Performance-Based Pay: Grow your Business, and Retain your Best Techs
Moving your service technicians, install crews, CSRs, and other employees from hourly pay to performance-based pay might seem like a daunting task with too much risk involved. You might even think it can’t be done in certain home service trades.
Darius Lyvers knows otherwise.
As Chief Operating Officer at F.H. Furr Plumbing, Heating, Air Conditioning & Electrical, Lyvers helped the company transition more than 150 techs—in HVAC, plumbing and electrical—to performance-based pay. He says F.H. Furr didn’t lose a single employee.
“Everyone is going to have some challenges that are going to be a little bit different, depending on the trade,” he says. “But I don’t really care what your trade is … you can move to performance-base. You just may need to get creative.”
With more than 90 percent of its field staff earning performance-based pay and a handful of other employees earning hourly pay, the Northern Virginia/Metro D.C. family-owned company earned $66 million in sales last year and projects to earn $75 million in 2020.
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In a recent webinar hosted by ServiceTitan, Lyvers lays the groundwork for establishing a performance-based pay system. Here’s what you’ll learn:
How to transition hourly employees to performance-based pay (without losing any!)
How to open a new trade service using performance-based pay
What to look for when hiring performance-based pay technicians
Integral values your business must embrace to support performance-based pay
A snapshot of F.H. Furr’s performance-based pay
F.H. Furr operates from two main branches in Northern Virginia and Maryland. The company employs 65 HVAC service techs, 35 plumbing service techs, a 22-man installation crew, 21 comfort advisors, and 12 electricians.
Lyvers says plumbing is the easiest trade to transition to performance-based pay, and F.H. Furr moved its plumbers to the new pay system 20 years ago. For HVAC service technicians, the change occurred six years ago, and the install crews and comfort advisors switched within the past five years. F.H. Furr created its own electrical department four years ago, based entirely on a performance-based pay scale.
“We moved our HVAC service about six years ago, and in the first year we did it, we doubled revenue without increasing the team,” Lyvers says. “It was absolutely amazing how much potential we had in that room that we couldn’t uncover by simply being on an hourly pay cycle.”
Here’s a further breakdown of each department’s revenue in the past year:
HVAC services: $8 million, about 12 percent of total revenue.
Plumbing services: $13.5 million, about 20 percent of total revenue.
Electrical services: $4 million, about 5 percent of total revenue.
HVAC installation: $40 million, about 60 percent of total revenue.
Plumbing installs: $3 to $4 million, about 4 percent of total revenue.
“We do three major trades, HVAC, plumbing and electrical, all dynamics, and residential exclusively,” Lyvers explains.
Lyvers says F.H. Furr employs a couple of plumbers who expect to do well over $1 million in sales and installations this year. He also employs about five HVAC service techs who will do well over $375,000, and several electrical techs who will do more than $650,000.
“We’ve got a lot of room to grow, but we are doing better than some and certainly not as good as others,” he says.
Debunking the performance-based pay myth
Implementing performance-based pay creates a challenge for some trades, Lyvers acknowledges, but it can work for every trade. If you’re still not sure, contact your state’s Department of Labor to specifically identify which trade service positions allow commission-based pay.
Plumbers naturally gravitate toward performance-based pay, Lyvers says, because they can find more opportunities to sell plumbing services for the entire home, with multiple bathrooms, kitchens, exterior hoses, etc. Electricians see similar success, with a variety of lighting, switches, outlets, and electrical panels throughout the home.
HVAC service, on the other hand, presents a few more obstacles. HVAC work is more seasonal, he explains, with a wide gamut of complex and technical calls that may be viewed as “non-opportunity” calls by your techs, such as diagnostics, warranty work, or inspections.
“HVAC techs, they’re the most technical people you’re going to have, and technical people are often more black-and-white,” Lyvers says. “Sales need more of a rainbow, and plumbers and electricians kind of gravitate to the rainbow. They have a more natural demeanor to adapt and succeed in a performance-based model.”
Before transitioning HVAC service to performance pay, Lyvers says F.H. Furr debated the move for years.
“We were scared to lose half the team,” he says. “We can’t afford to lose technicians, everyone knows this. You can’t get them, let alone lose them.
“It’s very scary, but we rolled it out. We lost zero HVAC techs when we made the move. There is a way to do it, but it is more complicated than plumbing and electrical.”
Lyvers thought moving HVAC installers to performance pay would be the most difficult thing to do, but says he was wrong.
“The days of having to put a third man on a crew, or a one-day job going into a second day, or a crew not able to get five or six systems installed in a week…you move to performance-base pay and you will be shocked at how quickly jobs can get done, and done right, and how many more installations you can do when you need them to do it,” he says.
“We can install over a million more dollars over the course of two months with the same number of crews, by moving into performance pay. No more trucks on the road, just more efficiency. That’s the bottom line.”
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How to transition hourly employees to performance-based pay
Before transitioning hourly employees to performance-based pay, make sure you have a good quality control structure in place to oversee how every service call gets handled.
You also need to train “dynamite” dispatchers to know each tech’s skill level, so they always send top producers to handle the highest opportunity calls.
“One thing that happens when you go to performance-base, the producers don’t want to run calls that don’t have good opportunities, so you have to be structured right,” Lyvers says. “There’s a lot more attention to wanting more calls and more quality calls, which is a good thing, but it puts a lot of strain on your call center and your dispatch, because they’ve got to fill that void.
“Make sure your dispatch is strong. Make sure your techs have all the tools. You need a product they can sell that is not just for breakdowns or repairs.”
