That owner was absolutely correct. If you can make the company money and you can prove how, the sky's the limit. You're much more likely to get a cut of profits over a cut of savings.

I worked as Consultant for several years and instead of a daily rate, always proposed for each of my large projects, that companies would pay me 0.5% of the money my activities made the company or 0.1% of the money I saved the company.

Not one ever took up on this offer...

Probably because it's ambiguous and opens them up to legal headaches when there's disagreement over how much was made or saved.

No. I always made it very clear.

Example: Show me your current budget for your main data center. Let me show a proposal for a Cloud move that will keep equivalent or better quality of service, including training and while defining KPI's for success.

Seems like that would quickly turn into a game of reverse engineering shitty KPIs, would it not?

I agree some play the game of working for the KPI's as defined.

The main point of the proposal was always clear up front. I was not the one deciding on KPI's it was a joint choice.

For the SAME business applications and SAME business processes:

- At the end of a quarter you either spend less OR more with your infra costs including required teams.

- At the end of a quarter you either have more uptime OR less uptime.

- At the end of a quarter you either spend more on licenses OR less.

Some KPI's are somewhat objective.

> The main point of the proposal was always clear up front. I was not the one deciding on KPI's it was a joint choice.

Which is exactly the parent's issue with their statement "I always make it clear". Many rev share negotiations break down quickly due to the nature of these deal:

- The profit maximizing buyer of said services has little incentive to pay you your "fair" share, EVEN if they do in fact create more revenue because of said services effect. They'll find every way to pay you as little as possible within the bounds of your contract.

- A buyer of said services rarely will rarely let you into their financial systems to validate. Even if they do, financials notoriously are easy to manipulate/game (ever heard of Adj. EBITDA?). The overhead of financial clarity is rarely worth the headache. Heck, most businesses internal operations rarely can create clear ROI their projects when they used internal resources much less using external resources.

- There are so many hidden variables that it's nearly impossible to control for your impact. Let's say you help reduce a company's EC2 instances from 10 to 7. Savings...great! Now the company grows and they need 8 EC2 instances. Did you still save them money? Down the rabbit hole we go...

I get what you're saying but you're living in a vacuum if you think you can universally demand that type of contract. They're possible but require the stars to align.

Note - I'm talking specifically about professional services / consulting work.

Would you have agreed to a deal that called for you paying _them_ if those KPIs were missed?

Penalties are standard in many Consulting contracts. Fixed price contracts are also frequent.

Yea because people want a single invoice and to be done with you. No one wants to pay a ongoing expense, nor an expense that isn’t fixed. Math/accounting is way harder.

Except when is to reward the board ;-)

unless you work in sales, it is very hard to prove how lines of code can translate in more money for the company. maybe easier in startups but nearly impossible in big corps where everyone is just a cog in the machine

You don't need to prove it. You just need to justify the number you show.

For example: you build a feature to notify customers via email that they have a balance due. The email includes a link with UTM tracking stuff. You also have metrics as to who pays and when. So now you can say "X number of people paid their balance within Y hours of an email being sent out, and within Z minutes of the email linked being clicked" and total up the amount of balances paid. Sure, your feature isn't 100% responsible for enabling that balance to be collected, but it deserves to say it contributed to a portion of the collected balance value.

I wouldn't say "nearly impossible", although big companies do tend to have a few teams in that position. Everywhere I've worked, large or small, there have been a substantial number of engineers who justify their work in terms of money for the company and rocket up the career ladder because of it. (And I've seen a lot of seemingly "cog in the machine" tasks that have large dollar amounts attached as far as management is concerned.)

It's much easier to save money than it is to make it, and that's why revenue is valued more.

You can hire any number of consulting firms or smart engineers that can tell you how to lower your AWS bill, or get rid of unproductive employees. It's much harder to figure out how to grow your business by 2x.

It's not linear. Cutting 1% of costs while maintaining the same revenue might be trivial. Cutting 10% of costs might be very doable. Cutting 50% of costs might be incredibly hard.

And I assure you that growing revenue by 100% is far easier than cutting costs by 100% (while maintaining current revenue).

Also, there's a human element to it. I'd venture that most CEOs would much rather the company make more money than have to lower bonuses and benefits, cut down of office space and fire employees.

Cloud companies do present unique opportunities for easy saving, though.

Cutting cost can often bring in revenue.

If you can provide the same product or service but with a smaller margin, you can out price your competitors and win the customers over.

I think Jeff Bezos is famous for saying: Your margin is my opportunity.

