There are options when it comes to compensation and bonus. I’m open to anything that works.
But I’m not a fan of paying straight commission to service technicians. If you have service techs on your team – from carpet cleaners to plumbers and car mechanics to massage therapists – watch for these three challenges.
First, straight commission 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.
Third, 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? Understand that even with hourly pay, you will need to send someone home if there are no calls on the board. Sending team members home to control costs is playing defense. Offense refers to sales and marketing activities that result in enough calls for all. The better you play offense, the less you need to play defense.
An alternative to straight commission is to pay the techs per hour, with raises preset, according to the organizational chart structure.
Help them move from Level 1, Level 2, etc., pay levels, and 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. Techs should hit sales goals eight out of 10 months. Of course, requiring someone to make goal requires you provide training for technical, operational and sales systems. And you will need to give the techs enough calls to hit goal or their bonus.
Then, as a bonus, offer a percentage (say, 5-10 percent) of sales above goal or a flat dollar amount for exceeding goal. Include a couple of qualifiers:
• Close rate of at least 75 percent of calls made. 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.
Another alternative is to pay 10 percent of materials or products sold as a bonus to the selling tech. It’s a simple and elegant bonus plan that’s easy to track and rewards those who offer and sell nicer stuff. Build the bonus dollars into the prices and you are good to go.
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 the house wins before you start paying out a bonus.
Have a different opinion? I’m not surprised! This is a hot topic. 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. Involve your employees in the project.
Lastly, make sure everyone understands it, including the significant other waiting at home. The way you pay is a family affair.
Ellen Rohr is an author and business consultant offering profit-building tips, trending business blogs and online workshops at EllenRohr.com. Her books include “Where Did the Money Go?” and “The Bare Bones Weekend Biz Plan.” She can be reached at ellen@ellenrohr.com.[[In-content Ad]]
