Why $/Hour is a Failing Formula! THE SECRET to Better Business, More Profits, Higher Wages!

Hi, my name is Mike Andes and today I'm going to share with you how you can solve the labor shortage for your small business. If you've owned a service based business in the past 12 months, you have come under extreme pressure from the labor shortage. And I don't think today that this video is going to get a lot of views or a lot of popularity or win any contests. But in my opinion, it could save your business and it could help improve the situation you're currently going through. I'm going to lay out a detailed plan of, of what you can do to make sure you can actually compete in the labor market right now. When you're competing now against McDonald's and Burger King and Taco Bell that are paying just as much as you, when it comes to your lawn care, your landscaping, your fencing, your roofing, your construction, your cleaning, any home service business is going to be infected. And in my opinion, the way the future is what I'm going to be talking about today. Now, this labor shortage has come about as a lot of different reasons. After the pandemic, with everything that came from the government in terms of unemployment benefits, it made it very appealing for low wage earners to stay at home because if they were making under $15 per hour, it made a lot of sense for them to stay at home and do nothing from a purely dollars and cent standpoint. As it begins to wear off though, and now the economy comes roaring back, we have a massive demand for more labors in the travel industry and in the restaurant industry. All, all these industries that are now booming are competing with us for labor because of that. Now the price of that labor is going through the roof. Cause as demand goes up and supply stays restricted, that is available workers, the price, the cost of that labor goes through the roof. So now we're competing with McDonald's in terms of dollars per hour. It's crazy. And by the way, they're offering a free iPhone when you become employed there. Kind of tough to compete with that. So today I'm talking about what I feel is the way of the future and what you can do in your small business. It's not going to be fun, but it's going to be the thing that helps you run your business and in my opinion will be the standard in the next five to 10 years. I've taken things from a lot of different angles, a lot of different people to come up with something I call P4P. That stands for pay for performance. At the end of the day, instead of paying someone for Time, I guess it'd be P for T, pay for time or pay for hours. I want to pay someone based upon their performance at the end of the day. If you wanted to sum up all of P4P in one sentence, it would be simply that the employee gets a percentage of the labor revenue that they earn for the business every single day. That's the entire system, really, in one sentence. Let me give you a couple more details about how that's actually going to work. So at the end of the day, we are going to give them a percentage of labor revenue. Not of cost of materials or any sort of fees you charge for estimates or debris or any other tacked on material. Markup is not a part of the labor revenue. So we're gonna give them that percentage. Now, at the end of the day, you're gonna have some people that are getting trained or maybe just a little bit slower, et cetera. We're gonna make sure they make at least what we call base pay. Now this base pay is an artificial floor that we create that does not allow them to make less than a certain amount of money to per hour. So they still clock in, they're still getting at least an hourly rate as a base pay. And typically our base pay is going to be about 50% more than minimum wage. So it's not minimum wage. And I would not recommend doing minimum wage because in my opinion, most places right now, minimum wage will not pay for anything. As the cost of living goes up. It's going to be very difficult to have an employee that wants the security of a paycheck if you're paying them only minimum wage. So we have that floor, what we call base pay, which is traditionally about 30 to 50% above the minimum wage in a given state. Now, on top of that base pay, someone can obviously earn more than that base pay because they're getting a percentage of labor revenue and they're really efficient and they're producing a lot of revenue and their performance is high and they're not stopping at gas stations on their phone all day long, goofing off and they get more work done and they're going to be able to produce more revenue. And therefore they're going to make more money than base pay. Anything above base pay is considered performance dollars. Now that is considered a bonus on their paycheck. And they get that bonus unless there's certain things that go against them. And this can come in the form of callbacks and damage cases. And this is where the quality aspect of P4P comes into play. Because at the end of the day, P4P rewards speed and efficiency and that's all fine and good, but if your employees start going crazy and they start running around and they're breaking things and there's callbacks, the customers complaining and they're making skid marks with a mower and they're crashing into the fence, that's gonna eventually erode the bottom line. And more importantly, you're gonna be out of business very quickly. So you need the balance to quantity, which is P4P speed. You need to have the quality. And that balance is in the fact that if they go to a job and they make a damage case, that damage case is going to be resolved at the expense of their performance dollars. Anything above base pay, now that's the bonus. We will never ever touch base pay. It's illegal in most states to ever go into someone's base pay. But the bonus is something that we can based upon the fact that is discretionary and based upon certain rules. There is not that hourly wage that that we guarantee for base pay. So again, this is the perfect balance between quantity, speed, get as much done and quality. So many people don't enforce or create a system like this cause they're worried their employees are gonna just go roughshod and run through things and make a bunch of money, but come at the expense of long term damage to the clients. But this is the balance that you have to have