That’s essentially just a race to the bottom in most cases. There aren’t too many cases where you can realistically lower your price below your competitor’s cost AND have your competitor be unable to make the necessary changes to match you.

This happens all the time. Your objection around competitors could equally apply to revenue growing areas of work.

Your distinction of revenue vs cost-saving doesn't translate neatly, in my opinion, into reality.

In reality, you have a lot of different functions that translate into revenue: product tries to determine what you ought to build that will increase revenue; marketing will bring potential revenue to your doors; sales turns potential revenue into real revenue; application/service engineers do the monkey-wrenching to turn the additional-revenue-producing feature into reality. Is any one person in any of these functions fully responsible for the revenue increase? Clearly no. So how can you, in one of those roles, claim full credit for the additional revenue? It sounds like hubris to me. Companies are a team effort.

Cost reduction is a culture, though. It's when startups, when contemplating a new feature, ask the people involved, "how much will this cost us?" instead of ignoring that question entirely. It's when someone makes sure that billing alerts are set up correctly so that people are aware of the costs of what they're running. It's when the CTO asks questions like "can you run that on spot instances?" because he knows it will bring huge average savings. Revenue increases aren't a "culture" in the same way; desiring additional revenue is the default state of things and can rest as an unspoken assumption.

What’s sad is I’m pretty sure the team I work I’m collectively paid more money than we bring in yearly.

Is your team an investment? I know we (not me, someone else I work with) asked our CEO about a team not making money, and he responded yeah, they started the team knowing it was a ten year investment, now it is looking like a 20 year investment and they are fine with it. My opinion is the team in question will never pay off the investment, but it will eventually come close enough to break even and the goodwill they generate for the company more than makes up the monitory loss. (How do you count someone who decides to buy our most profitable product vs a competitors because we have an unrelated product they use)

We’re more like a necessary expense, what we do is moderately important and pull in some income, but not a lot.

When we win, it’s rarely acknowledged, as the output from other more core teams just seems more impressive, but when we fuck up, it looks really bad.

That's not necessarily (and probably isn't) sad, I can think of two general reasons for that to happen and it not be a problem:

- Growth, e.g. trivially everyone at a company that's yet to turn a profit

- Critical but not revenue-generating function

I mean basically that's 'line' and 'staff' from OP (but for line the subset of companies/teams that isn't profitable yet). The latter being a 'cost centre'.

If you don't like it ('what's sad is') then the article might be a useful approach/line of thought when looking for your next role - i.e. a 'line' job (at a profitable company on a team working on the profitable thing).

I've never had a job where this wasn't the case.

Another thing to consider for tech folk here: if you convince the company of cost savings always consider the possible equity value increase. Software led companies can generally command high EBITDA multiples. If you cost $100k and save the company $100k in annual costs, then you potentially have created $2,000,000 in equity value (20x is a safe EBITDA multiple to assume). A business owner would take that deal any day of the year, especially one that might sell to a PE.

Note - Companies can be valued at top line ARR/Revenue and/or EBITDA, so YMMV, even in the PE world.

Lowering the costs means you get higher margins, which in turn means you can grow the company larger then other similar companies before reaching the marginal return (the point where growing wont increase profits). So a company with low expenses can grow really big - making the founders very rich.

Working in an area that produce revenue - what does that even mean? Should you work in marketing in order to increase demand ? Rather then in production ?

> Obviously, a rational CEO would see $1m cost savings the same as a $1m gain in profits

This is generally incorrect, especially at SaaS companies where revenue is recurring. It's very likely that you'll see much of that $1m gain again in future years, possibly even growing, while cost savings are hard to repeat consistently without impacting future growth.

If you save $500k this year by optimizing some pattern or behavior (eg infrastructure) then why wouldn't that $500k also be saved the next year? You're right if it's a one-time cut (eg no free snacks this year) but most savings are going to be on things that happen more than once.

Agree on things like infrastructure optimization. Most significant savings happen on people costs though, and layoffs/hiring freezes tend to not last forever, and also have impacts on future growth as well.

Compared to the same amount of revenue offering, most top SaaS companies have >100% net dollar retention, which means that their existing contracts tend to grow year-over-year from usage/upsells, so the long-term value of that $1m in revenue increases over time.

Cost savings we count are usually recurring in the same way.

that makes no sense at all

Your comment reminds me that I've only seen this distinction in terms of profit center VS cost center. Profit centers do business and get perks, cost centers support business and get the early layoffs.

