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Tech Performance Compensation Plans

Creating a compensation plan that rewards technicians for doing what they should be doing and keeps them motivated, while not overly compensating them for permission to play expectations is a tricky balance. We've tested multiple compensation plans, and we've decided this is the best one to keep technicians both happy and working efficiently.

Video Transcript

" Does anybody not know us at this point? We don't need to do intros right now we're good. All right. So let's get going here. Alright, so this whole process of performance compensation is very near and dear to my heart. And because you've probably heard every single presentation that we've talked about, I probably mentioned something about performance compensation, because I really do believe in it. 100%. And a lot of this really comes out of how many times that we failed, right? So our company was founded in 1976. I got to there in the 90s, I don't remember exactly when we never had a successful bonus plan. We, you know, we had annual bonuses, you know, those were just a gimme, you had your cost of living, you know, increase, we did performance review based bonuses. And those, you know, the performance review systems just never worked for us. They were spotty. There's they were they were inconsistent, subjective. You know, did you know how good were we doing on performance reviews? Well, we tried profit sharing Who here has done profit sharing? No, yeah. So problem that we had, you know, profit sharing sounded really good until we have to make investments in the in the business is like, Okay, I've got to buy a quarter million dollar sand, and everybody's like, well, you're just trying to blow all the money away, so that we, you know, save your money on taxes, and you don't pay us bonus. So everything that we did really failed. After all that failure. I was sitting there and trying to figure out, what can I do is December of 2007. And just kind of came up with this structure and implemented it in the 2008. January 1, the very first quarter. And it just, we just really lucked into this process. And that's what we're really going to be talking about today. There's a whole pile on the luck, the word luck is the intersection of preparedness and opportunity. Right? That that's the definition of luck. You were you were prepared when the opportunity came along. Yeah, so I'm not gonna give you luck on this. So there are a lot of different ways that you can do compensation. This is just what really worked for us. And so why I'm so adamant about it. So first thing is the timeframe. So for us, it's really important that the compensation plan is based on a quarterly quarterly event. So because it's a quarter, how many weeks you have in a quarter, got 13 weeks in a quarter, you've got three months and a quarter, those numbers end up working out really well for the structure that we use for the compensation plan. The other thing is, with it being on a quarterly basis, we're limiting our exposure to a bad plan, right? Because they are not all good. And there are certain elements that we will get exactly what we were compensating for. And that hurts us and we didn't really think it through all the time. Also, sometimes, you know, we've come up with a comp plan that, you know, we thought was really good. And the engineers are looking at it like it's the dumbest thing that we ever that you ever did. And it just doesn't work it does fails to actually provide motivation. And I don't want that. And if I have that in an annual plan, then I've just really screwed myself for a year because at that point, then I have to kill the comp plan. So can I interject on something you just said, because I want to highlight a little bit? Is the bonus plan to pay people more for the same work they're doing? No, the bonus plan is to pay more to get more to incent a change in behavior. So you always have to keep that in mind. We're not just trying to pay more for what you're already doing. Yeah, exactly. So some of those elements will be included. But we're always going to be building it's always building. And that's one of the things we'll talk about as well. Also that flexibility for adapting. Right. So something worked really well. We can add to it. If we failed, we can change it. When we add new hires, you know, we've got, we probably have a 60 or 90 day timeframe before they're, you know, while they're still in the onboarding, onboarding. And probably what do you call that? probation? Thank you. So you probably have a 90 day probationary period. So it could be 60 days gives us some time to where they can hit the ground running and quickly become a part of a comp plan. So the timeframe we felt was really important. So here's the basic structure of what we do. The first is the compensation amount. One of the things I found is we have a we have $1 figure for the for the bonus and how do we figure out what our bonus dollars are going to be? How do you if anybody is currently doing one? Anything you have a number, what kind of a number do you use? What kind of a number to use For a bonus for like a target for a target. Yeah, so how much you gonna pay your tech for a bonus? Sorry? 