The state of pay
There are options when it comes to compensation and bonus. I’m open to anything that works. Let’s take a look at some of them.
The state of pay for plumbers and service techs
The current trend is moving to two approaches:
• Straight commission on total sales
• Billable hours sold
I don’t like either of them.
Straight commission for techs bothers me for three reasons. First, it eliminates your ability to reduce labor as a percentage of sales. In other words, when you raise your prices, your labor as a percentage of sales stays the same. Labor is your biggest expense, so this can be an obstacle when you are trying to increase profitability with a selling price increase.
Second, it can be tempting to take your eye off labor costs when you pay commission. You can erroneously think, “Well, if they are not selling, I am not paying them.” But the clock is ticking, and your overhead costs are racking up. There is no “way to pay” that is self-managing.
Finally, I don’t like anything that may cause a tech to become anxious about being paid. If it’s Thursday, and he hasn’t made a sale yet, will he start looking at his next customer as his house payment? This isn’t a common issue, but I prefer to avoid it. Understand that even with hourly pay, you will need to send someone home if no calls are on the board.
I also don’t like paying by the billable hour. Why? Because it gets complicated. One of the requirements of a solid compensation and bonus program is that it should be easy to understand. It should be simple enough to explain to the significant other who is waiting for your plumber/tech at home. If that person doesn’t understand the way you pay, you will be creating a frustrating situation for your tech at home. “What do you mean you get paid less for meetings than other work? You worked 60 hours this week; how come you are only paid for 30?”
The way you pay should be easily trackable by the tech each day, and each week, so that the paycheck gross amount isn’t a surprise. It’s tricky to keep track when non-field time is paid at a different rate.
Other ways to pay plumbers and service techs
Frank Blau has had a big impact on my life, business and net worth. Frank has always been a union contractor. As a result, he taught me to pay technicians by the hour and then create a bonus program for above-and-beyond performance.
Frank’s recommended bonus program is, essentially, to pay 10 percent of materials sold as a bonus to the selling tech. It’s a simple and elegant bonus plan because it’s easy to track, and it rewards those who offer and sell nicer stuff. Build the bonus dollars into the price book and you are good to go.
However, if your business is light on material—drain cleaning, for example—this bonus program won’t work well. Here’s another option, and it's my favorite approach to paying sales bonuses to techs.
Pay the plumber/service tech per hour, with raises pre-set according to the organizational chart structure. As the techs move from apprentice to junior tech to senior tech, create a clear ladder of opportunity aligned with objective, written performance and licensing achievements.
Require that they achieve sales-to-goal, which means sales to their fair share of the budget. Plumbers/techs should hit their sales goal eight out of 10 months. Of course, requiring someone to make goal requires you to provide training for technical, operational and sales systems. And, you will need to give the techs enough calls if they are going to hit goal, or get a bonus.
Then, as a bonus, offer a percentage (5-10 percent) of sales above goal or a flat dollar amount for exceeding goal. Include a couple of qualifiers: Close rate is at least 75 percent of calls run. That means, a sale is made for more than the minimum service fee;Labor as a percentage of sales is at or below your budgeted target. (A common target is 18-20 percent, but this will vary according to your budget.)
I’m not a fan of paying a percentage of total sales to techs. Require that the sales goal, derived from your budget, is met first. Theoretically, that means that the “house wins” before you start paying out a bonus.
The state of pay for salespeople
Straight commission works well for those who sell but don’t install, like salespeople. For that position, I vote for a small salary and a percentage of the total sale. Again, build this percentage into the selling price of the job and you are covered.
Some companies opt for “selling techs” who are trained and capable of selling repairs as well as replacement systems. I have seen this work really well. However, I prefer a lead turnover when the repair options start to indicate a replacement is a better solution for the customer. If the handoff is smooth and fast, it works well to have the salesperson meet with all involved owners, do the heat loss calculations and present complete systems solutions and options.
In this situation, a lead turnover spiff for the tech, and a mostly commission-based compensation for the salesperson works nicely. If you want to be conservative, include this qualifier: the job has to come in at or under bid for hours and materials.
Have a different opinion? I’m not surprised! This is a hot topic. This is my approach. Everything I’ve shared in this article works and has worked well for many of my clients. I’ve learned from other business owners who do things differently. Explore your options and settle in on a way to pay that works for you and your team, and that supports your intended customer experience. Keep it simple, and you’ll help your accounting team, too.
Here are a few tips, should you decide to change the way you pay.
• Be thoughtful and careful. Take four to six months to plan, announce and implement changes.
• Be sure to include team members in this project. Representatives of the people who will be affected should be involved in every step.
• Measure the way you pay now versus the new way to pay. Gather data that assures that team members are not going to take a hit.
• Work toward transparency and fairness. They know how much their teammates are paid, even if you have sworn them to secrecy. It can be a thorn in their side if there is no clear reason why someone makes more than someone else. Best to map out a clear ladder of advancement. Your team will respect your integrity and fair-mindedness.
• Don’t bend over backward to accommodate a team member who is better off leaving the company. If you have a tough decision to make, make it.
• However you pay, make sure your team members’ significant others understand the compensation and bonus program. l
Ellen Rohr provides “in the trenches” insight that business owners can relate to. Comments? Questions? A different view? Reach her at (417) 753-1111 or firstname.lastname@example.org. You can also join the Bare Bones Biz community, at www.ellenrohr.com, for fee tips, problem-solving webinars, money-making tools, and lots of love.