The article's staff vs line distinction cuts it a little differently, and definitely gives a rosier picture of working in a staff role.

I don't disagree with the article. Within a tech company, it's obvious why they value engineers. In a "staff" you might also be highly valued or you might not be. As an example, I've recently noticed that home depot has a superb website. Looking at the quality of it, they've obviously put a lot of thought and resources into it. It's something they value. The people working on it might be in the "staff" bucket, but I'd bet the C-Suite is well aware of the impact they are having. On the other hand, I've seen companies where the "staff" engineers are completely disregarded.

This view is slightly wrong when it comes to software. Software is a force multiplier, not a cost reducer.

Sometimes they're the same. Sometimes they aren't. A well placed, smart team of "staff" engineers can increase revenue as much or more than a team of line employees.

> Obviously, a rational CEO would see $1m cost savings the same as a $1m gain in profits, but CEO's are not rational beings (nor is any human) and understanding that they usually prefer higher revenue to lower costs is fundamental to understanding how they value different parts of the company. It's not fair, it's just truth (at least in many companies).

A rational CEO prefers revenue growth as companies are valued based on revenue, and the CEO's purpose is to maximize per share value.

A CEO's purpose is to organize and direct a company to meet its corporate charter.

Good read on the shortcomings of the "agency theory" based view that you're assuming, and which thankfully is finally becoming less of the de facto view: https://hbr.org/2017/05/the-error-at-the-heart-of-corporate-...

You're redefining what the goals are for the rational CEO, not the rational nature of the CEO though. But suppose I believed your goals were proper. I fail to see how 'cutting costs' is going to help a company better meet its corporate charter than maximizing revenue. It seems again the latter would win out, because more revenue, means more cash coming through you which means (a) more potential for cost savings (whereas cost savings don't typically create potential for revenue) and (b) more ability to exploit that cash once you have (a).

If you can save 99% on cost, but sell at the same price, you've got a 10,000% profit, isn't it?

Percentages are interesting metrics, but real dollar values are more important when you're talking finances. If profit is revenue is $100 and costs are $1, you've got a huge profit margin, but it is unlikely that you can grow that revenue to $10m. If you have $5m in revenue and $2.5m in costs, your profit margin in percentages is lower, but you have the basis for a company that can reinvest profits to increase revenue growth.

If the revenue is 101, cost is a dollar and the profit is a hundred, saving 99% on cost is remarkable but hardly a 10k improvement of profit.

It may not even be that remarkable. A decent fraction of things I can accomplish for $1 I could also do for free.

That's called COGS, or Cost Of Goods and Services. It's separate the kind of costs he's talking about. If you're working on COGS you're working in a profit center generating revenue, not in a cost center performing necessary but expensive functions.

Tech doesn't usually measure COGS, because the cost of another user on a website is near zero.

I'm not sure if you're talking about at the executive level or at the engineer level, but here's some anecdata:

At the big tech (household name) I work we definitely spend a lot of energy talking about COGS a engineers. We have a LOT of data, and we spend a lot of money on cloud services to keep our product running - you want to add a new piece of data to this database to support some new feature? Go calculate how much it'll cost in storage and compute and if it's above some threshold, request special approval. You want to improve performance by caching our indexing? Let's talk about how much that'll be in COGS. This stuff ain't free, all those users add up.

The interesting bit is that all this COGS isn't actually money that transfers hands, the cloud we use is our own. But it isn't free and internal accounting is taken seriously.

I've seen the distinction drawn, usefully I think, between "Cost of Revenue" as more or less fixed operating costs eg AWS spend, and "Customer Acquisition Cost" as specifically the average spend to gain "another user on a website", usually in a way that can be either considered in the aggregate or broken out per channel such as for specific ad vendors or similar.

I think "COGS" as discussed here would probably be a rollup of both? Not sure; while I've been in orgs where the cost center/profit center distinction was made, I haven't run into a situation where COGS was a metric I saw used.

Cost of Revenue and Customer Acquisition Cost are both different metrics. COGS is used in manufacturing in order to peg inputs to a per widget basis. Cost of Revenue gets used in tech because per customer costs are both a bad way to measure it and likely to be fractions of cents.

Customer Acquisition Cost gets used in subscription businesses to measure sales and marketing performance. It can be relevant alongside COGS if you're manufacturing the thing you're selling subscriptions to, but that's kinda rare.

Got it. Thanks for the clarification!

A great point on how profit margins are not always the best metric! A panhandler has almost no costs, so their profit margins are huge. But it's not a very scalable business :)