252 50 a month $50 for every extra hour O'Brien, okay. Anybody else do anything? So one of the things that people have feel engineers, particularly their mindset is I'm creating a comp plan to make you jump through, you know, make me jump through hoops, it's even talked about, it's the carrot that sitting out there to make me, you know, act like a little animal, and, you know, go through the hoops that you want, and at the end of the day is still going to be tight on the end of the string. And I'm probably not going to get it right. So we lay out the amount up front. And in my case, the very first one we did was, was probably excessive, I don't recommend people when I'm consulting with them to use that much unless you just have a lot of extra money running around. But I was so desperate, I put up as 18 $150 per tech. Okay, so I said every quarter for the quarter. Yep. So 1800 50 bucks times 10 people. This is what's in the bonus. Now. Yep, it's a pool. Yeah. So the nice thing about that is I'm guaranteeing it up front. And if at least one person fulfills the comp plan, that entire dollar amount is paid out. So I'm not creating something to screw you. My preference is that everybody gets it. But no matter what, I remember the TPG meeting, when when you came to that conclusion that it gets paid out no matter what, because we Dan had a problem where somebody was not earning their bonus. And they accused him of just not wanting to pay it. Right. Yeah. And so that was your your response is no, I'm still paying it. It's just going to somebody else. Yeah, exactly. So then we're going to lay out so we lay out our dollar amount upfront, then we're going to put in our areas of what are we measuring? What's our measurement and compliance area. And so we usually have a couple of them and we weight them. And I'll we'll talk about that in more detail. Then we talk about the kind of my disclaimer, right? So they say, Oh, well, as soon as we got the we got this quarter down. Now, you're going to change the goalposts, right? You're always moving the goalposts. So I let them know right up front, this is performance compensation, I am paying you above your base salary to do what I want you to do the way I want you to do it. Because my business changes because our customers change, it will I will be shocked if this, if this comp plan measurements don't change for next quarter. So let them know right up front, this is a moving target. And I'm telling if I know where the target is going to end up, I'll let you know. But it's going to be moving every quarter. Yeah, so that what we found is we have a we have an element that will show where we have individual measurements as well as team based measurements. So those team based measurements if they're if they actually have a guy who actually started with us in 1976. So before I was there is still an engineer today. And his mindset, what he's a great engineer, but he was just going to do what he was going to do didn't really care about the comp plan. When we had the team based measurement that was a part of it, you know, he didn't want to put his time in on time, because he just didn't care about the money. But a couple of the other guys were that team based where, you know, 40% of or there was a kicker on the bonus that was going to go to everybody if everybody hit this team based measurement, and he was going to screw that up. And so they had the conversation with him as a Joe, this, you know, your your lack of of behavior is going to cost me money. And we can't have if we have to have this conversation again, if you can't, if you don't quit and leave or fix your time entries, and we're gonna have to meet you out in the parking lot and have a different conversation. They literally physically threatened him. So, but what was really interesting, he came back into my office and he was crying. And it's like he said, you know, we just had this conversation. And the reason that he was crying was because he realized that he was affecting the entire team. And he just thought it was himself before and didn't really care. And so that that changed. And now all the new guys, he's beating them on their time. So So then we're going to detail what each of these measurements are. And again, I'll show you that a little bit. And then we have our little jet, get out of jail free card that I really like. Alright, so this is the compensation plan for ark for their performance comp plan. You can get a copy of this, by the way from your account manager if you want the you know for the full details of it, but I'm going to kind of walk through some of those pieces that we were just mentioning. So the first part is the dollar amount. So we said okay, $1,000 per technical staff member, we have craft this to be based on three areas of measurement. Alright, so we have documentation and what we're talking about is going to be our ticket compliance utilization is going to be 40% of this $1,000 and SLA compliance is 40%. So here you can see where I where I said, you know, the you can see the goals are going to be changing. We are going to be changing stuff. All right, that all makes sense. Okay, can I quickly share what service leadership says about target compensation? I've been in a lot of seminars with Paul DePaul. You guys know Paul dipple. So if you see him at a at a conference, I have a Paul dipple rule, it's a Paul dippel is presenting, it doesn't matter what else is going on, you go to Paul's presentation. But he says, If you want somebody to your target compensation is I'm just gonna use easy numbers 100,000 you need to salary them at about 80% of that. So they have 20% of their pay at risk. But you design the comp plan. So there's about a 10% upside, right. So