Cracking the Code Podcast
Author: Thomas Christian | Digital Marketing Coordinator at EGIA & OPTIMUS | March 13th, 2024

Performance-Based Pay pt. 2

A performance-based pay structure that rewards your employees’ hard work can be beneficial for everyone. But how do you ensure your employees are doing their work with integrity and representing your business without taking advantage of the system?

This week on Cracking The Code, Gary Elekes and Weldon Long discuss the best ways to transition from hourly to performance-based pay with the proper processes in place. Watch and learn how you can build the fundamentals of a performance-based compensation system that aligns your people with company goals.

Audio Transcription (Beta)

 On today’s show, performance based pay part two.

We started the two part series on performance based pay. Today, we’re going to wrap that content up and we’re going to join myself and Mr. Gary Alex right away. Take it away, Gary. I think a perfect example of that, uh, the, the misalignment is we’ve all struggled with, uh, technicians waiving diagnostic charges, right?

They feel like the hero, the homeowner loves it, but it’s not good for the company. Uh, the first 25 that a technician gets on a call, what if that was tied to the diagnostic? If they waive the diagnostic, they waive their 25 bucks. Now that would be an example. I think that you would agree was an alignment and gives them an incentive to to explain why we have that diagnostic fee so they can keep the diagnostic fees so they can keep their their 25 bucks number four here.

G man employees will innovate and change and enhance. Talk to me about what that means. Exactly. Yeah, I got an anecdotal story. I got to tell you about that whole thing and then let’s come back to number four for a second. So my very first Last year I was a Linux Territory Manager in Chicago. Um, as green as green gets.

And so I went out and I sold this commercial job. I went, you know, talked to this company. It was not really a customer that was a big Linux customer at the time, but it was a planned spec deal and we were one of the people spec’d. Carrier was on that, York was on that, Train was on that. So anyway, so I got the job.

And, uh, like 240, 000 job. This is like, you know, back in the early eighties. So it’s a big job. And so, uh, it was in Pennsylvania. I had to ship it from Chicago to Pennsylvania. Ship it. Well, um, Gary didn’t do a good job of looking at the specification and I missed a bunch of economizers, which is part of the reason I got the job, because my price was wrong.

This probably sounds familiar if you’re in contracting. It’s the lowest price that gets a job. We always say in commercial, like, what mistake did we make? How did we must’ve, we must’ve screwed something up. Like we’re not supposed to get jobs that easy. So anyway, they call up and they go, Hey, you know, there’s no economizers or whatever.

So, um, yeah, I went into my, my boss, you know, head down like this. And I’m like, um, I missed 27 economizers, you know, I got to ship them. And he said, no problem. He’s like, uh, we got this. We’ll ship the economizers. Um, it’s coming out of your pay. Uh, so the next time I’m going to fire you, uh, but this time the 27 economizers are going to come out of your sales commission.

And so basically that entire month sales commission was bye bye. And, uh, you know what? I never made that mistake ever again. It was one of those moments where you look at it and you go, Well, if I do it again, I probably won’t be working here. And this time, you know, while it’s a penalty, Um, it was a very expensive penalty.

Because the salary that they were paying in those days was very minimal. So we’re talking about reduced wage. So, I felt bad about it, but I also owned the right to it because I made the error. I’m the one that missed the economizers. Right? Yep. So it’s a training opportunity. So, which leads you to number four, the innovation.

People will innovate. I need a new tool, Wally. This, you’re paying me to do this job. And if I had this tool, I might be able to do it faster. We could do more jobs. Or, I need a different tool. Let’s just use plumbing as an example. Um, color cameras. You know, the ability to be able to take a sewer, uh, and take a look at it and scan down the camera and actually have the customer stand next to us and see the color version of that.

Um, the ability to sell at a higher ticket. That’s it. is a part of that process. If I don’t have that camera, maybe I have the ability to sell, but I don’t close as many opportunities to be able to show where people where there’s a break in the pipe or where the roots have gotten into the sewer system or where there really is a real problem and I’m going to need to do an actual dig.

So That kind of discussion starts coming up in your meetings, in your meeting rhythms, where people say, You know, Wally, if we had some of those color rigid cameras, we might be able to sell more stuff. And so you’d be thinking about that as a unit. So, uh, innovations are driven by people’s behavior patterns.

