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- [00:01]
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Welcome back to the Business of Beers podcast. Your daily dose of strategies, tools and tips to help you build an eight figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.
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One of the questions I get a lot is on pay plans. So how do we, how do we structure pay plans so that make these font a little bigger? It's rewarding. And so I think there's, there's a lot of different ways to think about this. And it really depends on who the role that you have and what in making sure everything's aligned. And so those are, those are like, that's like the basic framework to start with is when you're going to look to structure a pay plan. And it doesn't matter what role this is. This could be, you know, an individual producer, such as like a mechanic, could be an individual sales person who goes out and sells like our turf business, right? We have ended up, we have guys that sell turf for us out in Texas. It could be store managers, it could be outside sales rep, inbound sales reps, it doesn't matter. It could be leadership roles where number one, the most important thing is alignment in terms of aligning the company incentives, like what your goals are as the owner in terms of then how you are paying them. And if sometimes we put in things into pay plans because we want to drive certain behaviors that we, that we think we want to drive certain behaviors that we think will result by the pay plan, but it ends up having an opposite effect. So for example, I have a friend who owns a junk removal business and he said years ago they put an incentive to pay their drivers based on basically the profitability of their runs. And how the junk business makes money is, you know, they get charged by the weight at which they dispose of stuff. And so in theory, if they dispose of less weight with the same level of revenue, their margins are better. And so what the guys started doing was basically just taking the junk out and leaving it on the side of the road instead of taking it to the yard, because that means they collected the same amount of revenue. But when they went to the yard, they didn't have as much weight because they littered it. And this led to a much bigger problem, which is, you know, these guys dumping trash all over the place, you know, unauthorized. And so that that initial goal of like, hey, we want to incentivize our guys to care more about the gross profit had this like backwards effect of Them trying to cheat the system and you know, potentially creating a situation could be way worse. And so that's like the first thing you really have to think of is terms of alignment and what incentives, what behaviors are you trying to drive? And knowing that people try to game the system. No matter what you do, people are always out there trying to game systems. And so you want to create a plan that. Not that it can't be game, but doesn't create reverse incentives like that. It should be simple napkin math. I say where basically you could go through and you could put it together and they can explain it to you on a napkin. That's a key part of this. They explain it to you on a napkin. I have many times over the years, I gotta hire people all the time and I ask them, how do you get paid right now, tell me about your pay plan. And they can't explain it to me. They'll fumble around and this and that and a. I know that they're probably not a top performer because top performers know their pay plans inside and out. They know, you know, not that they know how to game it, but they know how to optimize it in every number. And the people who necessarily aren't as sharp or the pay plan is really bad and it's really complicated. And there's like, there's like a. Rubrics and there's like ads and additions and percentages and there's like you need a, you need a frickin like rocket science degree to figure it out. So keep them as simple as you can. Then there's, then there's two parts that I want to do, which is I want to reward for volume and I want to reward for growth. So these are the. For, for this, for. This is for managers at least for, for people who are like responsible for what they do. Volume and growth. Because if you, if you only reward for volume, right? Say that says hey, you know, I'm going to pay you, you know, whatever bonuses at I don't know, 25k. And maybe you make, maybe you make. I'm just gonna make up some numbers. I don't know, 3% at 25k you're gonna make, you know, 4% at 30k, at 35k you're gonna make 5%. Something like this, right? Where it's volume. So the more volume they do, the more money that they make, right? The challenge is at a certain point, you know, the business, maybe they drive it to a certain volume that they are satisfied with the income there becomes this just like sense of, I don't know, complacency, where everyone's just okay with what it is but you as the owner, your sales are rising every year, your rent goes up every year, your taxes, your insurance, probably your other payroll costs and other things. And so you really need to continue to grow the business year after year after year. If you have a plan that is purely just volume based, at a certain point, once they reach a plateau, they lose incentive. And so that's my problem with volume only. And then if you think about growth only, the problem with a growth only bonus, which is if it's really good when growing. So let's say we take a store that's doing, I'm just gonna make some numbers, 700k and we take that store to 1.4 in a year, right? So we double the business in that side. We want to pay a pretty good bonus that year for driving growth. Because for us getting that up to that level, man, it's great. Requires we wanna pay extra for, for somebody who gets it there. Then if the next year happens, right? So let's say we take it from 1.4 million and let's say we grow it to 1.6 million, right? If we only paid for growth, this one he would have made bonus on 700k in growth. This one he'd only make bonus on 200k in growth. And so in theory, depending on how it's weighted, it's possible that in a scenario he can make less money this year taking the business from 1.4 to 1.6 than he does in this year when he doubled it, because you're paying a high percentage on that growth. And so for me, I find the best balance is back to this where it's like roughly our goal is that 50% of the bonus comes from volume. So it's like continue to grow the volume and then 50% comes from the growth. And so that helps balance out. When you have a year like this where it's like, man, you freaking doubled the business. Great job. You get a huge amount of dollars towards your bonus for growth and this year. And then, then there's volume along the way, right? Because as he's growing it, the volumes, the volume's growing now this year because we've, we're already kind of at the volume now. The growth's not as big, but the volume's going up, right? So that's like one of the ways that I'm going to think about it. The next way is around the, it's all about Guarantees, right? I think this is like a really hard part, is to balance how much guarantee do you give? Especially in a sales or performance driven business. Because the higher the guarantee that somebody has depends on the person. But a lot of times it's back to being complacent, right? It's back to being like having that drive and that hunger to go and get more. Like if you said, hey, you're gonna make, I don't know what to pick a number, it doesn't really matter. But if it's like, hey, you're gonna make $60,000 or $80,000 or whatever it is, no matter if you bust your butt, you bust your butt and you grow the business and you make us a lot of money or we're gonna pay you $60,000 if you barely show up, you dick around on your phone the whole time and, and you just punch the clock in and out. But you can pick one, pick either one, and you're gonna make the same amount of money. At the end of the day, people are gonna take the least path of resistance in general. And so the thing about guarantees is it's the same thing of the balance. We wanna balance it so that we wanna attract great people. Great people expect and deserve a strong guarantee. But then it's also like they gotta perform. And so a lot of times we work with people on it to say, all right, how much money are you looking to make? And then, and then we can kind of back into, all right, here's the plan. We can guarantee you X amount of dollars up to a certain amount of time, maybe for three months or six months or maybe even a year, it all depends. But during that, we need to see progress in three months from now, in six months from now, this is where the business needs to be. And if the business isn't there and you can't drive it to that point, then we're going to have to go back and talk about the guarantees again. Because we set the guarantees under the expectation that, that you will drive results. And if you can't drive results, then why are we giving a big guarantee, right? And so it's really gonna be market dependent. But I have found the, you know, you also get what you pay for, right? And at the end of the day, I wanna try to hire the best available people that I can afford. And so it depends on your business. If you're just starting out and you have tight margins, you're not gonna be able to go out and afford like a super high powered guy, but you're gonna try to find the best person who, who can help buy your time back, really, because that's the goal. You want to get things off your plate so that you can focus on driving the business forward. Whether that means acquisitions, whether that means leadership development or landing big accounts or whatever it is that you're really good at. Get the stuff off your plate so that then you can focus on that growth and you're not stuck in the weeds as much. And so really, it comes down to market driven things. Whether that's an hourly employee with a guarantee, whether that's a, a manager, a district manager, a CEO, it's all pretty similar.