it's not all at risk, if they really knock it out of the park, they should make 110 on the comp plan, right? I have my own spin on that a little bit that I think managers at the manager level, I think the 20% of their pay at risk makes sense. But at the engineers, it's more like about you put 10% of their pay at risk. So and it's still getting a five or a 10% upside in the way you design the plan. So Yep, exactly. Alright, so I said we, you know, we lay out those pieces. So if you remember on the previous slide, we were talking about the three areas of measurement, one of those was utilization. Now we're digging into the detail of what do I mean by utilization. So utilization means and this is part of the comp plan, every technical staff members at least 75% billable per week, time spent against a arc internal technology ticket, then that is going to be considered billable. So when you know, Travis, or they're trying to, you know, setting up some of these pieces, you know, working on workstations or you know, doing any of those technical work, if it was for if it would have been for a client, it would have been billable is the same way internally. utilization is calculated based on actual compliant billable time in a 40 Hour Workweek. So this is a real key for every one of my compensation plans, which is why we leverage the utilization portion is because it is defined as all time work during the business hours has to be accounted for by the end of the business day. So you get until 7pm to have finished putting in your time for all the hours worked between you know, the eight to five, I'll give you two hours to stay here at the at the office and finish that up. Outside of that if you're working on time, after hours, it has to be done in the same day. Okay, so I'm not going to be a jerk about it. But you know, outside, outside of business hours has to be same day. So that means if you did your work, and then you can't just go home and you know, sit on the couch and you're drinking a beer and then you're like, Oh yeah, I worked, you know, from nine o'clock to 1015, I worked with a by ABC customer, right? It may show up in Connect wise or the other tool as being, you know, utilization or billable time. But it doesn't count for me. I only care about it in real time. Now. Does does anybody disagree with that or see why that could is important? Why the real time is important. So one of the things that we talked about previously was the longer of time like the longer that time goes by the less you remember. So I can guarantee you that I cannot remember accurately what I did yesterday. So I'm going to I my you know, I'm going to be looking at my cell phone to look at my phone or look at my other call logs. And we're going through emails. And hopefully I put some stuff in there where I can kind of figure out what it was. But I've had the situation where you know, the engineer, actually, I'm picking on Joe again. But it happened to be Joe, before we had this comp plan in place, he had gone down to Miami was fixing a firewall for a customer. And then he leaves the customer and he's on his way back. And we get a phone call from customer Hey, everything is down firewalls down, go look at the ticket. The last note that was in the ticket was that it was on in progress that he was going to go on site. No notes about what happened. Can't get ahold of Joe, Joe's not available. And so it was several hours, we had to send another tech from Hollywood down to Miami to go figure out what it was trying to figure out what had happened. found that there was something that happened in a firewall rule, fix that issue, put his notes in and come back. And so as you can imagine, we had to come to Jesus moment. But you have the proverbial getting hit by the bus. I've also had lottery wins a lot wins a lottery outcome. Right? It just appeared right? You're you no longer care about it. There's so many reasons why we need that to be accurate. The other thing that I had happened to me is putting in you know, I was at the client from what was that I was like two o'clock to four o'clock. And so that was on the invoice that they weren't actually being billed for. It was like two o'clock to four o'clock. It's like Well, no, actually, that guy was there from three o'clock to 555 and I cuz I tracked every time and so if you're lying to me on that, what else are you lying to me about? So that accuracy is really really, really important. Connect wise is going to be wrong, right? What's your time to respond? Well, or what happens is, it's only when you put when you change the ticket. Well, if you're changing the ticket status, then you should be putting your time. And in reality there, how many people have the ticket that goes from assigned to resolved, because they just do it, at the end of the day, they close out for tickets. So it's, it's, it's really, really critical. Probably the most important thing in a PSA system is real time time entry, which is why we spend a lot of conversations about it, then we have a Dan, why do I have to pay somebody a bonus to do what their job is? Good question. You guys thinking that one? Right? So we're hiring him, right? Could you fire him money, but he wasn't? Right. So one of the things, this is something that we get a lot of kickback on is especially an owner, CEO of a company, it's like, I hired him do their job, they're gonna do their job. And that's, you know, part of their job is putting in time. And that is