Behavior patterns are tied to compensation. And I’ll go back to the example in my company. I think that our hourly is so generous. That those incentives aren’t there. Like I’m happy to keep it takes longer. I’m getting 30 bucks an hour. You know, obviously they get commissioned as well. But I think that the thing that’s really becoming clear to me that I hope is becoming clear to you is this is a nuanced type of thing.

It’s not just black or white, straight commission or straight hourly. It’s about finding that blend that works, that it incentivizes the behaviors Gary’s talking about, gives them a certain level of security with some hourly. And finding that right mix, that right blend is really what we’re striving to do in our company.

And I was reminded when you were telling your story about Linux, uh, when I first went to work for Jess Vigil here in town 20 years ago, uh, one of my very first calls, I didn’t know the first thing about any of this stuff. I was fresh out of the penitentiary, didn’t know anything. And, uh, I went and sold an air conditioning system in a 100 year old house.

That had a 100 year old gravity fed furnace on it the size of a Volkswagen. They said sell air conditioners. It was summertime. So I sold an air conditioning system. And, of course, they go out there like, Dude, we, we can’t put an air conditioner on a 100 year old gravity fed furnace. It doesn’t work that way.

We’ve got tons of duct work that has to be done. And you gotta have a furnace and a blower motor, for example, right? So I, so they, they got me in a phone with the boss and he was just like your boss. I know that’s fine. He goes, we’ll do it. It’s going to be expensive because that’s coming out of your commission.

It cost me a few thousand bucks my first month of the business, but I never made that mistake again either. So, but again, having that relationship between, The incentive or the disincentive and the consequence. There’s got to be a relationship there, and in many cases, we end up incentivizing behaviors we don’t want, and Gary talks so much about alignment and culture and everything he teaches, and we’ve all got to do a better job of making sure whatever Whatever performance or whatever pay structure is in place that it is an alignment.

It’s fair to everybody, but it fuels the, the behaviors that we want, right? There’s an old saying about, you know, anything you subsidize, you’re gonna get more of it. And, and right now, I think we’re subsidizing some negative behaviors in our company. And we’re gonna fix it, but everybody has to be aware of those things.

It isn’t just about arbitrary, this percentage plus this much hourly. You have to look at the behaviors that you’re looking for. And then, as Gary mentions here in number five, when you do this, the entire company can be organized into a culture focused on goals. Talk to us about that. Yeah, so the concept that we’re talking about here on performance based pay or merit based pay is variable pay plans, right?

So it doesn’t necessarily mean the technician And the service manager have to be paid the exact same way, but both are on variable pay plans that are tied to performance or merit based on their KPIs. So we said culture, you know, role descriptions, KPIs. Now what we want is we need actual pay plans that would support performance.

The goal structure. So as a sales professional, it’s easy. Hey, I want to sell 2. 5 million dollars next year as a comfort advisor. You’re gonna get paid 6 percent on low end systems, 12 percent on the high end systems, and you know, whatever in between. That’s a very easy variable pay plan. As a service manager, how do you create a variable pay plan, right?

So some sort of a salary, probably benefits, car, et cetera, cell phone. But now you’re going to pay based on gross profit dollars for the month. You’re going to pay incremental gains if they beat the targets based on budget. So every one of those employees has to have a set of goals. And they have to marry to the company goals.

So, again, business plan, company goals, big rocks, big items that need done, sales, profit, gross profit by department. Thank you. Then we break that down into managerial rocks, right? So we’re going to pay based on those aligned goals to make the company goals. So if you’re my service manager, Wally, uh, or maybe better yet, you’re my sales manager.

Um, I need, you’ve got four or five comfort advisors and maybe two selling techs, right? I need you to be aligned with the goals that they have. So the company has a big goal. You’re going to have goals, you’re going to break those goals down into sub goals for those folks. Each one of those people has to get rewarded and compensated to make and achieve those goals.

That’s how you’re going to achieve your goals, that’s how the company achieves its goals. So, we need a plan, uh, we need goals, we need alignment. Last comment I’ll make on this, and this is one of these things that, you know, when you teach a workshop in person, we can go around the room and ask, uh, but, Transparency and sharing the numbers, sharing information with your people.

Um, so people are always shocked when, you know, I tell them that I share my business plan and my financials with everybody. I, I don’t care who you are. Um, you could be a brand new maintenance technician or you can be a senior, you know, director executive. Everybody needs to understand what the performance is.

