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> I know I saved companies millions of dollars but only got $100k/yr doing it. Let's use an arbitrary 1m saving. If you saved a company (me) a million dollars

> I know I saved companies millions of dollars but only got $100k/yr doing it. Let's use an arbitrary 1m saving. If you saved a company (me) a million dollars, you just made 10% (aka 100K). That's a pretty good commission. If you got health care, retirement contributions and anything else on top of that, you have made an exceptional commission. Because I gather you mention saving you mean on sunk costs. The second year you earn 100K, and if you don't save me money you have now made 20% commission and only saved me 800K (1m - 100K - 100k). And so on and so on, or you need to keep saving me 1m a year and there is a point where my costs will reach $0 and your salary will outpace that, increasing my costs. This obviously is a very linear representation where you're not adding extra value, nor am I incurring any additional cost/losses by employing you. Cost savings are reflected once in my bottom line but your salary is reflected every year in my in operating costs. However if you made me an extra 1m a year revenue (and my costs stayed the same), I would make 900K from you every year, and you make 10%. But if my costs increased then that 900K revenue is much smaller, let's say my revenue increased 900K but my costs increased 100K, you make around 12%. Now we are talking about profit.

simonh 5y ago
Plus it costs a lot more than salary to employ an engineer. You also need to pay hosting and operating costs for the product, office and technology support costs, support personnel costs (hiring, HR, procurement, secretarial, finance, payroll), business insurance. All of that needs to be amortized across the 'front line' costs. The cost of employing someone is generally about double what you actually pay them and can be a lot more.
- HeyZuess 5y ago
  > Plus it costs a lot more than salary to employ an engineer. Yes, the operational costs can be substantial.
tsimionescu 5y ago
If I provide 1M of value to the company, why would it not be ridiculously bad to get 10% of that value for myself? You call it a "commission" as if this was a salesman getting a cut of the cost of the product they sold, but a salesperson selling a $1M product is not providing $1M to the company - the $1M is split between the salesperson, people building the product, marketing etc. On the other hand, an investor who gives the company $1M normally expects to get more than 100% of that back (with some risks, of course). Or would you say that an investment where you pay $1M to get $100K back is a good investment?
- HeyZuess 5y ago
  > If I provide 1M of value to the company, why would it not be ridiculously bad to get 10% of that value for myself? If you generate 1m of profit, I don't think 10% is that bad. If you generate 1m of revenue then 10% is pretty good depending on operational costs. If you're talking about 1m of saving 10% is not bad. That 10% is paid in a salary. > You call it a "commission" as if this was a salesman getting a cut of the cost of the product they sold You can call it whatever you want, salary, bonus, commission etc. I use the word commission because it is easy to relate the concept, if you generate 4m for example what is your worth, and it is probably easier to count that as a percentage. But fell free to use whatever nomenclature you want. > but a salesperson selling a $1M product is not providing $1M to the company If you are not producing sales or a product which is sold, or reducing costs just how are you adding 1m of value. By this I mean tangible value, value which you can be paid for. Because that is what we are actually talking about monetary value being added somewhere. > On the other hand, an investor who gives the company $1M normally expects to get more than 100% of that back (with some risks, of course). Or would you say that an investment where you pay $1M to get $100K back is a good investment? Why would I ever say investing 1m to get 100k back is a good investment, getting 1.1m back might be a good investment depending on risk though, sticking 1m in a bank I am unlikely to get that rate of return for example. But I don't understand this part at all.
  - tsimionescu 5y ago
    > If you are not producing sales or a product which is sold, or reducing costs just how are you adding 1m of value. By this I mean tangible value, value which you can be paid for. Because that is what we are actually talking about monetary value being added somewhere. The precise mechanism isn't that important, but if it helps, imagine the following artifical scenario: a small startup buys 2 1000$ computers and hires a programmer and a salesperson, for 10k$ a month each. The programmer produces an app in 6 months, and the salesperson sells it for $3M. The two together have brought the company $3M in worth, minus $130k that they cost. Exactly how much esch contributed to the $2.8M is harder to say, but certainly each only contributed a portion of the $2.8M - even though the salesperson actually caused the revenue to flow in, they are not solely responsible; and neither is the programmer, even though they single-handedly created the product. > Why would I ever say investing 1m to get 100k back is a good investment, getting 1.1m back might be a good investment depending on risk though, sticking 1m in a bank I am unlikely to get that rate of return for example. But I don't understand this part at all. Well, a worker who, through their time and expertise, is adding $1M to the company's value is almost precisely equivalent to the investor investing $1M. However, you believe that the worker should get back 10% of what they invested, while the investor should get back 110% of what they invested. Do you see the double standard?
csa 5y ago