true, right? However, so I think somebody mentioned what you haven't already done previously, you're changing a behavior. So if they're not already, if you haven't already built the culture of it is there is no question that everything is real time. And that's a part of your culture from the very beginning, then you have to you're having to change habits. And these habits are really, really hard to change. And so it's not an option for them not to change, because they will be fired if they don't do it. But I do want to incentivize a portion of that is tied into it, then we have a kind of a get out of jail free card I mentioned, right? So we have all these pieces of compensation. But now I have a fifth item, I don't know if you, if you saw in the beginning, there's like 123, and then this, all of a sudden, I have a number five in the detail. You kind of at the bottom of this, you know, set page two of the comp plan. And this is about compliance and customer satisfaction. So by the way, you still have to show up, you're still expected to be at all of the meetings, we have a daily huddle, that's not optional, that you have to be there, we're expecting you to work from eight o'clock to five, you get an hour for lunch, you're going to track all of your time and connect wise to determine, you know, when you got there. And when you left, you know, it's based on an eight hour day, and SLA compliance, and then I have this like customer satisfaction is a given, which means that if you're just pissing off customers, then that I can point to that in the comp plan that says you are no longer you know, if you're not a part of what we're doing, and you're not in the comp plan, even if I had didn't fire you at that point in time. That makes sense. So these are some of the keys that I found on this. So I'll kind of reiterate it. So take it on the chin, right. So that is that upfront guaranteed. The first comp plan typically is not going to pay for itself. I've had a couple customers who said no, no, actually it did. Because we got so much more billable time in that we didn't realize we had much had faster responses, we had happier customers, we've got more customer see sets coming in, we fixed all these problems. So it paid for itself. But I want to set the expectation that it's going to be an upfront cost that you're guaranteeing that we're gonna pay out. And it's not the it's not until we have gone through this first cycle of real time time entry, which goes to this whole conversation that we previously had real time time entry equals accurate data. Once I have accurate data now I can start to compensate on changing the bar inside of my system, right? That's where I start going into profitability. I'm going to talk about that here in a minute. How do you comp your text based on profitability? So then we have our team as well as individual accountability, right? I mentioned really important, it's not just about the one person because if it's just about the one person what can happen even unconsciously, not just an individual comp, what happens if it's just about me and my performance? Yeah, so it's, you know, it's a great one, one of the one of the dashboards, somebody was asking about triage, right? So the who was the person in an organization that should be responsible for the response time part of the SLA? Now, dispatch, right. So whoever's in the role of dispatch, they're the person who is responsible for the response time. So in most of the smaller organizations, especially, is the dispatcher always just sitting there waiting for the next ticket to come in. Now, a lot of times, it's also maybe the executive assistant. And so the owner comes in that might be you. grabs the dispatcher says in talking with the dispatcher in the office for two and a half hours and who's handling the tickets, right? Well, if the if it's, well, that's really the dispatchers job. And there's nothing that's a part of that if, when our SLA is response time, I want those engineers to know hey, even though this isn't really my job, we need to jump in on that ticket. It shows up on a dashboard. So we can go fix that because that that affects the customers. And by the way that affects our numbers, which is going to affect our bonus because we're all in this together. Make sense? go all in, right? So that's the pool, we talked about it being a pool, we're going to pay every single penny out whether I messed up on my comp plan or not, if I may have poorly designed it, I'm still going to guarantee that upfront, and this will all be paid out every single quarter. I never want to have a non paid comp plan. I left a job as a VP, because of the owner did that to me. The circumstances outside of my control decided not to pay the bonus. Yeah, so it is, it is kind of a scary thing. When you're making that commitment. Especially if you're looking at you know, 1000 bucks a person, you've got five texts where I'm gonna, I'm gonna guarantee $5,000 that's not a it's not a small thing, right? And then a kicker, actually, Alex dropped this in on me. And I don't know why I hadn't thought about it in this way before. But I loved it. So we've, we've kind of put this in now. And he's like, Okay, well, great. If we do a whole payout, and everybody gets their bonus, how about if we add even more bonus to it? It's like, because if if we believe what we're talking about, if we're if this compensation plan is designed around performance, and this performance is going to make us more successful than