For plumbing and electrical, F.H. Furr allocates performance pay based on a percentage of revenue sold each week, with established tiers to earn even higher percentages. For both trades, the company’s labor-to-revenue rate ranges from 24 percent to 27 percent.
For HVAC, the performance pay is allocated on a task-based system.
“They get paid on every task, and every task has a value. This one gets a little bit higher. We struggle to keep HVAC below 32 to 34 percent,” he says.
Roll out performance-based pay with whole team
When you’re ready to make the switch to performance pay, Lyvers suggests first identifying the current labor rate and KPI percentage to revenue for that department, then setting specific goals to meet in the new pay structure.
Then, get the whole team together and roll it out all at once, with one person delivering the message to the entire company.
Lyvers also advises taking the following five steps:
1. Put everything in writing, and provide visual aids and examples.
“You’ve got to cover the why, why you are doing this,” he says. “The only way you can make more money on hourly is by working longer hours and spending more time away from the things you love to do.”
Performance-based pay allows your techs to share in the revenue they bring in for the company. “The more success you have for the company, the more success you have for yourself,” Lyvers says. “You’ll never reward the company without rewarding yourself.”
2. Provide a pay guarantee.
“The objective is not that anyone is going to make less money. It’s that we’re recreating the plan so everyone has the ability to make more money, with nobody making less money,” Lyvers says.
If an employee falls short on the performance-based pay model, for instance, F.H. Furr guarantees they receive the same amount in their paycheck they would have earned on an hourly pay schedule.
“If you fall short, we’ll pay the difference,” Lyvers says. “They were going to go out and do that hourly thing, and we were going to pay them anyway.
“You have nothing to lose by making that guarantee.”
For employees who prefer the hourly pay schedule, offer to move them into other positions within the company, such as quality control or inspections.
“When it all shakes out, you’re going to identify who is a performer and who’s not,” Lyvers explains. Ultimately, you’ll weed out a weakling on your team and lose a non-producer to a competitor.
3. Make sure your payroll structure is intact.
If you start issuing wrong paychecks each week because your payroll department inadvertently miscalculates percentages, your employees will definitely notice and start questioning the whole process.
“You’re going to have a mess on your hands,” he says. “If you don’t have strong payroll people, don’t do it.”
4. Make sure your performance-based pay plan doesn’t leak out too early.
“This is very critical. If it does leak, address it with the whole team,” Lyvers says. “Don’t let rumors create stigmas. You’ll never be able to reel that back in.”
If you think you can trust your top producers to not leak the information to other employees, go ahead and sit down with them the night before you roll it out and reassure them they will make as much money or more than they did before.
“You can’t have your top producers being concerned with the scenario. Make sure everything is objective, clear and concise,” he says.
“If you roll it out properly, there’s not going to be any fallout. Maybe a little bit, but at the end of the day, that’s probably fallout that needed to happen anyway.”
5. Keep it voluntary.
Whatever you do, don’t demand participation in performance-based pay.
“This is voluntary,” Lyvers says. “All I’m asking you to do is take a chance. You have nothing to lose.”
Performance-based pay provides an objective view for your employees, so they can clearly see how much revenue they earned for the company and how they were highly compensated for it.
“I’m helping my company. I’m helping me and my family, and I helped my customer the whole way through it,” Lyvers says. “Everybody wins. It’s a non-loss situation, but you just have to get through that mental barrier.
“Put out the guarantee. You’re going to pay it out in hourly, anyway. Stop worrying about it and make the move.”
What to look for when hiring performance-based pay technicians
When interviewing new technicians, no matter the trade, you absolutely must ask if they feel comfortable doing sales. And ask for specific examples from their field experience.
“You’re not just assessing them for technical aptitude and personal abilities; the other side is even more important,” Lyvers says. “You can train a lot of the technical. Training sales is definitely harder.”
Lyvers searches for a service technician with an attitude that’s a little outgoing and a little persuasive, but not necessarily someone who’s just really friendly and personable. The latter tend to spend all of their time talking to customers without selling anything, he says.
“Would I buy something from this person? Am I gravitating toward this person, or gravitating away in my mannerisms? Because that tells you everything you need to know,” he says. “Are you gravitating toward them because they’re friendly or because you are convinced? Are you sold on their interview? Are you sold on them?”
If you’re convinced they can sell, Lyvers says, you’ll know they can succeed in a performance-based pay system.
Establish core values of integrity and accountability
Create quality control and accountability measures for performance-based pay, so each technician is held accountable for the work they perform.
For instance, F.H. Furr set up a chargeback system for all service callbacks. Each technician signs an agreement that gives them first right-of-refusal to fix any problems on a callback at no charge. If another tech fixes the callback, the first tech on the job gets a chargeback on their commission or bonus pay.
“It’s a culture change. You can’t have performance-base, in my opinion, where it’s the Wild, Wild West,” Lyvers says. “They know they’re going to be rewarded for performance, but they’re also going to be held accountable.”
Your techs’ reaction will likely be: “Finally!” and “Thank goodness!”
Integrity also proves critical, he says. For F.H. Furr, the non-negotiable values include no lying, no stealing, and no cheating.
“You’re part of our core values, or you’re not,” Lyvers says. “We are going to penalize anyone who does anything against our core values or to sacrifice our integrity.”
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ServiceTitan is a comprehensive software solution built specifically to help service companies streamline their operations, boost revenue, and substantially elevate the trajectory of their business. Our comprehensive, cloud-based platform is used by thousands of electrical, HVAC, plumbing, garage door, and chimney sweep shops across the country—and has increased their revenue by an average of 25% in just their first year with us.