Extra Edition / Business Management

Hot Topics, Cool Solutions 19: Bonus Program Rules, And More

September 1, 2005
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Al Levi
Editor's note: Consultant Al Levi helps contractors run their businesses with "less stress and more success." HVAC and plumbing contractors seek his advice regularly. Al has agreed to let us share with readers of The News some of the questions he gets and the answers he provides. The focus is strictly on problem solving and handling the day-to-day operations of a successful contracting business.

To send Al your own questions, which if selected will run anonymously, send him an e-mail at info@appleseedbusiness.com or fax him at 212-202-6275.

This column is meant to be a resource only. Please check with your own trusted business advisers, including your own attorney, to make certain that the advice here complies with all relevant laws, customs, and regulations in your area.

Bonus Program Rules

Dear Al,

We recently put in a bonus program to reward service techs and our sales are rising. But I'm concerned they may be out there recommending work that doesn't need to be done or worse yet lying to a customer.

My good name and how I treat people is more important to me than the money alone.

Is there any way to keep them honest?

Sincerely,
Ethical

Dear Ethical,

I think it's great you put in a bonus program. Techs should have an opportunity to determine the money they make, but there needs to be rules to the game.

I created a very detailed compensation program with Ellen Rohr, a fellow consultant. Part of that program includes the "10 Golden Rules for Service Tech Eligibility in the Bonus and Spiff Program."

And, Rule One like all the other rules must be initialed to be in the game. Here's just one of the 10 Golden Rules:

___ I know that to be eligible to participate in the Bonus and Spiff Program I must have no corrective action documentation during the bonus and spiff period. A corrective action document is generated for behavior such as:

  • Lie, cheat, or steal and it's grounds for immediate dismissal. This includes deliberately misrepresenting information to qualify for a bonus or spiff

  • Failing to meet the ethical and quality of work standards and any other written company standards as detailed in the company manuals.

    Also, I recommend you set up what I call a Mystery Shopping program. This is where you have a friend or distant relative call your shop after you rig up their equipment for something like a disconnected wire on a brand new air conditioner to see what the tech sells.

    There is something I call "Ethical Sales." Ethical is having the tech find only a wire loose on a new air conditioning unit and do all testing. They should still be looking around for additional items they can recommend in an ethical way to improve comfort. What's unethical is to try to sell the customer a brand new air conditioner or parts they don't need.

    Regards,
    Al Levi

    Switching To Flate Rate

    Dear Al,

    We recently did a breakeven analysis and switched over to flat rate pricing, but what we have to charge is frightening to the techs.

    How do I get them to buy-in that this is the right price?

    Sincerely,
    Pricey

    Dear Pricey,

    You're smart to have done your breakeven analysis and learn what you really need to charge for the work you do. Otherwise, there's no money to pay the salaries and bonuses that you should. Plus, there also needs to be money to provide benefits like health insurance and fund retirement plans.

    The problem is your techs think you make all profit beyond their hourly rate. Let's say you now know you need to charge $175 an hour as your selling price. They think they make $25 an hour so that means you make $150 an hour profit!

    And if you were them, you'd think that way too.

    I was taught the very best way to get buy-in on why we have to charge what we do. It was Dan Weltman from N.J. who showed me his method.

    Basically, you need to show them where this pricing comes from by having them write it on a blank legal pad one item at a time. The way he does it is that he tells them something like this before he has them write the item on the pad:

    "John, we're glad to have you on board. You need to know we ask you to dress properly, cover your shoes with shoe covers, and protect the customer's home with mats. Because we hold you to a higher standard, we pay $30 an hour, which is $5 an hour more than any other shop. So, write that down.

    "John, you know I take providing for your family very seriously. That's why I pay for your medical coverage. To do that I need to charge $10 an hour more, so write that down."

    He goes through this whole process for all his business expenses until they total it up and for the first time they understand where the $175 per hour comes from.

    Regards,
    Al Levi

    Al Levi of Appleseed Business specializes, as his Web site says, in "Making Contractors' Lives Less Stressful and More Successful." Through private workshops, on-site assessments, customized operating manuals, and staff training programs, Levi delivers the benefit of the experience he gained from years of operating a large family-run HVAC and plumbing business. Learn more by visiting www.appleseedbusiness.com. You may also contact Levi by e-mail at info@appleseedbusiness.com or by fax at 212-202-6275.

    Publication date: 09/05/2005

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