we should have more money, if everybody does it, right. So if I know what I'm doing, we're going to win. So is that okay? If everybody gets their bonus, we have 100% payout, right. But every single person got 100% we're gonna add another 500 bucks a person into your paycheck. So what do you think people's mentality is? Make sure everybody on the team? Yeah, and it's no longer you know, you're not at that point of, you know, meet me in the parking lot. I'm gonna beat you up. But how can we help you? Right is how can we if if I see that somebody's struggling in a in a particular way, then what can we do to fix it? Right? So if you look in the like, in the NOK area, you'll see in resources, there's one and Michael, who's on that comp plan, his his his is below the line. Right? Well, why is that? Well, he was out sick. So he had had a, you know, several days, actually multiple days that he was out sick. Well, that sucks. But that's part of the comp plan. Right? So how do we so now there, you know, so he's, he's working on getting that built back up before the end of the quarter to where everybody's still going to get that comp? And everybody is now helping, you know, how can we help him to make sure that we're getting everybody on board? That makes sense. So let's talk about some of those. Because I laid out, we kind of have like three bullet points that we showed the utilization, the ticket documentation, and SLA compliance is what we have in on the ark one right now, a couple of them, obviously, I'm always going to have or for me, I'm always going to have compliance utilization is an element that is part of the comp plan, no matter what that just never goes away. Because I'm always want to reinforce the real time time entry. That should be a kind of a gimme. But if we don't have that, nothing else is going to work. We mentioned the timeframe, right? We have 13 weeks in a quarter, how many documents? Can I write in a quarter? Who here struggles with documentation? Right client documentation? SLP, slps? How do we roll out a workstation, all those kinds of things? Well, we have documentation, you've got 13 weeks, I want one document a quarter or one document a week that is going to go into it glue or whatever my system happens to be. This is the format that we're going to use for documentation that and here's what you know, you have that approved as a it's not googling How do I install Exchange server and then copy and paste that into a document that's not documentation. But you know, 13 documents? Well, if I've got five Tech's, I got a lot of documents at the end of the quarter, I just fixed a huge problem. Right? So client documentation, process documentation, the SLA numbers, one that we've added in when after we didn't have a problem with that, that time entry, we found that there was, you know, engineers are going to have a tendency to kind of game the system. So what did I say? Was the cut off for the time? Seven o'clock, right? So what do you think a lot of the time is going in? So if you're, if I'm looking at it from a service manager standpoint, how many hours are being put in today, a lot of times, we would see that it's just not going anywhere for a while until like four o'clock, and then all of a sudden, we jump, you know, jump to the eight hours pretty quick. So it's like, Okay, well, at least we're getting it in the same day. That's good. We're getting it before the close of business. But how can we make this a little bit better? So we added in one for what we call the att, which is the average time to time entry. Right? So now it's like, okay, our average time to time entry is three hours, which means from the or from the time that is the in time of the time entry to when it was actually created. We have three hours, I want that to be less than, you know, I would actually want that to be in single digits, but I I'm going to compensate based on acquis did this as a as an individual game, we said, okay, whoever gets their number, the closest is, you know, in the next 30 days, I'm going to give them 500 bucks. And so all of a sudden, my average time to time entry is, is basically under 60 seconds. Right? So it fixes the problem, by the way, while I'm building behavior building habits. So Dan, do you do in one quarter a client documentation? time entry improvement? A, all that rolled into like one calculation? abs? quarter? No. Right. So that's very key. Key Point, right? I have three, I might have four. How many of you were not in the metrics? discussion yesterday? Okay. So this is something that's really, really, really critical. If I am compensating on a particular measurement, I need to think about what is the what is the effect of getting exactly what I'm compensating on. So if I'm just focused on utilization, especially, let's say I'm in, you know, the hourly hourly billing, what's the downside of high utilization? documentation when things that aren't exactly billable, maybe don't get done? Or? No. So for me documentation is billable. Because you did that while you're in the ticket, right? Next focus on something else. This is the Newton's third law, right? For every action, there's an equal and opposite reaction. So if you incent for something that you want, there's a good chance you're gonna get something that you don't want as an opposite reaction. Right? So if your his question is, if you're incenting, on high utilization, what's a potential opposite reaction? They're gonna build customers, over build