> Cost savings are reflected once in my bottom line Recurring costs and savings of the same are very real things, and there is a ton of money to be saved by streamlining this for many businesses that have grown without pruning and/or streamlining their internal systems. For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now.
- HeyZuess 5y ago
  > Recurring costs and savings of the same are very real things, and there is a ton of money to be saved by streamlining this for many businesses that have grown without pruning and/or streamlining their internal systems. Yes, streamlining can save a great deal of money, and consultants and businesses are making good money offering such services. But they are only represented once generally in financials of a company, unless that cost is reduced over time. > For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now. In general this is correct, but there are situations where cost savings aren't worth it. We see this play out with the idea of Linux vs Windows quite often, the reduction in cost switching to Linux is over shadowed by other issues such as training etc. Switching accounting systems, service providers etc might just not be worth the cost reduction.
6gvONxR4sf7o 5y ago
The opposite is also often true. Especially in tech, where we build things computers do ever afterwards. If my team implements a feature that generates $5M per year, and gets $500k that first year (10%), the expectation is that they don’t just sit back and maintain the feature ever after. They’re expected to maintain it while implementing the next $5M/year feature. By the end of year two, for the cost of $1M, they’ve given you $15M plus $10M/year going into the future. Of course it’s not that simple, because maintenance costs are crazy and nothing lasts forever, but the idea holds. If you imagine the ongoing revenue to be worth 10x today, that 10% commission is just 1%.
- HeyZuess 5y ago
  > The opposite is also often true. I think it is very admirable for a company to pay profit sharing, and at the very least pay bonuses for good work. But that is because I am an employee :) I just don't think profit sharing is realistic in the majority of situations for many reasons, and people over value their own worth. There's like a bias, if I generate multiple of millions for a company, then I must be highly skilled. That may be the case but sometimes it is the business itself which provides the environmental factors for that to be possible.
bb88 5y ago
> The second year you earn 100K, and if you don't save me money you have now made 20% commission and only saved me 800K (1m - 100K - 100k). I disagree. Savings is a competitive advantage usually dropping your costs, time to market, and increasing profits, or efficiency, even if you don't reflect that on the books. Managers could ask employees to do more things as opposed to reducing the labor costs (layoffs), e.g. Also since it's software, those savings typically compound. E.g: so I save tedium in accounting for $1M in the first year. It's so successful that you expand my efforts to other parts of your company. The next year you still have $1M + whatever I have added. Or $2M+ over the course of 2 years. If you decide to go with a external package and pay a recurring licensing cost -- which is pretty common in the software industry, then you'd be paying maybe 10% of whatever you save per year. One software package we were looking at was $6M/annum. That's roughly 30 engineers being paid $200k for a year to come up with an alternative. We're using 5 engineers to do the same thing for less. While it's hard to gauge true costs, paying my team $1M to save you $6M in recurring costs seems like a bargain, and something that's hard to argue against. In fact $2M might not be a bad number either depending upon how management sees it.
- HeyZuess 5y ago
  > If you decide to go with a external package and pay a recurring licensing cost -- which is pretty common in the software industry, then you'd be paying maybe 10% of whatever you save per year. One software package we were looking at was $6M/annum. That's roughly 30 engineers being paid $200k for a year to come up with an alternative. We're using 5 engineers to do the same thing for less. Ok fair enough, now lets say I am an Accountant and I work out that I can increase profits even further by hiring 5 people offshore for 30K a year. I am paying now $150K to save $6m. You cannot deny me the accountant, the same opportunity to earn from cost reductions if you profit from it, that would not be in the theme of rewarding people for giving an advantage to a company. If you look at both situation, mine is more efficient based on cost. But most all you're playing an unfair advantage. You say the following: (* caveat lets say fair market value is 100k per developer) > That's roughly 30 engineers being paid $200k What happens if there are only 5 developers working for that company too, and working on the same profit-reward model as you are working on, they are getting paid 400K a year each because they are making the company $4m. So what's their true value, if they are being paid 400K and they can be replaced by your team for 200K it seems that they are being over paid 200K. Your way of justifying your 2x pay is that you decreased cost, their justification of being paid 4x is that they increased profits, but you're doing the same job, aren't they worth more than you are. I the accountant see a business opportunity, and start a company the same as the 3rd party software company. I know that developers like you work on a profit-reward model of 20%. So your job did get outsource, but you were getting paid 200K to save the company a part of the 6m before that. I reduce the cost of the software by 50% to 3m, I offer you and your team 100K base salary and 20% of profits (2.5m for ease, 3m - 5x developers @ 100k), so would you take the job for 150k, a 25% reduction in pay for doing the same job based on the same model? Here's the final point, how much do you pay a cleaner, they are a cost they don't produce profit.

