Everything You Need to Know About Commissions

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If you’re an experienced tradie, you probably know that commissions are a method of payment that takes place upon the completion of a task, such as selling goods or services. In the world of service-based industries like HVAC and plumbing, tradies working on commission are typically paid using a performance-based structure that rewards workers on the amount of work completed, plus any upselling they can achieve with customers.

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 every field service operator must know how to navigate. To better understand if commission-based pay is right for your trade business, we’ve broken down everything you need to know below.

Decide if a Commission Pay System Works Best For You

Depending on your business size and goals, figuring out the correct pay structure isn’t always straightforward. In an industry that relies on strong worker productivity and sales, some believe that 100% commission-based pay is the best way to go. With this payment approach, technician productivity is driven by the reward of commission, ensuring business owners generate strong revenue from their team.

However, 100% commission-based pay can cause significant differences in pay between workers, leading to complicated disagreements and discontent. 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 could potentially reduce productivity, further impacting company sales.

Despite each model having definitive pros and cons, savvy business owners can find a clever middle ground. This so-called hybrid pay model offers both hourly and commission-based pay, reducing the specific concerns associated with each structure. Meanwhile, the extra incentive from commissions ensures worker productivity remains high. If you’re keen to establish a commission-based pay structure, follow these steps.

1. Determine a Base Pay

Before deciding on a commission scale that makes sense for your business, you must determine the base pay that satisfies every party. However, this base pay will vary considerably from employee to employee depending on a range of factors. First, you’ll need to take a look at the specific position you’re trying to create a base pay amount for.

To understand what base pay is fair, consider the specific level of certification, education and experience required to work in the precise position. As this wage can vary significantly depending on whether your workers are based in a city or a regional area, business owners should always research average hourly pay amounts in their locality. In fact, FieldPulse has multiple articles that explore average base pay for different types of technicians, ensuring your field service business has a helpful resource to get started.

Once you’ve determined a reasonable base pay, you can move forward to create a commission scale that works well for both tradies and the business. Depending on the specific commission percentages you settle on, you may want to adjust the base pay accordingly.

2. Establish Your Commission System

A commission system can work wonders for your business – and your top team members – but be careful about coming up with a scale that’s too complex or difficult to track. Outside of general sales, resist attaching other metrics, such as generating customer reviews or customer follow-up rates, as you’re bound to spend hours sifting through data to ensure everyone gets paid what they’re owed.

Instead, it’s easiest for business owners if they stick to sale amounts only in their commission system. This way, you should aim to establish your commission percentages based on a monthly sales goal that each technician can strive to achieve. For example, an HVAC company may implement an individual monthly target of $10,000 in sales, including total service call, labour and upsell amount charged to customers.

If this goal is met, the technician will have earned a commission payout at the end of the month. Therefore, business 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:

  • [Total of technician service call, labour and upsell amount] – $10,000 = X
  • X multiplied by 30% = Total commission payout

In action, the commission calculation could look like this:

  • Monthly sales goal of $10,000
  • Total technician sales of $14,500
  • $14,500 – $10,000= $4,500
  • $4,500 x 30% = $1,350

Once you’ve set your commission system in motion, don’t forget to review the total sales per technician at the end of the month. Your monthly sales goal still has to be achievable, so resist dictating a price that is simply too high.

Track Sales and Commission Amounts with FieldPulse

Establishing a commission system can be quite a task in itself, as business owners must track sales, commissions and ensure everyone receives an accurate payout. However, FieldPulse makes it easy to maintain a commission-based payroll, with the ability to track daily transactions and automatically integrate with Quickbooks for fast retrieval. Technicians can also collect payments using the app in the field, dramatically streamlining your workload.

As a field service business owner, there’s already enough responsibility involved with organising your team and ensuring everyone gets paid a fair rate. Rather than letting your financial processes get out of control, start using FieldPulse and discover how this comprehensive business management app will improve your business. Get in touch to schedule a demo today.

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