customers to get that time? Yeah, so adding What else? They built on fixed fee agreements, right? They bear time in the agreement. So the metric that's going to be that opposite end is going to be a financial number, right? So my, my profitability of my contracts, you know, my, my biggest cost in a contract is my labor cost, right? So if all of a sudden I'm at 100% utilization, and or, or more, I've got 10 hours that are being booked a day against the contract, is, you know, if that's a couple $100 contract or a couple, maybe it's a couple $1,000 contract, how quickly is that profitability at zero or negative very, very quickly. So if I'm going to be having utilization, I want to have some kind of either an effective rate, or a, a profitability number that's tied into it. Make sense? So you have to counterbalance one incentive with another incentive in the same calculation. Yeah. So. But again, you want to make sure you only have a couple, because the that rule is you can only you can only focus on about three things. So three to four at the max. Otherwise, you just have way too much that you can't properly deal with. So if I have, if I have four things that I want to focus on, I'm going to I'm going to figure out which of the three that are most important, actually probably gonna be the two that are the most important, because I'm gonna have to counterbalance those. And I'm going to add that into my hopper for next quarter. All right. Does everybody know does anyone not know what effective rate is? Anyone? Not? No? Okay. So. Sure. So let's give him a definition of effective rate. You mean, my method, the shadow elbow thing? I know just just what the calculation for an effective rate number is? Or maybe I'm, maybe I'm, I'll give you my mind. That's why I'm asking. Yeah, share yours. So yeah. So from an effective rate standpoint, if I look at an agreement, and I look at all the hours that are spent on that agreement, divided by are the dollars divided by the hours, right, so that means if I was billing hourly, on this agreement, what would that rate have been? So if I have 10 hours on a on $1,000 contract, it's 100 bucks an hour is my effective rate. If I had 20 hours, I'm at 50 bucks an hour I'm going out of business. Make sense? So effective rate is one of those numbers that you can that you can use where you're not getting into people's salaries. Makes sense? That I have a slightly different way of looking at it. I call it shadow billable, where if let's say I reach $100 an hour, and and we have $1,000 flat fee contract, and I do 10 hours, so I did $1,000 worth of work against $1,000 contract that's a 1.0 ratio. Okay. If I do $500 worth of work to earn that same $1,000 right. I would have built if I looked at all my time entry for the month and I would have sent a time and materials invoice to that client for $500 But they paid me $1,000 flat fee, I'm at a 2.0 ratio. If I did $2,000 worth of work for $1,000 contract, I'm at a point five ratio. And I like looking at the ratio on that contract. So it's just a slightly different calculation. So with regards to the KPI and look at this, are you guys doing it on a percentage basis? agreement basis? Overall? Yes, yes, yes. Yes. Yeah. So I'm typically so if I'm putting it into a dashboard I'm using, I'm going to look at the overall effective rate, not on an individual effective rate, because that's an individual measurement. Yeah, that'd be a team. But that's gonna be a team measurement that I'm going to be looking at the long answer is the data is in Connect wise, you just have to write a report that calculates it. Okay. The short answer is, I love a tool called MSP CFO, it does all that. So some other things that can be measured certifications, how many of you have a problem getting your people certified? Right? So I was like, Okay, no problem. We have a 13 week study plan, I have three weeks, 13 weeks in a quarter and those 13 weeks study plan, this is what will be accomplished. This is you know, approved by the manager for the certification. And you know, the, here's the details of how you're going to get this. And that's where 60% of the bonus, if you don't want to get certified that I'm not firing you because you didn't get certified. But by the way, you just, you know, pissed off, you know, the team and 60% of your bonus. And for me, that's usually our Microsoft Gold certification is at risk, we have to do 17 tests in 13 weeks before we're going to lose our gold certification. Let's who's gonna do it? Right, and we assign tests out and tie a comp plan to it and we achieve it. Yep. Ticket compliance. Have you defined what you want done in every single ticket? Well, it's also very easy to turn that into a, a ticket compliance score, and you score every ticket on was it compliant and how it was documented or not. So when those are being closed, you know, we had added in little tasks that said what the score was on the ticket, that score ties right back into the dashboard for them to see, you know, this is how well we're doing. And individuales could also be damned of them not being compliant in their ticket compliance, the customer efficiency score, this is one that I really like we we had a hard time figuring out how do we talk to engineers about labor load or gross margin percent. So how many people's eyes just glazed over when I said labor load or gross margin percentage, what the definition of that is labor load or gross margin percent is I'm taking my total cost, my hard