And everybody needs to understand how the company is doing relative to our goals. So we establish a business plan. In November, I’m taking, uh, one of my teams off site. Uh, we’re gonna go away for a week. We’re gonna build a plan. Uh, we’re gonna establish goals. We’re gonna break those down into sub goals for each of the individual areas.

Each manager will assign those goals. And then the workflow to be able to achieve that will be part of that business plan. So, behaviors and reward systems are exactly aligned. Like, we, we, we share that. We’re transparent. So you’re the sales manager. Everybody knows what your responsibilities are. I’m the service manager.

They know what my responsibilities are. And when we do our meeting rhythms and our managerial meetings, those are known. So we’re constructively critical of each other. If you’re not on plan, your management team over here is going to want to know what you’re doing to fix it. Yeah, because we’re aligned.

Um, they’re interested in your success. They’re going to help you. They’ll innovate. They’ll be like Wally. You know, what’s going on over there? And while you’d be like, well, you know, consumers are failing credit more often right now, and they would be say, well, maybe we need more leads in order to be able to give you more opportunities since closure rates might be down and credit credit fails are up.

So what are we doing as a company? So we’re working as a unit. Towards the transparency of the goals. So, uh, every single person is also tied to, I want you to write this down, okay? This is not profit sharing. It is a shared success program. Shared success is not the same as profit sharing. Profit sharing is a thing.

It’s legal. You got to own it. You got to put money in it. You’re obligated to it. Shared success, Doesn’t happen unless we actually hit the targets. So I’m not obligated to put profit against it. Like profit sharing, profit sharing is very legal. Shared success is ghost profit, ghost stock. And so I’m going to give you money as an employee.

If we hit a certain profit target, everybody’s going to share in that success pattern that is not based on your individual role. Although your individual role got you to that help that got us to that place. Um, so we can have ten managers, nine of them are very effective and achieve those results, one doesn’t.

We still hit the target. Everybody in the company will get rewarded for that, including the one that didn’t hit the target. So, um, it’s a shared success plan. So I put that out there for you all. That’s part of your materials. Um, and Ghost Stock is something that I use. So, uh, people will say, well, how do you administer that?

And the answer is, well, if you’ve been with the company for a period of time, I’m going to reward you with a percentage of that stock. Right. Okay. And it’s not, it doesn’t travel with you. You don’t, it’s not voting. You don’t own the company. Uh, but it’s a designation that allows me to create a mathematical sequence that says if I’m over 15 percent even in my company.

Uh, let’s say I hit 20%. I can take that 5 percent EBIT and that’s a pool of money and I can drive that back against the ghost stock so everybody gets a portion of that. And so when you’re, the reason they’re going to look at you in that meeting Wally and say, Wally. What can we do to help you is they want you to win too.

Everybody’s working together to make sure that every management group or every person in the company is winning. Awesome. So let’s kind of, uh, advance the, uh, the topic. So, you know, Gary, I’m, I’m, I’m feeling a little uncomfortable, a little anxious about being the person who identifies as an hourly, uh, payer of wages.

And I want to transition into something that I’m going to feel more comfortable with the more at home with what would the process be for me? to transition to be a performance based company. Well, there’s a lot of little things. It’s not just one thing. A lot of little things. Uh, yeah, we’ll leave that alone.

So the, the first thing that I would do is, you know, make sure all your business processes are in alignment. You know, culture is the first thing, uh, awareness. Um, one of the things. That we do when we acquire a business is we do a gap analysis and we go here. Here’s all the stuff we think we need to work on.

And then here’s the answers to those problems. So we present that to everybody. So it’s not like everybody doesn’t see the performance based pay is out there in the future. So the conversation that we’ve had is, It’s in the future. It’s not today. And so people will raise their hand and go, Wait a minute, wait a minute, I worked at, you know, ABC and they had, they had performance based pay and it was awful and everybody left and we’re like, yeah, that’s probably true.

Uh, but we’re nowhere near close to doing performance based pay. So having a game plan for implementation, you know, as tied to culture would be part of that process. So you put all the business processes in. What I will say is this, when we are ready to go to performance based pay, um, I do concurrent accounting.

