Finding a Better Payment Model
It was painfully obvious right away—at least, to everyone else.
Jason Brennan was sitting in his first 20 Group meeting, 10 years after first opening Fine Tune Auto Service in Lansing, Ill., and just four years after finally digging his business out from under the debt and day-to-day inconsistency that plagues many tech-turned-owners.
It was early 2012, and Brennan finally felt he had a stable business. The five-bay, four-employee shop had grown sales year over year by an average of 10–15 percent since 2006. For the first time in his career, he felt like he was headed in the right direction.
So, he was fairly surprised when, just minutes into reviewing Fine Tune’s metrics for the first time, every member of his group unanimously pointed out an extreme flaw in his business model. One by one, each fellow shop owner came to the same conclusion.
“Right away, they said I was paying my technicians wrong,” Brennan, 36, says. “We hadn’t even really gone over how I was paying them yet.” They didn’t need to. One look at his gross profit (GP) on labor, and they knew.
The numbers were grossly inconsistent and were impacting the shop’s overall profitability. Brennan knew the shop wasn’t as profitable as he felt it could be, but, at the time, he was pleased simply with the fact that it regularly turned a profit.
As a former tech, he’d prided himself on being an “employee’s owner,” someone who related to his staff’s stresses and tried to limit them. That’s why he’d always stayed away from production- or incentive-based pay systems.
“I was a little taken aback, almost defensive, but when you have 19 other people who run very good businesses all saying the same thing, it’s a little hard to not take a really hard look at it,” he says. “Bottom line, though, there was obviously a problem, and I had to find a way to make it all work.”
Brennan grew up in an entrepreneurial family, his father having owned his own plumbing company. Brennan, an Air Force veteran, always had an itch to go into business for himself. It’s what led him to abandon electrical engineering (his major at the University of Illinois, Chicago), and it’s what led him to start his own shop after only a handful of years in the industry.
“I worked for some dealers and a couple indy shops, and I just felt I could put together a more ethically run business that could better service customers,” he says.
Brennan started at a two-bay garage in 2002 and struggled early to grow the business. It was just him and another employee for four years, before he took the chance on a larger facility, hoping that a simple upgrade in scale would change his fortunes.
“Then I made every mistake in the book,” he says.
Poor hiring decisions, a lack of systems and processes, and his lack of financial knowledge caused him to take a large step back. The shop was doing just $35,000 in sales out of what’s now its current 3,750-square-foot facility.
“It was one of those things where I knew I didn’t have the answers, so I needed to find them,” he says.
He took every business management seminar he could find. He began taking courses with the Automotive Management Institute. It led to quick improvements in the shop: he standardized procedures, took a new continuous-recruiting approach to hiring, and developed better leadership strategies that helped him better direct his now more talented team.
The shop experienced double-digit sales growth in 2007, and continued that trend over the next five years.
He could see that his shop was finally starting to take shape and turn into a viable, sustainable business by the time he sat in that first 20 Group meeting in 2012. Profitability wasn’t as high as he desired, but he was simply happy that his weeks were no longer spent sweating out payday.
He was making money, albeit modestly.
In recent years, he’d begun to regularly track his shop’s metrics, and he knew his GP numbers were off—or at least inconsistent—compared to industry benchmarks.
An accepted GP on labor is generally 70 percent unloaded, meaning a straight comparison between the tech’s pay for a billed hour compared to the shop’s labor rate it charges customers. On any given month, his labor GP could be anywhere between 55 and 70, more often on the lower end.
At the time, he paid his three technicians hourly, something derived from his distaste of working in flat-rate shops to start his career.
“I just never liked that environment and how it created a weird culture between employees,” he says.
But, as his group members pointed out to him, paying hourly meant Brennan’s labor costs would be exactly the same each hour regardless of how much work was produced. Without pay being tied to production in some way, it made his labor GP uncontrollable and erratic.
Brennan wanted to create a pay plan that could stabilize things, creating consistent profit while allowing his staff to feel well compensated.
Most business owners tend to be control freaks, Wells admits, As he had during the years of building his shop, Brennan looked to every outlet he could find to get information on successful pay plans. He took courses, he picked the brains of group members and he talked it over with his staff.
After a several months of tweaking and tinkering, he came up with a plan that included a tiered, hourly base pay plus hourly incentive-based increases in wages.
Base Pay. Brennan broke the base pay into three tiers based on experience and ability level of his technicians, classified as A, B and C. Each level has a starting base pay, or an hourly wage that the technician earns just for being at work. And, per state law, if they work above 40 hours in a week, they get time and a half on that base number. The key, Brennan says, was to keep this number relatively low, so the techs would be motivated to earn incentives.
Hourly Incentive Bonuses. Additional pay is based on a productivity scale, set up to advance the technician’s wage each time they hit a new threshold of billed hours completed. For instance, if a technician has base pay of $9 per hour and then hits between 30–40 hours billed in a pay period, he will get just a $9 bump in pay to $18 per hour. If he or she hits the 40–45 range, the tech may get an $18 bump from the base number, adding up to $27 per hour and so on, until they reach the final level of 60-plus billed hours.
Although his staff size is not overly large, Brennan was well aware that a change like this was incredibly significant to his staff. That’s why he didn’t simply overhaul the system overnight.
“I met with my staff, I met with other people in the industry, people in my group, and tried to identify every bottleneck in my shop that could hurt this plan,” he says. “Little things, like the layout of the shop, the way jobs were handed out, could take time away from the techs and hurt their ability to earn. If I was going to make it work, I had to give them the best chance to make it succeed.”
Brennan and his team rearrange equipment and tools to allow for easier mobility in the shop. He added a “job rack” to a wall in the office to organize workflow through a system of color-coded clipboards. He began using the time clock in his management system for techs to check in and out of jobs. They streamlined the parts ordering system. And, in his biggest move, he added a garage door, allowing his team to move vehicles in and out of each bay with ease.
Then, Brennan switched his team over one member at a time, beginning with his top technician.
By early 2013, Brennan had his three technicians switched to incentive-based pay, each with different tweaks in the pay grade. (He has one tech on the A scale, and two on the B, although slightly modified.)
Productivity instantly improved, in part to the pay change and also to the changes to the shop. His shop, which used to hover below the 80 percent productive mark, is now above 100. Sales shot up as well, making 2013 the company’s most successful year to date at $840,000. They’re already on a slightly higher pace in 2014.
And GP on labor has stayed—every, single month—between 68 and 72 percent.
Brennan is now in the process of developing an incentive-based system to pay his service advisor.
Take a critical eye to your business, Brennan says. Despite what he calls his technician’s mentality of thinking he can “fix anything,” no shop is perfect; “You can always improve.”
“And it’s about finding the right way to make changes and make things work,” he says. “I was against the idea of incentive-based pay, really, just because I didn’t know the right way to do it.
“Switching to this system has allowed us to make a lot of positive changes, beyond just the pay. Our shop is much more efficient and that’s because, as a team, we’re not afraid to find a better way to do things.”