How to Create an HVAC Sales Commission System That Works (and Is Actually Manageable) 

August 12th, 2020
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For HVAC contractors, commissions and bonuses are vital tools in maintaining employer-employee relationships that are amicable, trusting, and financially mutually beneficial. In our experience, HVAC business owners generally use them for two main purposes:

  1. Driving employee behavior by incentivizing workers to pursue company goals, like increasing sales, efficiency, or customer reviews, and improving attendance records or quality of work.

  2. Attracting and retaining top-notch service technicians with in-home sales experience. 

These are both great use cases for HVAC commissions. The trouble is that for many HVAC contractors, using commission structures to incentivize increased sales leads to systems that are difficult to manage—and fast. This usually happens in one of two ways. 

Sometimes, an HVAC owner tries to use commissions to incentivize many kinds of behavior at once. On top of base salary, they’ll institute one kind of reward for sales numbers, another attached to generating customer reviews, and others for spotless attendance records or follow-up best practices. 

Before long, employees are having trouble remembering how, exactly, their bonus policies work. An employee who doesn’t quite understand their sales compensation plan isn’t going to be optimally motivated to pursue the sales goals and other targets that their employer had in mind in the first place. 

It’s not that such a system can’t work, per se. But in our experience, to make a complex commission structure doable, contractors need an advanced tool that makes it relatively easy for both owner and employees to track all of the variables at play.

In other instances—or even at the same company—HVAC contractors will repeatedly tweak their commission and bonus system to attract and/or retain top technician talent with years of experience. A good full-time tech is hard to find, and with all of the poaching that goes on between HVAC shops, once a contractor has a talented technician on their team, they want to do what they can to keep them. (The same, of course, is true in reverse; contractors short of solid manpower often feel compelled to match or one-up commission features offered by their competitors.) 

But this frequently has much the same result: a commission plan that is complex and difficult to manage and keep track of. The practice can also create jealousy in the ranks. If the boss is making allowances, or otherwise changing policy for one employee, it’s only natural that the others might start wondering why they’re not getting the same deferential treatment.

At ServiceTitan, we work with tons of HVAC shops all over the country, and we’ve run across very few that haven’t wrestled with these issues at some point. So in this article, we’ll outline some common challenges and best practices to keep in mind when designing and/or adjusting an HVAC commission structure. Specifically, we’ll discuss:

We know that no matter what, some degree of complexity in HVAC commission systems is hard to avoid. So in the last section of this piece, we’ll explain in detail how a HVAC software solution like ServiceTitan can help contractors streamline their process and radically increase efficiency, reducing the time employees spend on payroll every week by dozens—if not hundreds—of hours.

Want to see ServiceTitan in action? Schedule a call with us to learn more about how our software can help you grow your business.    

The (Potentially) Costly Complications of a Hard-To-Follow HVAC Commission Pay System

It’s one thing to have a commission pay system that doesn’t work quite as well as it could—one that leaves employees somewhat confused about their incentives, or causes workers to feel that they’re not being equitably rewarded. None of that is ideal, of course. But it’s another thing entirely for an HVAC contractor to have a commission structure that actually causes their business to lose money. 

Unfortunately, without exactly the right tools in place to manage them, complex commission systems sometimes do just that. There are a couple of ways that this commonly happens, both having to do with the difficulty of manually organizing and calculating commission pay. 

Many HVAC contractors we know—even those who otherwise use software solutions to run large parts of their business—tend to manage their commission systems separately, usually in an excel spreadsheet. That means that every week, someone, generally an officer manager or payroll coordinator, has to manually enter all of the relevant details from that week’s work history into the spreadsheet for each and every employee. It can be an incredibly time consuming process (more on this later), and one which we’ve found to be quite prone to error, especially for shops with particularly complicated commission systems.   

Over time, errors in payroll calculation can become enormous financial and (potentially) legal headaches. We’ve even seen cases where they’ve caused HVAC contractors to lose their businesses. 

At the same time, while tracking commissions in a dedicated spreadsheet might keep them relatively organized, it can also result in their being left out of bid calculations—and therefore in estimating errors. This, too, can become extremely costly. If a contractor bids a job without factoring in the commission payment(s) they’re going to owe their employees in connection with that job, they’re certain to underbid, and potentially even end up working at a loss. 

It goes without saying that if this develops into a pattern, it can become very painful, very fast.       

HVAC Performance-Based Pay: How to Most Effectively Drive Employee Behavior with Incentives 

Whether a contractor ultimately decides to simplify their HVAC sales commission system, or to implement a software tool that can cleanly and accurately handle a complex incentive structure, it’s essential that they prioritize what kind of performance they’re trying to encourage, and that they understand what truly motivates their employees. (From our perspective: explaining how commissions work to employees shouldn’t take much more than two minutes.)

Generally, though, we recommend that HVAC contractors pick the two KPIs that are most important to them, and focus their energies there—rather than spreading themselves thin in an attempt to check every imaginable box. Most business owners have no trouble identifying their targets. More often than not it’s “efficiency” and “sales,” but naturally, preferences vary.

Whatever the case, whether an HVAC contractor is building a commissions system from the ground up or simply tweaking what they’ve got, a good first step is to sit down with employees and have an informal conversation about what motivates them at work. Unsurprisingly, “cash” is a common refrain. But it’s not the only possibility. Some people might be better motivated by the opportunity to accrue more time off, for example, or by being assigned job types that they especially like or which grow their skills.

Wondering why their HVAC performance-based pay incentives aren’t working as well as they’d hoped, many contractors just don’t think to ask their employees. But in our observation, it’s the simplest and most efficient way to arrive at a formula that best drives the kinds of performance HVAC contractors most often want to encourage.      