costs, have an agreement. And I'm taking all of my costs of labor. So I'm loading the labor into my cost. Alright, so then I take, that's my total cost. So my, my revenue minus my cost is my profit. And then I'm going to take that as a percentage of revenue. So what was the percentage of the of the total amount was my profit. So my goal is I want to see, at the high end, I have a really humming along is going to be 70%, labor loaded, gross margin. But as we just had this whole conversation, why would How would I have this with my engineers? Right? That's going to be a pretty difficult thing. So what wanted to focus on is how do I get them to think about profit? So I said, if my labor loaded, gross margin, target is 70? Well, I'm gonna say that's 100%. Efficient, right? So I got exactly what I want, I want 100%, I don't really want over 100%, because then I'm burning a little bit hot, and I'm probably not servicing my customer properly, but I want to get as close to 100% as possible. So we took take about 10 customers typically, in in a particular quarter, and I'll run the historicals of what is their labor load or gross margin, Ben, add the number 32 it so I, you know, push that to like, a an alphabet. You're scoring in school? And how close are they to 100? So a lot of times we're looking at these customers that are maybe 50% 60% efficient, and so they're in that 10 20% labor load or gross margin. just doesn't make sense. No, not making sense. If I lost everybody it's a little fuzzy. Okay, it's hard. Yeah, it is. It is hard. It's hard. real numbers example. Sure. So if I have Yeah, let's I was gonna see here. Alright, so let's say I have a contract. Sir. Alright, so let's just, let's just take a number. So I have a contract. That's $2,000 a month. Okay. So hey, Dan. Yep, we need to update my job description. Alright, so for $2,000 a month. And let's say I've got, I don't know, I've got 300 bucks in hard costs, right for tools or whatever. So I'm going to take my 300. And then I've got my labor cost. So you do have all your correct costs of labor in your members. Right? Right. Correct cost of labor for members. And like, if you're in a Connect wise shop, or whenever that time entry, you so you have real labor cost. So real labor costs recommend real labor cost plus 30%. So that covers all of your overhead. taxes, benefits. Yeah. Yeah, so 30 would be my recommendation unless you have unless you have a good benefits package, we actually have occasionally go and figure out the real numbers. So let's say that we had, I'm going to just pick a number here, I'll just say we had. We had $700 in labor cost. All right. So I've got a total revenue of 2000. And I've got a total cost of 1000. Right. So this is my revenue. This is my labor. And so I have $1,000 a special skill to stand in front of the formula while you're writing it. Right, that makes sense. Right? So now the question is, what is my labor load or gross margin percentage, right? So I've got $1,000 of profit. And what percentage of 2000? Is that? 50% 50%. Right. So this is telling me that I am at 50%, labor loaded gross margin profit. So if I was to then say, I'm going to use my formula that I want to be at 70. So I'm going to take 50%, labor loader, gross margin, plus 30, is going to equal 80%. efficient. So stop there, are we good with that? We want it to be 70. So to have a way to measure, we would have to add 30 to make it 100. So we actually got 50. So we add 30 to make it 80% efficient? If we were at 70%, we'd be 100% efficient. Okay, that makes sense, everybody? Okay, so now, if I'm looking at this, so I've got 20%, of loss of efficiency. So we have the conversation with the customer with our engineers. Okay, here's our overall number of customer efficiency score. And then here's the 10 customers that we're going to focus on, here's their individual customer efficiency score, how do we become more efficient at this customers? So you know, they very quickly, they're like, oh, wow, these are, you know, these are only, you know, 50% efficient? Well, we spent a lot of time on printers, or we spend a lot of time doing workstations. When we first started doing this, we had one customer that was always killing us on workstation, I kept trying to get people to fix the workstation deployment, they never did, until we had this like, man, we spend a lot of time I bet if we fixed the workstation Deployment Services, then you know, we would be a lot more efficient at this customer. So hey, here's how you when you are telling them to do something, and they're never getting it done or never comprehending it, and then you put a comp plan in, and then it becomes their idea to do the same thing that you've been saying. Yeah. You see it every time now. And it just reinforces how important these comp plans are. Yeah, it's really true. So, so this one is I really like because now for every percent that they increase in customer overall customer efficiency that I will usually do, I may not even put a limit on it. So I'll say, Okay, this is worth it, maybe up to $2,000, I'll pay out, then those numbers are going to match because I've already done the math of what's that total revenue, and what does a 20% increase in profit mean, on a $2,000 contract? So I can take, you know, 50% of that and pay that right back out in the comp plan. So what he just said was, are you taking extra money to pay for the comp plan? Or is it funding itself is funding itself plus, right? And by the way, once I