Flat rate, hourly, some combination of the two, bonuses for productivity, thresholds, and more. Do you cringe when you hear these words? Do you think there’s no way you could use any of them? With our line of work, there usually isn’t a prescribed number of labor hours for the job. You can’t even predict the number of hours that are going to go into your custom fab job. When it comes to an industry standard for compensation, there isn’t a tried and true recommended option.
This article covers some of the issues with using traditional payment plans in the car customization industry and proposes a universal solution that shop owners can use to pay everyone from the sales team to the techs, provided the culture is right.
As I mentioned above, flat rate is challenging because there is a high potential for custom jobs in our types of shops. However, if you find yourself in a position to offer flat rate because of the standardization of your work (dealer restyling packages, for example), then you may still run into some issues.
Flat rate creates the potential to game the system. Your techs may fight for the high-hour, well practiced jobs. They may engineer their schedule to stack up tons of hours in one week to hit a bigger threshold. There is always the risk of them rushing to finish the job, because their money is made on efficiency.
In addition, flat rate only works for your techs. If you have administrative staff, several different departments of custom work, or multi-functional teams, applying a flat rate compensation plan gets very challenging while not solving all your problems.
Fixed salary – hourly, annual, or something else
On the other end of the spectrum, we have fixed salaries, whether an hourly rate, an annual wage, or some other agreement. Now the only incentive for your staff is to show up and do the bare minimum to keep their job. This can be somewhat alleviated if you build in a raise tied to your staff’s performance, but still puts a cap on their earnings and can lead to subjective performance reviews down the line.
Profit sharing – incentive, ownership, and alignment
The problem with flat rate and fixed salaries? You, as the shop owner, are providing misaligned incentives to your team. You are relying on someone’s inherent desire to do quality work. While it’s massively important to build a team of people who have a strong desire to deliver their best to your cars and customers, wouldn’t it be nice if your compensation structure provided that extra push?
You own the shop. Your goals are building the brand, growing the shop, making money, and creating your ideal lifestyle. You accomplish that by building a strong customer base through quality and service, being efficient with your jobs, pricing appropriately, and minimizing costs. At the end of the day, your profits will likely track the growth of the shop’s satisfied customers and solid financial management.
Simple percentage profit sharing accomplishes the goal of aligning your incentives with the incentives of your ENTIRE team. No more bare minimum effort, and no more compromises on quality. Your staff will be bought in to the shop in the same way you are.
Depending on your current profitability, you can choose how large of a percentage makes sense to give your team, and how much to balance a minimum fixed salary with profit sharing to make up their compensation.
I recommend starting people off with a low percentage, and ramping it up over time, like a raise. Your sales team and techs are aligned with each other to give the customer their best, preventing warranty work and promoting return customers. They’re also aligned with you.
It’s not sales vs. techs trying to meet quota. It’s not staff vs. owners. It’s not customers vs. installers. Everyone is united towards the common goal of profit. In this industry, warranties make it hard to profit without delivering quality work to your customers – this is why Driven Performance Advisors only works with shops that deliver quality. In other words, profit means higher prices, higher quality, and more money for everyone.
Your whole team is now dedicated to making the shop run better. They will want to bring in more sales. They will want to improve their working environment. They will want to save costs.
You will have more clarity into your team’s pay and your company’s growth. Everyone is working towards accomplishing success for the shop.
Give it a try for a year. Talk about it with your team and get their feedback. Let me know how it goes at firstname.lastname@example.org.
Driven Performance Advisors
Driven Performance Advisors helps shop owners increase efficiency and improve cash flow through our ShOptimizer services. Our ShOptimizer People package will provide you with a compensation plan that brings aligned incentives to your team for quality results. Schedule a consultation at drivenperformanceadvisors.com.