Um, what that means is you’re going to be tracked on your standard pay plan that you’re on today, whatever that is, hourly. Uh, maybe there’s some bonuses if you sell service agreements or you’re able to achieve some accessory sales, lead turnovers, you’re going to get paid a certain thing. Plumbers are going to get paid, you know, for selling water filtration systems, water heaters, etc.

So, that’s X. So, I’ll, I’ll put the performance based pay plan in the accounting platform and say, we’re going to track the way you would have been paid on performance based pay. We’re going to mirror that. Okay, it’s not how you’re paid, but when we actually sit down and talk about the implementation, and you say, well, you know, I’m a little uncomfortable about this whole thing.

You know, gee, man, I really don’t know if this is a good idea or not. And I don’t know how I go home and explain this to my spouse. This is how you explain it. There’s a spreadsheet that comes right over like this. And it says, well, the last six months, this is what you’ve made, and this is how you did it.

This is what you would have made on performance based pay. And this is how it would have worked. And so, usually when we do that, this is the outcome. The install group and the service group are like, Well, we want that to be retroactive. This number is bigger than this number. And so, most of the people in the room are like, Well, why can’t we do it now?

And the answer is, well, we’re not ready. We’ve still got some stuff to do, right? We’ve got to have good process on reviews. We’ve got to have, you know, You know, in terms of the plans, you need a good plan set up. So there’s there’s a lot that goes into implementation before we flip the switch and say, Okay, great.

We’re going to start paying you. Yeah, and again, I can’t help but just apply this into into my company. You know, we’ve got to before we fully can implement this. We’ve got to make sure we have the inventory in the vans that they can make a living selling, right? We got to have inventory in there. Well, if I’m gonna have the inventory in there means I better have my inventory Process the accountability part of the inventory into place, right?

I got to have was mentioned earlier I got to have enough calls to make this thing fair So there’s a lot that we’re gonna have to do between now and the end of the year To be able to launch this thing in a way that’s equitable and functionable Frankly, if we don’t, if we don’t have the inventory in the vans, it means that inventory systems got to be in place to measure it and keep it, you know, keep track of it all, then, then we’re, we’re going to undermine ourselves.

So that’s really important. Uh, the culture critical, uh, as Gary always says, culture will tramp Trump strategy every single time people will buy into this or not based on the culture of the company. Hi, I’m Darrell Yeshinsky. Hey, I’m Bob Larkin. Many of our contractors meet with us monthly and you chances are have met with us monthly.

We found that members have deeper and greater needs. So we came up with next level coaching, which is we meet a lot more often and there is accountability. to deal with some of the issues of money, growth, finding employees, having an exit strategy to get off this roller coaster. These are the issues that contractors want answers to, and we can provide those answers in Next Level Coaching.

When you join Next Level Coaching, you’re going to find solutions that are easy to implement and logical. Most importantly, we hold you accountable to specifics. We’re going to meet daily. Twice a month and have specific to do’s. And with those specific to do’s, we’re going to discuss and dive into your financials in a very granular way.

You’re going to have a clear budget. We’ll be able to establish pricing. We’re going to help you create leadership programs that build your people. We’re going to help you find people. You may think of differing ways to engage employees that will keep them more involved by joining next level coaching.

So if you’re interested in making more money, Growing your company, finding good employees. And developing an exit strategy. Give Dell an hour call. We’ll be happy to talk to you about next level coaching, and we’re going to see you on the next level. So let’s talk about the client experience being kind of the driving force behind this.

Yeah. So client experience and code of conduct number three, they, they kind of go hand in hand, which is the code of conduct is zero tolerance policy towards doing anything that’s. designed to get you compensation at the expense of the customer. Um, so just think if you’re sitting out there and, you know, something, um, a customer like my sister doesn’t know anything about heating and air conditioning.

She’s, you know, elderly in the sense that she’s in her seventies. Maybe doesn’t have a lot of life experience in changing out systems. Uh, a technician could easily take advantage of her. And she would never know. Um, so, that’s a culture of client experience being the driving force, right? So we’ve got to have the idea of, hey, we’re in the business of taking care of customers.

We’re not in the business of selling stuff. Um, what we’re doing is creating experiences for homeowners. We’re solving people’s problems. We’re helping them become healthier in their world. That’s the culture that we’re trying to drive at the client experience level. So the Code of Conduct matches up with that and says that, Um, we’re just not going to tolerate theft or lying or things that are going to be damaging to a customer based on the idea that it would reward you.

