CAPS to TAPS Rollout
Start at one percent and ramp toward your target so the business can digest the change.
- Difficulty
- Easy
- Time to result
- ~months to results
- Steps
- 4
- Confidence
- 90%
Target Allocation Percentages (TAPS) are the profit, owner's pay, tax, and expense percentages that the best-performing companies in an industry achieve, varying by revenue range. Current Allocation Percentages (CAPS) are where a specific business realistically starts. Rather than leaping to a 20% profit target the business has never reached, you begin at one percent, step up quarterly to two and three percent, and let the rollout take up to a couple of years. Each increase to profit is offset by compressing operating expenses, which research shows most businesses run far too rich on.
Origin
Michalowicz and his team analyzed a thousand businesses across industries (media, restaurants, manufacturing, professional services) and found the percentage the 'fiscal Elite' in each industry and revenue band hit. He built the CAPS-to-TAPS ramp after seeing that businesses given a distant target need a gradual on-ramp to digest and adjust rather than starting at the target.
Core principles
- 01Target Allocation Percentages (TAPS) are where you're headed, based on industry benchmarks.
- 02Current Allocation Percentages (CAPS) are your realistic starting point today.
- 03Ramp gradually so the business can adjust without cash shock.
- 04Every percentage added to one account is subtracted from another, usually operating expenses.
How to run it
- 1
Find your target percentages
Reference the analyzed benchmarks for your industry and revenue range to identify your TAPS.
Pro tip Percentages shift with revenue: a sub-$250k solo business might target ~10% profit and 50% owner's pay; a $10M company might drop owner's comp to ~10%.
- 2
Set your current starting percentages
Establish CAPS at a level you can begin with today rather than the eventual target.
Watch out Don't start at 20% profit if you've never been profitable; the cash shock will make you quit.
- 3
Ramp quarterly
Move profit to one percent next month, then two and three percent over following quarters.
- 4
Offset by compressing operating expenses
Take the percentage you add to profit out of operating expenses, hunting for one to five percent of quick cuts.
Pro tip Cut unused software subscriptions and unused user seats first.
In the wild
Michalowicz invested in a social media company and immediately asked where the 10% could be cut; unused subscriptions and services were removed within a month.
→ The business ran on unabated with no damage, and the 10% went straight to profit, bringing cash stability within a month.
A sub-$250k single-person service business might take 10% profit and a 50% owner's salary, while at $1M owner's comp drops to ~20% and at $10M to ~10%.
→ Shows how TAPS adjust by revenue range so targets stay realistic at each stage.
Common mistakes
Starting at the target percentage
Leaping to an aspirational 20% profit a business has never achieved causes cash shock and abandonment; ramp from one percent instead.
Adding to profit without cutting expenses
Every percentage allocated somewhere must be taken from somewhere else, usually the over-rich operating expenses.
Is it for you?
Best for
Established businesses that have never reserved profit and need a non-disruptive on-ramp.
Not ideal for
Brand-new startups with no expense history yet to compress, who may simply start near target.
From the transcript
“you have what we call Caps or current allocation percentages this is your starting point”
“let's start next month by going to one percent after quarter let's go to two and three percent and maybe the rollout takes us a…”
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