Transcript of a conversation on a Mike Andes YouTube video about how to pay an estimator/manager (salary, hourly, commission, profit-sharing). Sam describes rapid business growth (year 1: $300k; year 2: ~$900k; projecting >$1M) and an estimator currently earning roughly 15% per job, yielding him ~$8–10k/month from large $20k–$40k projects. Mike warns of perverse incentives from commission-based pay (underbidding, selling unsuitable large jobs, growth without profit) and recommends aligning incentives (e.g., profit-sharing or P4P) and having an honest conversation with the estimator.
Questions this video answers
$300,000
About $900,000
Over $1,000,000
About 15% per job
About $8,000–$10,000 per month
Chapters
Foreign.
Some about the estimators. Your quick opinion on it? I've got an estimate here that I'll pay strictly salary. And what's your, what's your take on salary or straight salary based pay? I mean this guy's out here killing it and he's making about 15% per job. He sells everything that he's getting is coming in house through our channels that we market for. And I'm trying to make a few changes to maybe help benefit me more on that side. Just trying to get a quick opinion on what your thoughts on that?
Totally.
Yeah.
What commission?
Right. What's the, what's the revenue total for the business in 2021?
2021 we're peaking about nine, about 900,000 this year. Last year, this is our second.
Year, one was 300 and this year is nine.
Awesome. And then you're expecting what in 2022 you're about to say.
I'm shooting over a million. Cool, cool.
All right. So what's your role in the daily operations? Do you do basically everything besides the estimates?
My role in the daily operation now is to customer service, production, fuel production, running the jobs. I've kind of put the load on him a little bit more jobs, you sell more, you have to run these jobs. And so trunk pushing towards a project manager slash estimator.
So this is my concern with giving an estimator a percent, a percent of the jobs they close.
And that is they have perverse incentive to basically sell the job under budgeted and they're less inclined to worry about the profit. And this is a bigger deal if you start paying your employees based upon performance because they're going to be paid based upon how many budget hours are on the project. And then I'm also concerned because if they're getting a percentage of say 15 of a job, then they're very inclined to go sell a big job and potentially a job that we shouldn't be doing. Go ahead.
That's what I mean.
He's making eight to ten grand a month. I mean these jobs that we're getting in aren't ten thousand. I mean they're not fifteen hundred. They're twenty, thirty, forty thousand dollar projects that he's making five, six grand every two weeks on. Yeah, which I love it. I mean it's great because I think he makes basically how I do it is he puts in the estimate, he does the markups and I overlook it and he'll we'll mark up 15 just for his cut before we even get into the actual Profit, Martin, all of that. So, you know, I've, I've worked through the, the punches of that part. What you're talking about is, you know, getting into our company part of it. But, and he wants it that way. I mean, he wants it the commission way. And you know, if he sells, I mean, it's kind of like, kind of like being an owner of a company.
But.
Yeah, I'm just trying to figure out.
A lot of times I see a big struggle is that your size, you're growing so quickly. And a lot of it's because that's what you're incentivizing. Whatever you incentivize will grow and be do better, right? If you're incentivizing growth and you incentivize, hey, you get a percentage of sales, they're going to do well in that. If you, if you incentivize them, hey, it's based on close ratio. Guess what? They're going to sell more jobs. If you do it based on how many estimates are finished in a day, they're going to get more estimates done in a day. So whatever you incentivize is going to do really well. So that's why, you know, year one you did 300,000. Awesome. Year cheated 900,000. Next year you're doing over a million. That's awesome. The thing is that you're going to run up against is projects that you don't really want, projects that your crew can't really install. Jobs are under bid. Him wanting bigger equipment because he knows if he can get an excavator, that or whatever piece of equipment, he can charge more, which he gets a cut of, but that doesn't necessarily mean more profit for the business. So what I'm afraid of is growth to unprofitability because of perverse incentives. Right. And so I would, if, if I was you, and this is me, I would have a really honest conversation around these things. Like, hey, you do an amazing job. I don't want our relationship to end badly because I'm incentivizing you something that could potentially actually hurt the business down the road. Especially if you're wanting to switch to P4P. Do you do any sort of pay performance for the guys in the field right now or are they just strictly hourly?
They're strictly hourly. So everybody knows what I mean. I basically pay. I mean, this is how I've done it to make sure. I mean, I, I pretty much everybody's salary because of the, you know, I know what I'm gonna get. Each day. They know what they're going to get each day. Because I've done the hourly and so hit me in the ass. I've done. I mean I've been very, I follow you a lot. I've even reached out to you about Augusta Lawn Care franchise with you. And by the way, I have seen your trucks in plano, Texas and McKinney. So you're out there. Your name is out in Texas, my friend.
Yeah. So like, you know, if salary is what you're going to stay on again, this is the challenge is they're going to get paid a certain amount. No matter how long a job gets take, the employee does not care. Officially the job is being done. They're just there for their salary. Then you have on the other side an estimate who creates how many hours are allocated to that job that does not care that that number is high enough. So typically, let's say for example, you were paying your employees P4P. It would be okay to have your estimator based upon the way you're doing it because there'd be a perfect tension because your employees would always be nagging your estimator for more hours. So that tension creates a balance. Right now you have your employees basically wanting to. They don't really care how many hours are on the job. And then your, your estimator is just wanting as that number to be as low as possible so he can close the deal. Cause he would rather close a deal at an $8,000 job and him get 15% than close it at 10,000. But that, that $2,000 difference is your profit. But he still makes his cut. Right. So my concern is that your incentive structure is in a way that as you grow you'll keep paying more money out but not necessarily bringing more money to the bottom line.
And that's exactly that we treated a few days ago. So yeah, I appreciate the feedback and I am interested in the ppp.
Yeah, I want to send you a signed copy. So I know it's not really that great a gift, but I want to send you one in person. I'm going to write inside of it. So if you could just email me justin landscape businesscours gmail.com I want to send this to you and then please stay in touch because that's. You're a stage in the business that's actually pretty delicate if you where you're at because you do really have incentive structure going two different directions. And I don't want you to grow too, too much more without fixing some of those, to be honest.
No, I understand. I mean, that's what. So it's landscape business course at Gmail.
Yep. And I'll get this over to you because it'll talk about why we do that with the estimators at work certain way. How. How we do the profit sharing. And then it might change your mind on P4P. And then you can sell it to your employees as a way like, hey guys, you guys can make more than salary if you do it this way. So just send me that email and I'll get that over to you.
Hey man, thanks for taking the time out for us guys out here, man. We love your show.