using the ability to tap into their performance dollars if they make damages or if there's callbacks, what we call yellow slips and the customer complains. Now I'm gonna outline why this is better for the business and why it's better for the employee. Because when I posted this on TikTok several months ago, of course people make their judgments based upon a 60 second video, which is incredible. And some people will make a judgment on me and my business on this 15 or 20 minute video and think that I'm a horrible person. All the rest of it. Let me explain why this is better for the business and better for the employee. So why is it better for the business? First and foremost, there is less waste and that obviously equates to more profit. The reason there's less waste is because now the employee is not getting paid any extra money to be lazy, Sitting around the truck, doing nothing, drinking coffee for 45 minutes while they're just getting their truck ready in the morning, gabbing with the customer for hours on end. There's no more revenue being produced and, and therefore there is no More revenue going into their pocket. And they're gonna start thinking for themselves to make sure that they're most efficient. To make sure that they gas up at the beginning of the day, that they don't gas up five times and they don't stop at five different gas stations for lunch, breakfast, snack one, snack two, bathroom break, four, six, and eight. Like they're not on their phone throughout the whole day and wasting time on the clock. They're thinking about how can I most efficiently get the job done? Because at the end of the day, if there's any eight budgeted hours and I can get done in six hours and the customer's happy, I'm gonna make just as much money as if it would have taken eight or ten. It doesn't matter how long the job takes now. Cause they're getting a percentage of the labor revenue. So better for the business. Why? Less waste, therefore more profit. The best thing about it for the business standpoint is the fact that you don't have to micromanage your employees anymore. I remember before P4P, I would always be questioning if someone was on their phone. If I roll up on a job, and I didn't think they were working as hard should or the job seemed like it was going slow. The first thing that pops in your mind is maybe they're just being lazy. But on P4P, they control their own destiny. If they just want to hit base pay all the time, yes, they could be lazy and just roll around and not be efficient. But if they're above base pay, you know, and they want to take a break, that's fine. There's no take a little bit easier, they take it slower or they want to waste some time, that's fine. I don't really care. Because they're above base pay and it's up to them. If they want to make more money or less money, it's really up to them. They control their own destiny. And I don't have to be tracking their truck and looking over their shoulder on what they're doing on their phone. And always concerned and worried and micromanaging them. I'll get to why it's better for an employee in a second. But by the way, employees don't like you micromanaging them either and looking over their shoulder and always double checking on them. They want to feel like they own their job and they get the work done without you looking over their shoulder all the time. But let's go back to the business. Why is it better for the business? It's also better for the business because now instead of you always getting after your employees, guys, let's make sure we're not taking any crazy breaks. Let's make sure we only stop at the gas station a couple times a day doing all these weird things and trying to micromanage. Really what you're trying to do is you're trying to police a human. You're trying to police the behavior. What you want to do is have a system, police the behavior. In this case, P4P is the system and the other employees are going to keep each other accountable. Because if you're working with someone and you're working towards a job on a big project, for example, if they're being lazy, if they're wasting time on the job and being inefficient, it's actually going to affect your paycheck because you're splitting evenly the labor revenue on that job. So it really self polices all the employees together. Because people are not going to want to work with someone who is wasting time on the clock being inefficient, taking too many breaks on their phone all the time because it's going to affect their paycheck. So now they're gonna police the behavior themselves instead of you as the boss, always having to be the one that's watching, looking and micromanaging them. Last thing, why is it better for the business is it actually improves quality. Because now you can take money out of someone's bonus if they are making excessive damages, if they are making dumb mistakes all the time and they're not being considerate in terms of qual when it comes to going fast. So it actually raises the quality standard for the type of service you do for your customer. Now why is it better for the employee? And this is the part that I get the most blowback on because everyone says that this is only done to line the pockets of the boss to make more money for the business and that the employee doesn't win. Let me explain why this is better for the employee. There's intangible benefits in addition to the fact that they make more money. Now they're only going to make more money if they are a high performer. But in that case, if they're a high performer, they deserve more money. One of the things that frustrates employees the most is the fact that most of our pay scales at our service based businesses are based upon things that have nothing to do with performance. They have to do with things like how long you've been at the business that has nothing to do with how efficient or profitable an employee is. You could have an employee show up on the day, on day one to a job and if they're running, if they're skilled, if they just have a great work ethic, they're going home and watch YouTube videos to make sure they're doing the work the most efficiently. If they're constantly trying to shave a minute off here and learn and train themselves, they could very well be making more profit for the business than someone that's been at the business for five or 10 years