simonh 5y ago

Plus it costs a lot more than salary to employ an engineer. You also need to pay hosting and operating costs for the product, office and technology support costs, support personnel costs (hiring, HR, procurement, secretarial, finance, payroll), business insurance. All of that needs to be amortized across the 'front line' costs. The cost of employing someone is generally about double what you actually pay them and can be a lot more.

HeyZuess 5y ago
> Plus it costs a lot more than salary to employ an engineer. Yes, the operational costs can be substantial.

tsimionescu 5y ago

If I provide 1M of value to the company, why would it not be ridiculously bad to get 10% of that value for myself? You call it a "commission" as if this was a salesman getting a cut of the cost of the product they sold, but a salesperson selling a $1M product is not providing $1M to the company - the $1M is split between the salesperson, people building the product, marketing etc. On the other hand, an investor who gives the company $1M normally expects to get more than 100% of that back (with some risks, of course). Or would you say that an investment where you pay $1M to get $100K back is a good investment?

HeyZuess 5y ago
> If I provide 1M of value to the company, why would it not be ridiculously bad to get 10% of that value for myself? If you generate 1m of profit, I don't think 10% is that bad. If you generate 1m of revenue then 10% is pretty good depending on operational costs. If you're talking about 1m of saving 10% is not bad. That 10% is paid in a salary. > You call it a "commission" as if this was a salesman getting a cut of the cost of the product they sold You can call it whatever you want, salary, bonus, commission etc. I use the word commission because it is easy to relate the concept, if you generate 4m for example what is your worth, and it is probably easier to count that as a percentage. But fell free to use whatever nomenclature you want. > but a salesperson selling a $1M product is not providing $1M to the company If you are not producing sales or a product which is sold, or reducing costs just how are you adding 1m of value. By this I mean tangible value, value which you can be paid for. Because that is what we are actually talking about monetary value being added somewhere. > On the other hand, an investor who gives the company $1M normally expects to get more than 100% of that back (with some risks, of course). Or would you say that an investment where you pay $1M to get $100K back is a good investment? Why would I ever say investing 1m to get 100k back is a good investment, getting 1.1m back might be a good investment depending on risk though, sticking 1m in a bank I am unlikely to get that rate of return for example. But I don't understand this part at all.
- tsimionescu 5y ago
  > If you are not producing sales or a product which is sold, or reducing costs just how are you adding 1m of value. By this I mean tangible value, value which you can be paid for. Because that is what we are actually talking about monetary value being added somewhere. The precise mechanism isn't that important, but if it helps, imagine the following artifical scenario: a small startup buys 2 1000$ computers and hires a programmer and a salesperson, for 10k$ a month each. The programmer produces an app in 6 months, and the salesperson sells it for $3M. The two together have brought the company $3M in worth, minus $130k that they cost. Exactly how much esch contributed to the $2.8M is harder to say, but certainly each only contributed a portion of the $2.8M - even though the salesperson actually caused the revenue to flow in, they are not solely responsible; and neither is the programmer, even though they single-handedly created the product. > Why would I ever say investing 1m to get 100k back is a good investment, getting 1.1m back might be a good investment depending on risk though, sticking 1m in a bank I am unlikely to get that rate of return for example. But I don't understand this part at all. Well, a worker who, through their time and expertise, is adding $1M to the company's value is almost precisely equivalent to the investor investing $1M. However, you believe that the worker should get back 10% of what they invested, while the investor should get back 110% of what they invested. Do you see the double standard?

csa 5y ago

> Cost savings are reflected once in my bottom line Recurring costs and savings of the same are very real things, and there is a ton of money to be saved by streamlining this for many businesses that have grown without pruning and/or streamlining their internal systems. For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now.

