The Trouble with Commission

Ellen Rohr
Contributing Writer
Bare Bones Biz

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 to car mechanics to massage therapists…watch for these challenges.

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.

Secondly, 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.  No “Way to Pay” is self-managing.

Also, 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, however, I prefer to avoid it.  Understand that even with hourly pay, you will need to send someone home if 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.”

A better way to pay? 

Pay the Techs per hour, with raises pre-set according to the Organizational Chart structure.  Help the Techs 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 to Sales to their fair share of the Budget.  Techs should hit Sales Goal 8 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 (say, 5-10{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f}) of Sales above Goal or a flat dollar amount for exceeding Goal.  Include a couple of Qualifiers:
    • Close rate is at least 75{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} 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.
  • An alternative is to pay 10{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} of materials or products sold as a bonus to the selling Tech.  It’s a simple and elegant bonus plan because it’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 that 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 supports your intended customer experience.  Involve your employees in the project.  Keep it simple, and you’ll help your accounting team, too.  Lastly, make sure everyone understands it, including the significant other waiting at home.  The way you pay is a family affair.

Ellen Rohr
 learned how to make – and keep track of – her OWN money!   She fixed the failing family plumbing business.  And she grew a franchise – Benjamin Franklin The Punctual Plumber – from zero to $40 million in franchisee sales, 47 locations, in under 2 years.  She is a serial entrepreneur, now the president of Zoom Drain and Sewer, and author of the bestselling books The Weekend Biz Plan and Where Did The Money Go? She is aseasoned TV vet with 45+ local and national segments. 

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