The Benefits of Using Software to Automate HVAC Commissions and Payroll

By now, we’ve worked with dozens of HVAC contractors from all over the country. And if there’s one thing we’ve learned, it’s that regardless of how straightforward a company’s commission pay system is, commissions are a complicated thing to track—particularly as they relate to bidding jobs and doing payroll. It should come as no surprise, then, that HVAC contractors are increasingly turning to software solutions to reduce their commission-related headaches. 

The trouble is that although there are many commonalities, it’s virtually impossible to find two HVAC shops that handle commission pay identically. Everyone seems to have their own secret sauce—a blend of incentives and bonuses that they’ve developed over time to attract and retain talented techs, and to encourage them to execute on top company goals. This situation makes it awfully hard to find a software solution for HVAC commission pay that’s well suited to the particulars of a given shop.

Especially when an HVAC contractor has more than a handful of employees—all of them with a range of skills and responsibilities—they need a software solution that’s comprehensive, dynamic, fully customizable, and painlessly automated. And the truth is that many of the software solutions on the market simply aren’t up to the task. 

With ServiceTitan, however, HVAC contractors can ensure that their commissions are accurately tracked and calculated every time, and that their commission system is seamlessly integrated with their job bidding and payroll processes. 

ServiceTitan also helps HVAC shops save tons of man hours—and (potentially) overhead—reducing the time they spend on payroll by somewhere in the neighborhood of 10 to 40 hours per week. 

Below, we’ll briefly outline some of ServiceTitan’s key commission and payroll-related benefits:

  • Configurable automated commissions

  • Payroll management

  • Internal transparency       

Configurable Automated Commissions  

As we noted above, even many HVAC contractors who’ve migrated portions of their business management to software tools tend to track their commissions separately. Often, they’ll use a spreadsheet of some kind, which can be error prone in various potentially costly ways. 

With ServiceTitan, HVAC contractors can cleanly integrate their commission tracking and calculation into the rest of their business with a highly customizable and fully automated software system. 

Using the interface shown above, contractors can create individualized profiles for different kinds of employees—HVAC sales representatives, techs, and everything in between. HVAC sales, HVAC installers, and HVAC service maintenance are a few of the options pictured. But business owners can use the “Add Payroll Profile” button, at top right, to add any employee type that suits their needs. 

By clicking a given Payroll Profile, HVAC contractors can add color coding for easy reference, as well as a description of the employee type’s incentive structure.

Drilling down further, business owners (or sales managers) can assign individuals to appropriate Payroll Profiles from a comprehensive list of employees, which indicates useful specs like their manager, geographical area of focus, and base pay type (straight commission, hourly, piece work, etc.). Using this feature, contractors can ensure that all employees with a given job title are paid a commission rate according to the same rules or metrics. They can also adjust parameters to apply to sub-groups of workers, or even to individual employees. 

These same rules and metrics can be set up in the Configure Pay Types section of ServiceTitan’s payroll feature. Contractors can choose from six basic performance pay types: Performance Bonus, Sales Commission on Invoice, Turnovers Bonus(es) Paid on Installation or when lead is set, Sales Commission on Invoice Item, Item Bonus. Each of these categories is itself highly configurable. 

One popular means of customizing pay is to filter by job type, as shown above. 

Contractors can choose to configure their commission calculations in virtually any way they want. The example above illustrates how ServiceTitan integrates commission tracking with making sure that HVAC contractors are accurately bidding jobs. Costs like Material, Equipment, and Purchase Orders can be subtracted from the total price of a job before calculating commission, for example, ensuring that employees are not collecting a percentage of overhead costs—like that especially pricey air conditioning system or thermostat—and erroneously cutting into net profit.   

Payroll Management

When selecting a software solution to help with HVAC commissions and payroll, it’s important to choose one that can handle the deep weeds of customization. But it’s also advisable to choose one that’s up to the task of managing bigger-picture functions. 

In addition to the commission and bonus elements enumerated toward the bottom of the chart above, ServiceTitan automates time tracking for each and every employee an HVAC company might have, incorporating factors like flexible overtime and prevailing wages. Business owners can efficiently mass import thousands of existing payroll records. This makes sure that they’re preserved, and that job costing is 100 percent accurate going forward. 

Payroll reports can be generated within ServiceTitan, based on not only the calculations that have been automated within the software, but also on any external, imported data. 

Finally, contractors can easily extract gross pay data from ServiceTitan for easy export to their accounting, processing, and HR vendors of choice.     

Transparency  

One drawback of a siloed HVAC commission system that sometimes gets overlooked is that it can create a lack of transparency between employer and employee. This is especially true when a commission system is complex. An employee who doesn’t quite understand the mechanisms that determine fluctuations in their take home pay from week to week is not unlikely to become suspicious. And it’s hard to blame them. Who wouldn’t want a clear sense of how their performance affects their livelihood? 

Fostering transparency with employees, of course, has a range of benefits to employers—not just HVAC contractors. But in an HVAC industry where competition for talented comfort advisors is fierce, retaining the best ones (i.e. keeping them happy), is especially important. 

And, as shown above, with ServiceTitan, HVAC employees can access a real time view of their commissions whenever the mood strikes them, right from their cell phone. This allows them to track how they’re doing day to day and week to week, and ensures that they’re always (more or less) on the same page as their boss. 

In addition to creating open lines of communication, this feature has the effect of giving techs a hyper-clear view of exactly what their employer’s goals are, underlining their incentives with a plan that keeps the whole business moving forward—and improving the bottom line.   

Want to see ServiceTitan in action? Schedule a call with us to learn more about how our software can help you grow your business. 

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