value like point of sale type value vs. that one time conversation the support person had to resolve a customer issue kind of value, but these right side individuals are viewed as creating less value that sticks around long term.
Now clearly there are companies out there--they're flipping that on their head! Whether that's Ritz Carlton, Four Seasons, Zappos, or some of these companies that are very customer-oriented and focused, they know that those customer interactions do long term drive value and they should therefore be investing in those interactions. This knowledge and belief will make those companies pay better than other companies for similar jobs. But I guarantee if you go to those companies, those “delivery” jobs (the jobs that facilitate the experience of the customer) do not pay more or even equal to what the jobs on the other side of the equation get paid.
Right Side: Administration
And then finally, we have administrative jobs: accounting and HR.
These are all very, very important roles for our organization--for sure--no doubt! Most of them get paid more than a lot of the delivery jobs simply because they are professionals and have degrees and certifications and licenses. But once again, businesses as they grow will look to minimize the cost per dollar of revenue in these areas. Therefore, these departments will always be expected to become more efficient and more effective (i.e. doing more with fewer people). Again, this doesn't mean they're not valuable to the organization!
But what it does mean for you as an employee is that you're going to be expected to constantly level up your ability to deliver in the hours you have available and most likely you won't receive a direct increase in pay for the increases in efficiency. You should, over time, receive increased compensation because you're getting better and better at doing things, but don't expect it to be a one-to-one ratio with your efforts.
So what's the overall takeaway?
What does all of this mean, now that you understand it?
Well, it's really quite simple. If you want to make more money, you need to generate more value--perceived value and real value--for the organization you work at. And that value is dictated on whether you're on the side of the equation where companies are investing their money to receive that value and those assets, or whether they're expending their money, and long term hoping to minimize those expenditures per revenue or per customer.
Your goal (if you want to increase your earning power) is to have a job on the left hand side of the equation.
That's not to say the jobs on the right are bad, but trust me, if you want to increase the money you earn in the standard for profit company in the United States of America, you need to do your best to get over to the other side of the equation!
You CAN do this either by picking a job/career path that flows you into there, but if you find yourself on the right hand side of the equation to begin with, you're going to need to find a pathway that leads you over to the other side--moving from support into success: where you drive upgrades. Or moving from the front desk into a sales or marketing type role. Or moving from customer support into product management or software development--or any of those roles that move you across that little equator line of revenue versus expense.
Any of those career pathways! While it may be hard to make the jump (and the longer you wait to make the jump, the more difficult that transition might be as far as a drop in compensation, earnings, clout, or level in the organization) the sooner you make that jump the easier it will be.
But TRUST ME when I say this, if you want to increase your earning capability, the BIGGEST number one thing you can do is find a way to make that leap across the line from expenses into assets and revenue!
Hope this blog post finds you well, and I hope it makes sense. I'd love to hear any feedback you have! Please feel free to throw a comment on this post in the Refer Facebook Group and let me know what you think!