fixed these 10 customers, and I have them at, you know, getting closer to that 100%. And so their score, not on getting it to 100, but in the increase, right, so I just want them to be more efficient, be more efficient. Some of these are gonna be, hey, there's no way that we can be any more efficient at this customer. Okay, well, that now is going to go to sales to make them more efficient, we have to charge them more money. Right. So that's going to fix my numbers. So but it gives us an objective way and a interaction with sales and the self funding and that to me is really critical. But as I mentioned, you can't do this unless you have 100% accurate time entry. The Cuz where where did the time go? If they're No way, we also make them more efficient. We don't do anything for those customers, we just ignore those customers for a quarter of the time go, I want to echo something that he just said, I want to make sure the point landed. Can we do a bonus plan based on this? If we don't have 100%, immediate time entry? No, this will not get introduced in your bonus plan for four or five, six quarters. Right? So your first quarters of doing a bonus plan? Or you're just looking for compliance on time entry? Right? And then once you achieve a new habit there, then next quarter, but you're working toward Yep, like this is this is a destination somewhere way off in the future. This is not in your first quarters comp plan, right? pick those bonuses, those numbers, 1000 bucks, 2000 bucks, 500 bucks. So the way I came up with it was the first way I did it is actually kind of what Rex was talking about, I took the total compensation. And then I added I said what's 10% of the salary gonna be on a quarter. And so that was where I came up with a number. That was just because I had no place to start, what I found is somewhere around 1000 to 12 $100.12 $150. I like 12 $150 is kind of a number that I like to use a lot. That's kind of my go to number. But there, I wouldn't say there's necessarily a lot of science behind it, it just seemed to be enough motivation. where people would really care about it like the five if it's just 500 bucks. Okay, it's like 100 and something bucks a month. Yeah, you know, I could do something. But when it's 1000, you know, now I've got some money that is going to be, you know, I can actually do something with the other thing that we did, because I was a little bit sneaky, is I sent a card home to everybody's home address, just with a with a copy of the compensation plan and a kind of an encouragement of what was going to happen. And why guys, who was always the person who was going to take care of the kids, anytime anything happened. He's like, man, why did you send that home, my wife has yells at me, if I get home at five o'clock, you get your ass back to where maybe we got a bonus x coming. So I actually have a high number in there, right. And so I'm going to take my my whole salary benefits, I think I put my cost in there at 200 bucks an hour is what I put in for owner cost. And what what works really well is also fix another problem, because since I'm compensating on customer efficiency score, when I have a customer who has a problem, and they escalate it, and they don't want to deal with the issue. Now I'm going to go fix that problem. I'm going to drive down to Miami, I'm going to take them out to a really nice dinner, I wouldn't expense that I've got four hours probably of time that gets spent. And that four hours of time do you think they're going to be able to be profitable on a contract, I just killed that contract for the month because they couldn't deal with the customer. So now I've fixed bad escalations, you agree with for someone for a smaller business that doesn't quite have that efficiency, yet? The owner still in the field, you know, percent of the time you're going to kill every single contract that guy's working on. You could make it you could make it more of a it's up to you. I mean, personally, I would, I would want to have a closer to real number, because that owner should be working, you're trying to work himself out of it. And that's what what it actually costs. So I like the real numbers, even though I don't necessarily like what they tell me sometimes. Just keep in mind, you know, what does it cost if you're successful? Check with your legal and whether you're not you call this a bonus, or a performance compensation plan. Different states can have different things. I think California if you call it a bonus, it gets taxed like ridiculous amount. So think about some of those kinds of things. Yeah, bonuses and commissions are different and it goes into their if it's paid as a commission. What what's the circumstance like? overtime? When you calculate somebody overtime? If it's paid as a commission, you have to account for that commission in their overtime calculation in some states, right, where bonuses may or may not apply to that same standard. So yeah. Daily huddles, everybody. If you don't do a daily huddle, you should if you have a question about it, let's talk about it. Also great game of business. If you haven't read the great game of business. This is one of those kind of further off things we were talking in the kind of in that as you're getting more and more mature as a business. That is probably the zenith of where you want to go as a company and open book management that ties all back into all this compensation stuff, and is a very, very good book to read. Thank you very much. "