Never pay someone an hourly wage!

Particularly if they’re full time. A while back I wrote a blog ranting about how lawyers billing by the hour is not at all customer-focused. What’s even worse is encouraging each lawyer in the firm to meet certain targets for billable hours. How in the world does that encourage them to provide the best service for the customer??? I’m aware that “high-end” accounting firms work the same way so I’m not just picking on lawyers cause I don’t agree with how those accountants bill either.

Now the irony of the situation is, I currently have 5 hourly team members. Not only are they hourly, they also all have overtime available. Let’s think about this for a second, what does paying someone by the hour and more for overtime encourage?

1. To do as little work as possible to fill up the first 40 hours.
2. To work as many hours of overtime as possible.

So which one of those is beneficial to the customer? Uh, right, neither. And why in the world would I pay someone by the hour? Well, in my own defense, the pay structure was already setup before I became involved. Ok, since I hate to discuss problems without offering solutions let’s look at some other alternatives.

Before determining any pay structure, you first need to determine what will make that person a profitable part of your team. In other words, determine what Key Performance Indicators are most important for that position and then incentivize ALL of them. No matter if that person is a secretary, accountant, engineer, or middle-manager, if you can’t tie there productivity to some form of revenue generation or cost-cutting, at least make them part of a company-wide profit sharing. Keep in mind, you can always bonus people for showing up on time, not taking sick days, finishing projects on schedule, etc. etc.  So even if they “need” a base salary or hourly wage, a significant portion of their income should still be performance based.

When I determine Key Performance Indicators for a position, I start with what would make that team member provide the absolute best service for the customer while still remaining profitable? In other words, even though the customer would love it, providing free service probably isn’t a great plan.

Let’s look at a few possibilities for service technicians/installers. A few ideas that come to mind as great service are the following:

1. Fix any problem the first time every time.
2. Show up on time.
3. Dress professionally and smell pleasant.
4. Explain the issues to the customer’s satisfaction.
5. Bill appropriately for top-quality service.
6. Exceed the customer’s expectations in some way…

And don’t forget that we have to do all of this and remain profitable.

1. Pay commission based on the revenue he generates instead of by the hour or salary. This encourages him to not dawdle between appointments since he’s not getting paid for that time. In other words, he’s encouraged to get there on time.
2. Have him handle call-backs himself (since that won’t generate any revenue) or if another technician needs to correct the problem give them credit for the original revenue generated.
3. Only pay commission when the customer pays. – If they explain the issues appropriately, smell good, and dress professionally they’re much more likely to pay quickly and hopefully at the time of service. Remember the plumbing company that marketed that “all of our plumbers where belts”?
4. Drop off a candy bar, have someone follow-up with a phone call after service, or something equally “unique” to exceed their expectations. Be creative. I’m still trying to work this out at my business, but I’ll keep you posted.

In other words, encourage each technician to bring in the maximum amount of revenue each day while not creating many mistakes. Doesn’t that sound a LOT better than paying someone by the hour? Since 2 of my technicians are leaving and the girl in the office will be going full-time this summer, I’ll be sure to let you know how the new incentive program works for us.

Keep in mind, to get everyone on your team to commit to such a program, it’s paramount that you show them that as long as they’re doing their job well, they’ll actually be making more money while working less hours. If they can bring in more revenue in a 40 hour work week then they’ll make more money than if they worked for overtime. As the Team Leader, you need to figure out what revenue they’ll need to bring in each day, the average revenue per service call, and the average # of service calls they can complete each day to determine how much money they will make. If you have a great service tracking software then even figuring out exactly how much the technician would have been paid with the commission-based system over the last year should be a cinch. It’s also important that your Service Leader ensures that your technicians have enough work every day as well as efficient directions to get to each service call. Obviously he should get paid a commission on the total service department revenue as well.

My list of great service is purposefully short. Without a doubt, you and I will come up with lots of additonal items that are important such as minimizing workman’s comp, not wrecking trucks, keeping accurate track of truck inventory, etc. etc. etc. My challenge to you (and myself) is to figure out a way to incentivize every possible positive thing whether its on a weekly, monthly, quarterly, or annual basis.

My last thought: Why punish what you don’t want your teammates to do when you can reward what you do want them to do?

To your success, Bryan