and just sapping the clock, always on their phone, doesn't care about any sort of efficiency, profitability or the customer and is just been there for a long time and all of a sudden that person's making more money than the person who just got started, that's hungry, wants to work, wants to provide for their family and is willing to work hard. If you look at the real numbers behind most service based businesses that are paying by the hour to their employees, there are employees that are making two to three times more profit for the business in comparison to other employees because they're more efficient. They make sure they don't make damages, they have high quality, care about the customers, and that, that one employee that potentially is making twice as much profit compared to the second employee very well might be making two or three more dollars per hour. Like in my opinion, that's not fair. The person that's making more profit for the business is entitled to and should make more money. So it's very, very good to incentivize and remove that ceiling of pay for high performers. And that's exactly what you're going to get with P4P. You're only going to attract high performers. Why? Because low performers don't stick around because they hit base pay all the time. People who are lazy do not want to embedded themselves, just show up to punch the clock and punch out at the end of the day and they're just happy to make base pay. And we have that now. We have some people that are just happy to make base pay. Eventually they're going to get weeded out though, because other people who want to get ahead in life, want to make more money, will not want to work with them. Also in your local community, with other competitors, other people that are in your industry, you're now gonna get a reputation for being able to pay high performers more money. Cause now you're gonna be able to give those people more money on a quote unquote per hour basis because they're Earning more money for the business at a rate which you couldn't technically afford if you were paying them by the hour. But you can afford it when you're giving them a percentage of labor revenue, and they're very, very efficient. All right. Another reason my opinion, why it's better for the employees using P4P over hourly is the pure meritocracy. Going back to what I said before, it's not based upon tenor, how long someone's been with the business. It's not dependent on who knows the boss. And this is the one I hate the most who basically needs the money the most. A lot of times we just need to keep our employees. So we're like, hey, if you need more money, I'll give you a little extra here. I'll give you a little bonus here. I'll give you a little extra here. Oh, you're having a family event happening and you need more money. Money. I'll give you some money here. In my opinion, that's not fair to the employees. P4P is a pure meritocracy, which means it's based upon your merit and your performance. Instead of all these random things like how long you've been at the business, if you know, if you're personally related to the boss, those are things that, in my opinion, demise come to the demise of the culture of the business because not based upon you who actually works hard and who actually makes money for the business. Another intangible reason, the most important, in my opinion, why P4P is actually better for the employees is because it gives the employees an owner's mindset. Now, they may never own a business, they may never want to own a business, but the education and learning that comes as a result of knowing the numbers and knowing how much revenue you produced in a day and the impact of your work ethic on that amount of money, like, if they work really hard one day and they beat budgeted hours and they are ahead of schedule and they figure out a more efficient way of doing something on the project, they're gonna make significantly more money than the day when they might make a mistake, make a damage case, have a callback because of poor performance, or they take extra breaks and they're very inefficient. These are things that are gonna reduce their pay. They're gonna start to see that. They're gonna start to see what makes them work faster, what makes them more efficient. And at the end of the day, those are the skills, and that's the mindset that's gonna Set them up for their next job, for the next career. Whether it be a position in your company to make more money on P4P. Cause they'll get more skilled, they'll figure out what's working well, how they can become more profitable, how they can get more jobs done in a day. They'll figure that stuff out, they'll make more money internally. But potentially they might go get another job at another company as almost like a manager. Cause now they start to think in terms of efficiencies. They're looking for weight, they're looking for where can we reduce the inefficient processes of the business. How can I make sure I get weed whacker line in my pocket instead of walking a quarter mile back to the truck when I run out of line at the end of a long strip of grass? These are the little tiny things that add up over the course of a day. Many, many times. How many times they look at their phone, how many Snapchats do they make in a day? These are all things that if they started to polish and they start to see their work ethic can be improved and it's gonna set them up for their next stage of their career, whether it be financially, internally, inside your business, or if they go get another job somewhere else, it's gonna be better for them. At the end of the day, the last thing that is great about P4P when it comes to for the employee is the fact that it's going to weed out the low performers and it's gonna keep the culture strong. It's gonna be a culture of working hard, a place where people are looked up to when they work hard, they get stuff done and they're willing to put their head and they're gonna be looking down on the people that are lazy, that don't want to work for the team, that are not team oriented, do not care about the customer. Those type of employees will be flushed out from the culture and you'll have a much stronger team. So I've outlined what P4P is, why it's so important. And I've outlined why it's better for the business and for the employee. And in my opinion, this is