A Different Thought Pay by the Hour, Pay by Performance or Both Episode 99
This week I WANT TO explore a different thought. For some it may be radical for some thought provoking. I’ve always talked about your number one priority being in business is to make a profit otherwise you may as just get a job.
Today I want to talk about how you should look at your payroll, pay by the hour or by performance or maybe even a combination.
Is there a better way to keep your profit margins stable and pay your employees? Let me interject here I not to talk about making your employees sub-contractors or 1099 employees. I’m talking about real employees you pay by the hour.
Years ago I was in a continuing education class for my license and the presenter came up with this thought. He said that it is harder for a contractor to compete in this marketplace of people having less spendable income, customers being smarter and becoming more sophisticated shoppers. Sometimes expecting more and wanting to pay less.
Do you get tired of going and doing an estimate, then getting the job, knowing you figured everything right. You know your costs and your margins; you know you are running the right pricing to be competing in the market place.
You send your employees to do the job and for some reason you don’t make the profit. You are overrun buy time constraints… in other words your employees took more time than you allotted for the project and you make less profit. Why is that?
I run across lots of guys who are concerned about the way their employees seem to take advantage of the hourly situation. They show up to the job late, take long lunches and you pay for it, you complain about it and rightly so it’s your company and ultimately you went into business to make a profit. And you went into business to have a better life for your family, not to overpay your employees, right? I’ve felt your pain.
For some reason businesses owners haven’t set the record straight. Did you create a job to grow your business, not to be controlled by you employees? And in the same breath, good employees are an integral part of a successful business. So how do you walk that fine line?
Pay them what they’re worth, not the industry standard but the ability to make more so they continue to make the company money and they will be with you for as long as you want them to be a part of you company. It can be accomplished with performance based pay.
You as a business owner set your profit margins margin. You need to run a viable, profitable business and have employees that take ownership of their actions so everyone can make great money.
So what are some of the key factors you need to have in place to make this work? To set budgets for the work to be preformed:
You need to know your numbers. By that I mean:
- What does it cost you to be in business?
- What does an employee cost you per hour?
- What is your operation cost (truck, equipment, insurances, gas, rent – break it down to hourly)?
What should your gross profit margin be and how do you get to that number?
If its 40% you divide by 60 to get you percent. You don’t multiply, when you multiply you come out with a smaller number… don’t cheat yourself.
So this week I gave you some new ideas to think about in getting more profitable and staying more profitable and giving your employees a platform to even make more income.
Next week’s podcast I interview a friend and business owner who has taken this concept of performance pay and implemented it successfully. He has over 100 employees and because of the success of his program, everyone takes ownership of their part and everyone makes more money.
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