In the auto repair world, crafting the perfect pay plan for technicians and service advisors is not just a task, it’s a crucial element that can significantly impact the success of your business.
It’s like the children’s book, “If You Give a Mouse a Cookie” – just when you think you’ve solved one problem, another one rears its head, demanding attention. You offer a competitive base salary to attract top talent, and your star technician asks for performance bonuses. No problem, you think, implementing a tiered bonus structure. This, though, leads to unexpected overtime as technicians chase those bonuses, resulting in higher labor costs and potential burnout.
So, you adjust again, only to find that the new system inadvertently discourages teamwork among your service advisors and technicians.
Much like the circular tale of the mouse and its ever-escalating requests, each tweak to the pay plan creates a new challenge. It’s a complex dance of balancing fair compensation, motivation, profitability and customer satisfaction.
Luckily, owners and managers can break the cycle of unintended consequences and create a compensation structure that keeps both tools turning and smiles beaming. So grab your management toolbox and pull up a chair as we dig into this intricate issue – because in the world of auto repair finances, finding the right fix can sometimes feel like chasing your tail!
The Simple Plan
The most straightforward compensation plan is flat-rate: hours billed equal revenue generated for the shop and technicians’ wages. The biggest challenge with this plan is pretty plain, however: if technicians wanted to be on full commission and carry the risk of shop ownership as it relates solely to income, they would start their own shop.
That just might be the number one reason a large number of technicians end up as owners. Yet, in many cases, the high level of skill they have as technicians doesn’t really transfer to ownership. I know – I was one who started a shop out of need and, honestly, I had no idea just how complex owning a shop really was.
The Complex Plan
In the bays, you have the run-of-the-mill work – the money maker jobs – and then you have the diagnostic work. Most US-based shops consider the labor rate applied to diagnostic work about the same as general repair, maybe a little bit more per hour. However, the complex nature takes longer and compensation should follow suit.
The same goes for a complex pay plan. I’ve seen some really complex plans that set compensation based on billed hours, productivity, efficiency, customer CSI, upselling, number of ASE certifications, mentorship bonus, peer review, team bonus, etc.
Management of these plans can be pretty challenging, and you always have to ask, “is the effort I am expending yielding the results I want to achieve?” Additionally, the plan may be so confusing that your team might not be clear about what is expected and rewarded, causing demotivation to set in and the inverse of what you were expecting might come to fruition. Distrust and difficulty in forecasting can take a once highly motivated tech and turn him sour, resulting in you needing to fill his position.
The Boring Plan
Straight hourly has one thing going for it: a predictable level of expense for your technicians and service advisors. A downside is that nobody really gets excited about the work coming through your doors. Entitlement can set in, and even though the wrenches are turning, they might only be going at half speed.
Hourly wages alone may not be enough to motivate employees to increase their productivity or efficiency. Without performance incentives, workers have little financial reason to exceed basic expectations. Complacency can set in when your team members know they’ll receive the same pay regardless of their output or quality of work. This can lead to a culture of doing the bare minimum to get by.
The Benchmarked Plan
The industry standard for labor costs, excluding benefits like healthcare, is around 25% of the labor revenue collected. This approach is simple and effective for maintaining profitability in your shop.
In this structure, compensation rates typically range from 23% to 27%, depending on the technician’s productivity and skill level. Highly skilled technicians may exceed the 27% tier, while less experienced technicians may earn less. The mix of high and low compensation levels across the team results in an average labor cost of 25%.
No matter the pay plan, of course, you’ll always find plusses and minuses. There is no perfect plan, so your goal is to achieve a balance between over and underpaying, attracting the absolute best vs. attracting someone who can simply fog a mirror. Your incentive and pay plan needs to be in line with industry benchmarks for your shop to stay profitable.
Keep this top of mind, a profitable shop is one that is healthy and thrives; customers, employees and vendors are much happier when you, “The Boss,” are a happy boss. A shop, or any business for that matter, which sacrifices profits unnecessarily is an unstable one.
Recently, one of my favorite local Italian restaurants went out of business. The owner was unwilling to raise his prices because he wanted to retain his pre-COVID price model. In the end, this proved unsustainable, and now his employees need to find work, his vendors have unpaid bills and we customers need to find another place that serves food as good as his. Razor-thin profit margins aren’t a blessing: a profitable and thriving business is.
Our clients have a range of net profit from 12-20 percent. Is that too much profit? Not at all, considering the responsibility to their stakeholders and the risks involved as shop owners.
So what is the best plan? That answer is simple: the one that has the best elements from each plan that attracts individuals who perform well within the system, and rewards/incentivizes quality work, production and efficiency.
Of course, saying it’s simple doesn’t necessarily make it so. Is your current pay system ticking these boxes? If not, it might be time for a change. Keep in mind that no matter what pay plan you choose in your shop, your cost of labor for your technician team should be no more than 25% of your collected labor dollars.
Bonuses and Incentives
As we near the end of the year, you may be getting in the spirit – you love your team and want to show how much you appreciate them. Many shop owners dip into their bank accounts and hand out year-end bonuses. Nothing new there. But we’ve seen examples where those year-end rewards soon become entitlements, and appreciation for them wanes.
We recommend tying any year-end incentive payouts to the team’s individual performance and contribution to the shop’s goals. Additionally, we recommend that you have a quarterly reward program to keep your team’s eye on corporate performance and goals. Rewards each 90 days are more manageable, and the anticipation assists in maintaining their focus on what is ahead.
Lastly, check with your tax professional about structuring the incentives and even what you should call them. Little things like categorizing the incentive as a bonus could cause them to be subject to additional tax withholding.
Of course, the most effective pay plan is one that creates unity within the team, improves efficiency and quality of the services you perform, as well as creates happy customers. The right plan takes into account what drives individual employees to perform at the top of their game.
If you’d like a tool to uncover what motivates your team, email us at the address below and ask for our “Getting to Know You” survey.
As the owner, commit to finding the right plan that creates a sound mix of financial stability for your employees, as well as an incentive to improve their job performance. It is well worth the effort and time.