not an easy change. To switch from an hourly to we are paying people by the hour to a P4Pmodel is not easy. But change is hard. Change is necessary though. Yes, it's difficult. Yes, it's not easy to switch the mentality of employees. And yes, we lose usually about 20% of our workforce when we switch from hourly to P4P because some people, they can't wrap their mind around it. But for the people who stay, they're the ones that can make more money, be more efficient, and more than anything, change their mindset about their day, their time management and being more profitable. And that will serve them more in the future than any dollars could ever serve them on a paycheck. Now, P4P cannot be done if everything is not tracked in software. If you're making estimates up on the fly, if you're doing work change orders, but never keeping track record and a paper trail in a software of that work change order. It's very difficult, very difficult to implement P4P if you're just charging by the hour to the customer. In other words, hey, Mr. Jones, we will do this job for you for $50 an hour. Very difficult to implement P4P because there is no incentive for the employee to work faster. There's no incentive for them to work out efficiencies and cut out waste because they're just getting basically a percentage of the hourly rate, which is by the hour, they're incentivized to work longer. The worst thing I hate about hourly wages is the fact that the longer it takes the employee to do the job, the more money they make. Whereas when you're paying someone by the hour, as an employer, as a boss, you make less money the longer the job takes. So you're going in different directions. The employee wants the job to take as long as possible because that's how they make the most money. And the employer wants to get the job done as soon as possible, as fast as possible. And you have this constant butting of heads. The goal with P4P is to get everyone aligned in thinking about one thing. How can we get jobs done more efficiently? How can we cut out waste? In my mind, waste is anything, any dollar bill that goes into anyone's pockets besides the employees and the business. If the money's not going in those two places, that's waste. Walking to and from a truck, taking your time, going to five different gas stations, taking an inefficient route. All, all of that is waste. And with P4P, the employees begin to cut those things out. Now you also can't do P4P if you don't have cultural buy in and acceptance from your team. And this is something we talk about@landscapebusinesscourse.com, how to roll P4P out. You gotta get buy in from your team and you've gotta be willing and accept the fact that some people might leave if they don't fit with the new culture of performance and efficiency and being on the ball, serving the customer in the most efficient manner. Now, some people say, well, how has this worked? How has it been effective? This is all I can say for any company that I know that has fully implemented P4P. And when I say fully implemented, I mean every single employee is on P4P and they're using this full system that I've talked about today. Not a single company that I've ever guided through on P4P has ever gone back to hourly. Now, I have seen a couple failed implementations where they don't roll it out correctly. They haven't ran the numbers, and they haven't made sure that people are gonna be able to make above base pay. These are the things that you would have to DO before implementing P4P. Knowing what your hourly rate is to the customer, making sure that you run the numbers in the background, making sure that it's possible, it's even humanly possible to get above base pay is important. Cause until they get above base pay, you will have no impact on the employees, their future, their paycheck, or their efficiency level in the field until they hit above base pay. And sometimes that might take a month or two months before they, after starting with you and working before they're even efficient enough to get above base pay. But I promise you one thing. When we have employees after one or two paychecks of getting above base pay, usually after one or two months of working with us, that's when the light bulb really turns on. That's when you really see the gears start to turn. They start to make sense of all the numbers and actually start to care about the numbers. And they start to see how P4P actually works and where more and more wastes can be cut out and more efficiency can be built into their day, is when they get above base pay. I am constantly rooting for our team to make far more money, as much money above base pay as possible. I want them to make more money, not just because I want to see more money in their paycheck, because I know that it means we're cutting out waste. And that means that more money is going in the pocket of the business and the employee. This is by no means an easy change. It's not an overnight change. And for most businesses, it takes six to 12 months from the time they think about it to the time they actually implement it. But I'm very bullish on this, and I Think over the next five to 10 years, it's going to be a necessity to stay alive in this labor market. It's going to go only harder and more and more difficult and more and more expensive. There's certain things we cannot make a robot do, and we're going to need humans to be able to do it. And humans are. They're temporal. Like, hey, they get sick, they have bad days, they have feelings. But how can we create a system that incentivizes them, gives them more opportunity, and make sure we remove the ceilings in our business that is preventing us from paying our employees more, which in my opinion, is a massive driver to getting frontline employees that they are the people that make the money for the business, not the executive, not the people in the ivory tower. The people on the front lines deserve the money that they earn every single day through their hard work. I'm Mike Andes. Landscapebusinesscourse.com outlines a lot more about this, how to implement it and the software to actually calculate this on a daily basis. But I hope this pointed you in the right direction and got you started going away from hourly and towards a P for P model. I wish you all the best. I'm Mike Gandies, landscapebusinesscourse.com See you next time.