So there’s a big conversation and an argument amongst people when we get into a room and we’re starting to talk about performance based pay and they go, Well, this, this, you know, if you’re paying people and incenting people based on how they perform based on merit, they’re going to do things that are nefarious.

And I’m, I just kind of look at the audience and say, you mean like stealing time from you? Right. You know, is that not nefarious? I mean, so they’re not stealing from the customer, but they’re stealing from you. So, um, or you’re saying that maybe they don’t spend a couple extra hours on the job site to slow down because you don’t have a bunch of jobs on the board and they make that job last a little longer when they could have completed the job.

You know, is that, is that nefarious? And the answer is that’s stealing time. So I don’t really buy into that. I think it comes down to, it’s not the pay plan that creates people’s character. You’re, you’re a man or a woman of good character, and then your pay plans reward your actual performance. So culture, code of conduct, client experience are the things that we start with.

Now I will say this. We’ve had to fire some people from time to time that were high performers. And that’s one of those little decisions that you make that you go, Well, am I, am I, uh, bought into my personal values and the core values of the company? Or am I bought into the values of the profit that this individual is producing?

And I can tell you that every single time it hurts. And every single time we’ve recovered. So it’s just a temporary thing, but it actually sends a signal to the rest of the organization that, um, it’s not about the profitability, it’s about the customer. And if you’re doing things well in the process side, You’ll create the profitability, you know, we just actually dealt with that in our company.

We had to let go our top performing service technician and he wasn’t just a top performer. He was a top performer by a long shot. Uh, but he stole from us. He took basically just took a service call and did an install on it after hours. And, uh, you know, it was very tough to do because we knew we were going to miss that revenue.

Uh, the other guys just weren’t up to his level in terms of communication skills and, and, and, and things. Uh, but we knew it was the right thing to do. To send the message that this is unacceptable behavior when you talk about the culture, you know, and the character of the technicians. I’ve had similar conversations with contractors, man, if I go on flat rate, these guys are going to sell people they don’t need.

I’m like, well, that’s not really a system problem. That’s really more of a character problem. It sounds like because if you’re afraid of him ripping off a homeowner, what do you think he’s doing to you on hourly? I mean, that’s a character issue. Somebody who’s going to cheat and steal is going to find a way to cheat and steal.

You’re not going to be able to stop it. Uh, go ahead, comments on that. Yeah, so this is probably 15 years ago. I was sitting in Portland, and uh, one of the manufacturers sent me up there. The customer that they had was in a little bit of cash flow problem. They said, hey, can you come up and help me? I said, sure.

A little cash flow problem. A little cash flow problem. So I sit down with him, and I, I, I, we break down the financial statements. We look at, we create a budget. We look at his goals, and we’re like, You know, his name is Mark, he’s just a super nice guy, he’s just one of the nicest people, still a friend of mine.

Mark, your guys look like they might be stealing from you. I just, the inventory and the parts cost, just, they don’t match up. I, I mean, I’m looking at the accounting, I’m looking at the purchase orders. There’s just too many things that just look like this is the problem. And, uh, Mark, of course, being a typical optimist, contractors are all optimists, I love contractors.

I’m one of them, he’s one of them. We all think it’s going to get better. He’s like, there’s no way my guys would be doing that. And I’m like, Mark, I’m going to bet you a bottle of Schaefer Hillside Select wine. It’s 2006. You can look it up on the internet. It’s a very fine bottle of wine. It’s very expensive.

I would expect nothing less. And I told Mark, I said, Mark, I like good wine. This is going to be a big penalty for you. And he’s like, you’re on. I go, but I’ll, I said, Mark, I’ll share it with you. When we’re done, we’ll drink it right here. If I’m wrong, I’ll buy it, we’ll drink it. If I’m right, we’ll buy it, you buy it, we’ll drink it right here.

So, um, we brought the service group in, we started asking them how they were doing their inventory, etc, etc. Anyway, so, to make a long story short, um, one of the service techs, after the service meeting, um, comes out in the parking lot when Mark and I are getting ready to go to dinner on night number two.

And he, he, he confronts Mark and he said, Mark, Gary’s a hundred percent, right? He said, every single one of these service techs has been removing inventory from your trucks and doing side jobs for years. You just haven’t watched it close enough. And it looks normal because we’ve been stealing from you for so long.

