Do More, Make More with Commissioned Technicians

By Paul MacDonald, Expert Service Program

Hourly pay is a typical remuneration model in the appliance repair industry. It is also 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 own 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. And 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 and I see similar results every time. More jobs per tech and increased revenues — it’s a win-win scenario since the technician only gets paid when the company gets paid. And you can 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, and rewarding effort and competence through remuneration. Commission-based pay may relieve the business of unnecessary overtime expense by rewarding for productivity, rather than idle time. There is no overtime pay when working on commission. (Check with state labor laws on the handling of hours worked when paying by commission.) The technician only gets paid on completed jobs with a commission model and not on idle time or callbacks.

Regarding the latter, 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 is a culture change. In my opinion, you can’t have performance-based pay 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 labor. It’s best if the same technician that diagnosed the problem returns to complete the repair, but that’s not always possible.

Also, 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 hourly-paid technicians and had increased first-call completes and revenues.

How to Transition to Commission

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 the ability to not dispatch the wrong technician to the wrong job. One thing that happens when you move to a commission structure is that 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 repairs while another does all COD calls.

In preparation for making 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 three to six 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 percent for juniors up to 37 percent for seasoned techs. Remember, you can always go up, but 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 three to six months before deciding on a commission rate based on your new service rates and your technicians’ performance.

I recommend following these five steps:

  1. Put everything in writing and provide examples.
    You have to be transparent and say why you are doing this. Put the plan on paper and have technicians sign off on the program. Explain that 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. In contrast, performance-based pay allows your technicians to share in the revenue they bring in for the company. The more success technicians achieve for the company, the more of that success they will share through larger paychecks.

  2. Provide a pay guarantee.
    The objective here is to increase technician wages as company revenues increase rather than just raise wages. If an employee falls short on the performance-pay model, guarantee they will receive the same amount they would have earned before with the hourly pay structure. You have nothing to lose by making that guarantee since you were going to pay them that amount anyway. When it all shakes out, you will identify who is a performer and who is not. Ultimately, you’ll weed out the weak link on your team and you’ll lose a non-producer 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.

  3. Make sure your payroll structure is intact.
    If your payroll clerk starts issuing incorrect paychecks each week because your payroll department inadvertently miscalculates percentages, your employees will notice and start questioning the whole process.

    Equally important are 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 three or four 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 can trust are necessary.

  4. 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 it out. If it does leak, address it with the whole team; don’t let rumors create stigmas, as you’ll never be able to reel those back in. If you roll it out properly, there should be little if any fallout.

  5. Keep it voluntary.
    Your technicians’ reactions will likely be positive and well received. If an employee does refuse 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.

BrandSource service consultant Paul MacDonald ran his own 38-tech service business and is a past president of the UASA. He currently operates the Expert Service Program, which helps servicers run their operations more efficiently and profitably. You can reach Paul at (647) 500-7785 or paul.m.macdonald@pmdgroup.ca.