Where's Your Floor?

You want to pay your techs more. What stops you is the math.

Every extra dollar you hand out is a dollar off your margin, and there's no obvious way to know whether it's coming back. So the plan stays in a drawer for another year — and to be honest, that’s where most plans I see should stay. 

The main issue I see with plans in the trades is that they skip the floor. The owner picks a number that feels fair, ties it to something loose like "hitting your weekly goal," and starts cutting checks. Six months later payroll is up 8% and nobody can point at the extra revenue those bonuses have generated.

A raise is a fixed cost. You pay it every week whether the tech turned in $2,000 or $8,000. Performance pay is a variable cost that only exists after the tech generates the revenue to fund it. Most contractors never do the math, so they pay raises, call them bonuses, and wonder why the labor rate crept up while the margin went the other way.

Take one tech at $25 an hour. He works 40 hours, so he costs you $1,000 that week. 

Now ask what that $1,000 has to produce. Most residential contractors run labor between 16% and 20% of revenue. Use 20%, because the math stays clean. If you're spending $1,000 on labor and you want labor to stay at 20%, that tech has to bring in $5,000.

That's the floor. It isn't a goal or a stretch target; it's the point where he has paid for himself and your labor rate is still intact.

Under $5,000, he doesn't earn a payout, and not because you're being tight. There's nothing to share yet. Over $5,000, every dollar he brings in creates the budget that pays him.

Run it for a $37/hour electrician and the floor moves to $7,400. Run it for an apprentice at $18 and it's $3,600. The formula holds either way: weekly labor cost divided by your target labor rate. Every tech carries his own floor, and it moves when his pay moves.

You're not scared of paying your guys more. You want to. What scares you is paying them more out of margin that isn't there.

With a floor, that can't happen. You cap your labor rate by design, and the payout lives only in the space above it. The worst case for your business is that nobody clears their floor, everyone stays where they are, and you pay exactly what you're paying today.

The other case is what one plumbing and heating business we work with saw when their labor rate went from 28% to 18%. Same crew. Same trucks. The pay plan pointed everyone at the same number.

Owners want to know what this does to take-home pay, and the honest answer has a range in it. Our target for top performers is around a 20% bump. The average tech lands between 7% and 10%.

That gap is the plan working. Anyone seeing a 20% increase is clearing their floor by a wide margin every week, funding a bigger pool, and taking a bigger share of it. So while your techs are getting bigger paychecks, your labor rate hasn't moved a point. That's what the floor is for. Revenue per truck goes up, your labor percentage stays where you set it, and the difference is margin you didn't have before.

None of it is guesswork. We set the percentages against what businesses your size are already running, then run the whole plan against jobs your techs have already finished, so you can see what each of them would have earned. You sign off on the math before it touches a paycheck.

Stop paying bonuses and start paying for performance.

Best,
Ryan

P.S. I speak to a lot of businesses run by partners, where one of you is all in and the other needs convincing. If that's you, don't go make the case alone. Book the call and bring your leadership team, and I'll run the numbers with everyone on the line.