Do More, Make More with Commission Technicians
Hourly pay is a typical remuneration model in the appliance repair industry. It is an inefficient model that lacks incentive for technicians to work efficiently. When paid by the hour, technicians are human natured to fill their day with the calls assigned to them in the morning. On a good day where all is running smoothly, technicians take longer than necessary to complete their calls to spread their 8-hour workday.
Implementing commission-based pay can challenge some service departments, but it can work in every business. If you’re still unsure if you can change to performance-based compensation, contact your state’s Department of Labor to identify which trade service positions allow commission-based pay specifically.
I debated the switch in my company. I was nervous about losing technicians. No one can afford to lose technicians; everyone knows this. You can’t find them, let alone lose them. It was nerve-racking, but I rolled it out and lost zero technicians when I made the switch. The days of having technicians sit around the office in idle chat were over. Technicians came and went from the office quickly. I was surprised by how many more jobs we could get done per day with the same number of technicians. Technicians were hungry for work, and revenues increased.
Work Smarter Not Harder
I now recommend this change to most of my clients who go through my “Expert Service Program,” and I see similar results every time. More jobs per tech and increased revenues. It’s a win-win scenario; the technician only gets paid when the company gets paid. Stop worrying about how much your technicians make since the more they make, the more the company makes.
Paying technicians by commission incentivizes working smarter, not longer, rewarding effort and competence through remuneration. Commission-based pay may relieve the business of unnecessary overtime expense by rewarding for productive, not idle time. There is no overtime pay when working on commission. (Check with state labor laws on handling of hours worked when paying by commission) The technician only gets paid on completed jobs with a commission model and not on callbacks or idle time. I set up a chargeback system for all service callbacks. Each technician agrees that they have the first right of refusal to fix any problems on a callback at no charge. If another technician fixes the callback, the first technician on the job gets a chargeback on their commission payment.
It’s a culture change. You can’t have performance-based, in my opinion, without stringent controls. Technicians know they’re going to be rewarded for performance, but they’re also going to be held accountable. When there is more than one technician on a call, the labor rate is divided accordingly. Similarly, the technician who performs the diagnosis gets a commission on the trip fee, and the technician who returns to install the part gets paid a commission on the job labor. It’s best if the same technician that diagnosed the problem returns to complete the repair, but that’s not always possible.
Commissions are paid on labor and not on parts. Doing so removes any incentive for technicians to install unnecessary parts. To demonstrate the difference in performance between hourly and commissioned technicians, I compared two companies of similar size during 2020.
The commissioned technicians completed more calls than did hourly-paid technicians, had increased First Call Completes, and increased revenues.
How to transition hourly employees to performance-based or commission pay
Before changing to commission-based pay, make sure you have good processes and workflows in place to oversee how every service call gets handled.
You will also need strong dispatchers who know every technician’s skillsets and abilities not to dispatch the wrong technician to the wrong jobs. One thing that happens when you go to a commission, the high producers, will resist calls that don’t pay well. The percentage of warranty to COD will become even more critical, and warranty calls will need to be evenly dispersed so that one technician isn’t doing all warranty while another does all COD calls.
In preparation to make the switch to performance pay, you’ll need to identify the current labor rate as a percentage of revenue for each technician in the service department. Calculate the last 3-6 months’ pay for each technician as a percentage of their labor revenue.
This calculation will form the basis for the percentage rate used in the new commission structure. Typical technician commission rates range from 25% for juniors and up to 37% for seasoned techs. Remember, you can always go up; it’s tough to lower a commission percentage. If you haven’t increased your service rates in the last year, you’d need to do that first. Set your service rates today based on your CODB(cost of doing business).
Once your new rates are in place, run with those rates for 3-6 months before deciding on a commission rate based on your new service rates and technicians’ performance.
I recommend following these five steps.
Put everything in writing and provide examples.
You have to be transparent and cover why you are doing this. Put the plan on paper and have technicians sign off on the program. The only way a technician can make more money hourly is by working longer hours and spending more time away from friends, home, and family. Performance-based pay allows your technicians to share in the revenue they bring in for the company. The more success technicians have for the company, the more success they have with their increased paychecks. Technicians will not accept responsibility for their day’s work.
Provide a pay guarantee.
The objective is to increase technician wages as company revenues increase rather than just increased wages. If an employee falls short on the performance -pay model, guarantee them they will receive the same amount they would have earned on the hourly pay structure previously. You were going to pay them that amount anyway. You have nothing to lose by making that guarantee. When it all shakes out, you will identify who is a performer and who is not. Ultimately, you’ll weed out a weakling on your team, and you’ll lose a nonproducer to a competitor. You will quickly see that up to twice the work can be done by each technician and that the hourly pay rate will no longer be necessary.
Make sure your payroll structure is intact.
If your payroll clerk starts issuing wrong paychecks each week because your payroll department inadvertently miscalculates percentages, your employees will notice and start questioning the whole process.
Equally, import is the computer reports you will use weekly to base your commission calculations. Commissions are only paid on completed finished invoices. If a part is on backorder and the invoice remains open for 3-4 weeks, the technician will have to wait for those commissions until the job is finished and closed. Solid up to the minute weekly sales reports that you trust are necessary.
Make sure your commission-based pay plan doesn’t leak out early.
Any changes to employees’ pay must remain confidential until it’s time to roll out. If it does leak, address it with the whole team, don’t let rumors create stigmas. You’ll never be able to reel those back in. If you roll it out properly, there’s not going to be any fallout. Maybe a little bit, but at the end of the day, that’s probably fallout that needed to happen anyway.
Keep it voluntary.
Your technicians’ reactions will likely be positive and well received. If an employee refuses to accept the new commission-based pay, there’s probably another underlying problem at hand, and you’re going to have to investigate further. Suggest they move to another role in the company if you have openings.
Paul MacDonald
Expert Service Program Coach