HeyZuess 5y ago
> Recurring costs and savings of the same are very real things, and there is a ton of money to be saved by streamlining this for many businesses that have grown without pruning and/or streamlining their internal systems. Yes, streamlining can save a great deal of money, and consultants and businesses are making good money offering such services. But they are only represented once generally in financials of a company, unless that cost is reduced over time. > For most software businesses, it is more lucrative to spend resources increasing revenue, but at some point decreasing costs becomes worth it. For non-software businesses, the “some point” is usually right now. In general this is correct, but there are situations where cost savings aren't worth it. We see this play out with the idea of Linux vs Windows quite often, the reduction in cost switching to Linux is over shadowed by other issues such as training etc. Switching accounting systems, service providers etc might just not be worth the cost reduction.

6gvONxR4sf7o 5y ago

The opposite is also often true. Especially in tech, where we build things computers do ever afterwards. If my team implements a feature that generates $5M per year, and gets $500k that first year (10%), the expectation is that they don’t just sit back and maintain the feature ever after. They’re expected to maintain it while implementing the next $5M/year feature. By the end of year two, for the cost of $1M, they’ve given you $15M plus $10M/year going into the future. Of course it’s not that simple, because maintenance costs are crazy and nothing lasts forever, but the idea holds. If you imagine the ongoing revenue to be worth 10x today, that 10% commission is just 1%.

HeyZuess 5y ago
> The opposite is also often true. I think it is very admirable for a company to pay profit sharing, and at the very least pay bonuses for good work. But that is because I am an employee :) I just don't think profit sharing is realistic in the majority of situations for many reasons, and people over value their own worth. There's like a bias, if I generate multiple of millions for a company, then I must be highly skilled. That may be the case but sometimes it is the business itself which provides the environmental factors for that to be possible.

bb88 5y ago

> The second year you earn 100K, and if you don't save me money you have now made 20% commission and only saved me 800K (1m - 100K - 100k). I disagree. Savings is a competitive advantage usually dropping your costs, time to market, and increasing profits, or efficiency, even if you don't reflect that on the books. Managers could ask employees to do more things as opposed to reducing the labor costs (layoffs), e.g. Also since it's software, those savings typically compound. E.g: so I save tedium in accounting for $1M in the first year. It's so successful that you expand my efforts to other parts of your company. The next year you still have $1M + whatever I have added. Or $2M+ over the course of 2 years. If you decide to go with a external package and pay a recurring licensing cost -- which is pretty common in the software industry, then you'd be paying maybe 10% of whatever you save per year. One software package we were looking at was $6M/annum. That's roughly 30 engineers being paid $200k for a year to come up with an alternative. We're using 5 engineers to do the same thing for less. While it's hard to gauge true costs, paying my team $1M to save you $6M in recurring costs seems like a bargain, and something that's hard to argue against. In fact $2M might not be a bad number either depending upon how management sees it.

HeyZuess 5y ago
> If you decide to go with a external package and pay a recurring licensing cost -- which is pretty common in the software industry, then you'd be paying maybe 10% of whatever you save per year. One software package we were looking at was $6M/annum. That's roughly 30 engineers being paid $200k for a year to come up with an alternative. We're using 5 engineers to do the same thing for less. Ok fair enough, now lets say I am an Accountant and I work out that I can increase profits even further by hiring 5 people offshore for 30K a year. I am paying now $150K to save $6m. You cannot deny me the accountant, the same opportunity to earn from cost reductions if you profit from it, that would not be in the theme of rewarding people for giving an advantage to a company. If you look at both situation, mine is more efficient based on cost. But most all you're playing an unfair advantage. You say the following: (* caveat lets say fair market value is 100k per developer) > That's roughly 30 engineers being paid $200k What happens if there are only 5 developers working for that company too, and working on the same profit-reward model as you are working on, they are getting paid 400K a year each because they are making the company $4m. So what's their true value, if they are being paid 400K and they can be replaced by your team for 200K it seems that they are being over paid 200K. Your way of justifying your 2x pay is that you decreased cost, their justification of being paid 4x is that they increased profits, but you're doing the same job, aren't they worth more than you are. I the accountant see a business opportunity, and start a company the same as the 3rd party software company. I know that developers like you work on a profit-reward model of 20%. So your job did get outsource, but you were getting paid 200K to save the company a part of the 6m before that. I reduce the cost of the software by 50% to 3m, I offer you and your team 100K base salary and 20% of profits (2.5m for ease, 3m - 5x developers @ 100k), so would you take the job for 150k, a 25% reduction in pay for doing the same job based on the same model? Here's the final point, how much do you pay a cleaner, they are a cost they don't produce profit.