It had become the standard. I just looked at Mark and I went, dude, where’s the wine store at? Let’s go. Let’s go. Well, the funny thing is that bottle of wine, as expensive as it was, right? It was way less expensive than the money he was using. Oh, it was, it was just one of those little lessons that, you know, I, I, the data was relevant.

Meaning that once we had the information, once we could put the information together, there were enough points of reference that it had to be that. It’s not that we want it to be that. We don’t want people to steal from us. So, Mark is like, well, I’m going to fire them all. I’m like, Mark, you can’t fire them all.

That, you, you, you would, you, you would lose your company. Like, you need your tax. Your problem is you have no system in place, and while they might not have great character, let’s put the systems in place, and then you can decide what you want to do. So, anyway, um, I think the idea of scorecarding, KPIs, processes matching up with performance based pay, that creates alignment.

People are not going to steal from you if they know that they’re going to get caught. Okay, so that’s a that’s an important point. That’s the measurement tracking system in number seven. Okay, let’s back up real quick I just had one question when you talk about clear and concise goals and number four there Yep, be specific if you would about what you mean by that why it’s why it’s necessary, I guess Well, I think what’s necessary for the goals is we want to have people produce towards goals But we also have to train and develop people to be able to do that Merit based pay or performance based pay requires me to train people.

It’s not I can’t just say well here go out and sell You I mean, you mentioned it when you were out there the first time you came to, uh, Jesse’s business. You didn’t really know the application. You knew how to sell, but you didn’t know the application. Right. So, the, the training and development, um, is supported by the goals.

And the goals allow us to create the metrics later in Bullet Point 7. Uh, talk about this, uh, quarterly review. Uh, this is something our company, frankly, is, uh, Uh, fail that on, on a consistent basis, I think. Talk to us about how important it’s to have that quarterly review. Yeah. I mean, it’s mandatory, so I have to be able to give you a performance measurement basically, and give you both, uh, objective and subjective commentary on how you’re doing, how are you’re doing towards the core values, how you’re doing towards your team, how you’re doing towards your actual goals.

So I will tell you the way to get that in place Wal, is to actually do it in November. We will set our calendar for 2024. We will set all of our company meetings, all of our managers meetings, all of our trimester reviews, those go on. Everybody’s managerial calendar. So in my companies, you have until we do trimester.

So at the end of the trimester, you have 15 days to complete the reviews that’s on your calendar. So in November of 2023, you’re coming up. You’re, you’re gonna come to my retreat with me. We’re going to put on your calendar. So your Krista, your person that manages your calendar, she’s gonna say, Wally, you know, the first or the 15th of, you know, uh, may, when do you want to do the reviews for your people?

And that actually is time that gets put on a calendar. So there’s no way that you can get away from doing that. Now the behind the scenes on that, which I sent, part of the materials I sent to the folks out in the audience, is I gave you my review system. So I gave you, there’s about 12 places where we review an individual.

Performance is going to be one of those places. But how you’re treating people, how you’re getting along with your dispatcher, your customer service group, Your service manager, your plumbing supervisor, how you’re treating customers, your reviews. All that is all part of that subjective conversation. And so that review form is in the materials you sent out.

Absolutely. Yeah, so the form’s there, we just have to take it, print it, and use it. Well, yeah, it’s a process that you have to decide that’s important or not important. It’s a choice. Owner commitment to accountability to all these standards that we set. Yeah. Talk about that. Yeah. Well, you can’t just go out and spend all your money on a Ferrari and expense to the company and then penalize your people for that.

So, hey, Kristen got a car. We kind of got a car. Talk about that. Right. So, um, the accountability at the owner level is, you know, when we, when we start looking at how we’re running the company, um, one, uh, marketing and lead generation would be a good example. You’ve brought that up several times. Um, Um, if the technicians are paid on performance based pay and you don’t have enough calls.

They’re probably going to raise their hand in the service meeting and say, Hey, wait a minute, this, this pay plan doesn’t work. Like you don’t, you’re not giving me opportunities. So an owner needs to have a business plan and the business plan needs to be directed towards generating the right amount of opportunities for, for, for a goal.

So I’ll give you an example. You’re not going to sell every single day a crew has available on your install. Is it possible? Sure. Is it likely? No. So shoulder seasons are real. And so depending on where you are in the country, the average installation selling efficiency is about 63%. Yeah, we know that number.

