In the trades industry, commissions are a method of payment that are based upon the completion of a task, such as selling goods or services. For service-based industries like HVAC and plumbing, working on commission typically entails a performance-based pay structure that rewards technicians based on the amount of work and upselling they can complete.
Commission-based pay acts as a great form of motivation for workers as it drives productivity and sales, increasing the chances of elevated revenue for the business overall. But as with any pay structure, there are a few pros and cons that come with commission-based pay. To better understand if commission-based pay is right for your trade business, check out the breakdown below.
Depending on your business size and goals, settling on the correct pay structure can be quite tricky. In an industry that relies on both strong worker productivity and sales, many may argue that 100% commission-based pay is the best way to go. With this payment approach, technician productivity is driven by the reward of commission, and business owners have increased chances of strong revenue.
On the other hand, offering 100% commission-based pay can cause significant differences in pay between workers, potentially causing disagreements amongst the team. While offering hourly pay can eliminate the worry of negative feelings surrounding significant pay differences, it may also eliminate the incentive for worker productivity. This lack of incentives beyond hourly pay can potentially reduce productivity, further impacting company sales.
Despite the fair share of pros and cons attached to each of these pay models, there is a middle ground that can be met. Hybrid pay models that include both hourly and commission-based pay can reduce some of the specific concerns associated with each pay structure all while driving high worker productivity. To establish a commission-based pay structure that’s right for your business, follow these steps.
Before deciding what commission scale will work best for your trade business, you must establish a base pay that works for your employees as well. From employee to employee, base pay amounts are going to vary depending on multiple factors. First, you’ll need to take a look at the specific position you're trying to create a base pay amount for.
To gain a better understanding of how base pay amounts should be established, consider the specific levels of certification, education and experience you would require to fill the position. Because pay averages can vary from city and state, business owners should also research to compare average hourly pay amounts in their locality for similar position titles. FieldPulse has multiple articles on average base pay for technicians in the trades, separated by industry and broken down by state, as an extra resource to help get you started.
With a base pay average in mind, you can move forward to create a commission scale that works well for both employees and your business. Depending on the specific commission percentages you settle on, you can revisit a position's base pay amount and adjust accordingly.
With base pay amounts now calculated, you’ll want to move forward with establishing your commission system. However, be wary of establishing a commission system that is confusing or difficult to track. Outside of general sales, resist attaching other contributors, such as generating customer reviews or customer follow-up rates, which further complicate the matter.
Instead, it’s best owners adhere to sale amounts only for commission system in service-based trade businesses. So, when establishing commission percentages, aim to set a monthly sales goal each technician can strive to meet. For example, an HVAC company may implement an individual monthly sales goal of $10,000 that consists of the total service call, labor and upsell amounts charged to customers.
If this goal is met, the technician can be eligible for a commission pay out at the end of the month. From here, businesses owners will need to construct a commission calculation that works to ensure healthy revenue while fairly paying out employees.
Using monthly goal amounts as a basis for commission calculations, an example could be:
In action, the commission calculation could look like this:
To establish your commission system, be sure you review the total sales per technician each month in your company. Your monthly sales goal in order to achieve commissions must be feasible, so resist pricing that amount overly-high.
Establishing a commission system can be quite a task in itself. Once settled on a system, you also must ensure you’re properly tracking sales and commission amounts to guarantee technicians are paid out properly. With the FieldPulse simple to use platform, business owners can easily track daily transactions and automatically store these details with Quickbooks integration for fast retrieval. Likewise, payments can be collected by technicians out in the field without the stress of added paperwork.
As a trade service business owner and operator, you have enough responsibilities on your plate. Don’t let your financial processes be one of them. To learn more about what FieldPulse can do for your trade business, contact us to schedule a demo today.