We’ve been tracking it for 40 years. It’s not like it’s new. Okay. It’s hot and cold. And then it’s not hot and cold. So it’s, that is how it works. So one year in 1987, when we, when I was in Chicago, it literally went from like minus 20 degrees to all of a sudden it got to be 85 degrees. It was literally like one day it switched and we never had a shoulder.

That’s the only year in 40 years I can remember. Uh, so otherwise. You’re going to have days that probably go unsold. So what are your install crews doing on those days? So, think about this. Um, you can do training. Certainly people can build material. You can paint floors. You can paint a building. You can build training facilities.

You know, have guys do construction for you. Um, so we have a wage code, Wally, that we use. We have a reduced wage code, which says that if it’s not productive time, if you’re not doing an install today, and I got you doing something else, you’re Or you’re going to go to, you know, maybe a Daikin VRV training class, and you’re going to learn about variable refrigerant volume.

Great. We’ll pay you, but we’re going to pay you 15 an hour, and that’s an activity code. So you don’t get paid performance based pay wages. You get paid reduced training. Okay? So that’s a separate code, and I know 63 percent is real. I know I’m going to have days that are not sold. My job as an owner to be committed to the employees is try to figure out how to get that to 80%.

So I’m going to create a marketing calendar, some promotions, and I’m going to do everything I can. I’m going to promote that with my team to say, Hey, I got stuff going on that’s designed to help us go. I need my sales guys to sell some stuff. I need techs to have lead turnovers. I need maintenance agreements to be there so we can create opportunities.

But in the absence, it’s still 80%. So that means 20 percent is unbilled time, or non billable time for the install group. Service is going to experience the same thing. We can send them out to maintenance, but if we don’t have maintenance, what are we going to do with them? And the answer is, well, they’re probably not going to get paid, right?

They’re going to be upset about that. So the owner commitment is about making sure that they understand how to have a business model. that produces labor activity for the crews, for the technicians. Maintenance is a key strategy in that discussion. So, we should have a thousand maintenance agreements per million.

That’s an owner problem. So, by company, three hundred per million. We got to move it to a thousand per million so we solve those problems. We have some areas we service that are kind of a long drive. And so what we do is we offer a reduced hourly Uh, if it’s over half an hour, you start getting paid for that drive time.

We allow it half an hour because that’s typical anyway. But if it’s an hour and a half, you get paid for that hour at a reduced rate. But what had never occurred to me, it was such a, just a, a smart genius, Gary like thing that you said, like we should have that same standard for all nonproductive time.

Like the guy in the office for five hours the other day, at least if his hourly wage was, you know, that was half for those nonproductive hours. You know, what a difference that would make. So that’s listen, I always say in an event like this, you get one idea that could have an impact and it’s worth every ounce of effort and time that you put into and to go into the training.

And I’m telling you, I’ve been doing this for a long time. I’ve had the fortune of being with this guy for a long time. But I had never if you said that before it went over my head sometimes you just got to hear things a few times Why don’t we have a reduced labor rate for non productive time? Guess what?

We will very soon. Thank you very much That’s an activity code on the time card. It just goes in as an activity. Oh, so the accountant knows exactly what it is You kind of mentioned this, measurements and tracking systems, uh, how do those tie into this whole discussion? Yeah, so every single position has to have a scorecard.

Every department has to have a scorecard that rolls up from that. The company has to have a scorecard that grabs all that information. So, when we start debriefing in managerial meetings about how things are going, we need to be able to look at that and say, Uh, what processes do we need to change in order to make that better?

Our goal is to become more efficient and more productive. So, efficiency at 80 percent in the service business is very good. Uh, commercially, we like to see that at 95 percent because we pretty much build time and material for everything there. So, training and screw ups, warranty callbacks are going to represent that 5%.

So, the ability to track and measure and scorecard everything allows us to analyze our processes. The best piece of advice I can give to anybody is the data that you use is not designed to be weaponized against your people. Culturally, the data that you use needs to be weaponized against your operational inefficiencies.

So you can write that down as a GE quote. Awesome content right there as always. Now, listen, if you like this content, please share it with your friends via Facebook. If you’re not a member, go ahead and click the button below to get a free 30 day trial of our entire contract University platform. There’s an awful lot there, and you’ll get it for free.

We’ll see you next time, folks. Until then, bye-Bye for now.

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