Most owners try to control what they pay their team. That is the wrong target. The number that actually grows a business is how much you can pay people, and pushing that number up is the goal.

Performance pay is the system that lets you push that number up. It only works with real math behind it. Inconsistent good intentions collapse under real numbers. This is the framework we use with the home service businesses we work with, and it holds regardless of trade.

How to Calculate Expected Revenue for a Technician Role

Before you touch commission structure or base pay, you need one number: what does this role produce in revenue, on average, over a real stretch of time. This is a role-level number, calculated for the position itself rather than negotiated with a specific individual. If you have data from a current or former technician in the role, use it as your baseline.

Twelve months of data is ideal. Three months is workable if that is what you have. If this is a brand new role with no history behind it, take your own revenue as the owner and knock 30-50 percent off it (depending how good you are). A new hire in year one will fall short of your own performance as the owner, since it is your business and their job. Pricing the role as if that gap were zero sets an unrealistic bar from day one.

This expected revenue number feeds into your labor cost target, and that combination is what actually defines break-even.

How to Set a Labor Cost Target and Find Your Break-Even Point

Once you have expected revenue for the role, you need a labor cost target: the percentage of that revenue that goes back to the person generating it, counting base pay and commission together.

We recommend treating 20 percent as the floor you are building toward for most trades. Think of it as a target to grow into rather than a ceiling to protect. If you push labor cost lower than that to fund other parts of the business, you are taking money directly out of your employees' pockets, and the long-term cost of that shows up in turnover, well after this quarter's numbers look fine.

Break-even, in this framework, is the point where base plus commission together equal that target percentage of expected revenue.

This target has to translate into a standing procedure. A raise that happens because an owner felt generous is inconsistent by definition. A raise that happens because a technician hit a defined goal is repeatable, and repeatable is what makes it a system. Consistency and equal application is what makes the plan trustworthy to the people working under it, and it is what makes it defensible when someone falls short of the number.

How to Set a Technician Base Pay Rate

Base pay is the first of two levers that get you to break-even, and it is the long-tail one. It is evaluated every 3,6, or 12 months depending on how aggressive you want to be with raises, and once it changes it applies going forward. A base raise is permanent giving the technician a standing figure to count on rather than something revisited weekly.

Base has to sit low enough, relative to your labor cost target, that there is real room left over for commission to do its job. If the base eats almost all of the target on its own, you have built a pay plan with no lever in it. You have renamed a salary and called it performance pay.

Most owners are already paying hourly, so this framework usually keeps existing base pay where it already sits. What you are deciding, going forward, is what the base needs to be relative to the target so commission has somewhere to live. That sometimes means the plan you are rolling out looks different from what an existing employee is used to, and that is a real conversation to have directly rather than something to soften by shrinking the commission instead.

Why Labor Cost Percentage Falls as Technician Revenue Grows

Here is the part most owners get backwards. They expect labor cost percentage to climb as a technician performs better. It does the opposite, and that is exactly why the system works.

Base is a fixed dollar amount. As a technician's revenue grows, base divided by revenue keeps shrinking. If commission is a flat percentage of revenue, it contributes the same percentage no matter how much revenue grows. A shrinking number added to a flat one only ever falls as revenue grows. Here is that math, shown out, using a labeled hypothetical: a base of $40,000 a year and a flat 8 percent commission rate.

Revenue of $200,000: commission is $16,000, total pay is $56,000, labor cost is 28.0 percent.

Revenue of $400,000: commission is $32,000, total pay is $72,000, labor cost is 18.0 percent.

Revenue of $600,000: commission is $48,000, total pay is $88,000, labor cost is 14.7 percent.

That fall is a good thing. It is margin the business is capturing as the technician gets more productive. Left alone, though, it means your best performer is producing more while their share of what they produce keeps shrinking, and that is the retention risk this entire framework exists to prevent.

Reaching break-even, and staying there as production grows, means actively pushing that percentage back up on purpose. That is the job of the two levers below.

Base Pay Raises vs Revenue Tiers: Which Lever to Use

You have two tools for pushing labor cost percentage back toward target once production growth has pulled it down. They run on different timeframes, and you can use either one or both, depending on what you are trying to reward.

A base raise is the long-tail lever described above. It rewards sustained performance and drives retention, because the technician now has a permanently higher floor going forward.

A revenue tier is the short-cycle lever. It runs on a much shorter window, weekly, biweekly, or monthly, and resets every cycle instead of compounding into a permanent raise. It rewards the revenue growth itself, in the cycle it happens, by paying a higher commission rate on that cycle's production.

Revenue tiers work in bands, where each band of revenue within the cycle gets its own rate rather than one higher rate applied to everything a technician earns once they cross a threshold. Only the revenue that falls inside a given band gets paid at that band's rate. Revenue already earned earlier in the cycle stays at its original rate. This works the same way a tax bracket does. Crossing into a new bracket leaves the rate on the income you already earned in the lower one unchanged.

Technician Pay Structure Example With Real Numbers

The numbers below are illustrative only, built to show the mechanic. Your actual base, rates, and thresholds are specific to your business, and there is no single structure that fits every shop.

The short-cycle lever, a monthly revenue tier.

Base is $50,000 a year, or $4,166.67 a month. Standard commission on the first $40,000 of monthly revenue is 3 percent. Revenue from $40,000 to $50,000 in that month is paid at 6 percent. Revenue from $50,000 to $60,000 in that month is paid at 12 percent. Each band applies only to the revenue that falls inside it.

At $40,000 in monthly revenue, before any tier is hit: commission is $40,000 times 3 percent, or $1,200. Total monthly pay is $4,166.67 plus $1,200, or $5,366.67. Labor cost is $5,366.67 divided by $40,000, or 13.4 percent.

At $60,000 in monthly revenue, with both tiers hit: commission is $1,200 on the first band, plus $10,000 times 6 percent, or $600, on the second band, plus $10,000 times 12 percent, or $1,200, on the third band. Total commission is $3,000. Total monthly pay is $4,166.67 plus $3,000, or $7,166.67. Labor cost is $7,166.67 divided by $60,000, or 11.9 percent.

Worth noting: in this specific example, labor cost still falls as revenue climbs from $40,000 to $60,000, even with the tiers in place. The tiers slow that fall and put more money in the technician's pocket along the way. Without them, at a flat 3 percent, the same $60,000 month would produce $5,966.67 in total pay and a labor cost of 9.9 percent. The tiers add two full points back. Whether a given tier structure closes the rest of the gap to your target depends on how aggressive you set the bands, and that is something to tune against your own numbers rather than copy from this example directly.

The long-tail lever, an annual base raise. Say this technician holds $60,000 a month steady all year, for $720,000 in annual revenue, and $36,000 in annual commission under the structure above. Total annual pay is $50,000 plus $36,000, or $86,000. Annual labor cost is $86,000 divided by $720,000, or 11.9 percent.

Per your SOP, crossing $700,000 in trailing annual revenue triggers a base raise for the following year, from $50,000 to $65,000. In year two, at the same $720,000 in revenue and the same $36,000 in commission, total annual pay is $65,000 plus $36,000, or $101,000. Annual labor cost is $101,000 divided by $720,000, or 14.0 percent.

Neither lever alone closes the full gap back to a 20 percent target in this specific example. That is the point of having both. Revenue tiers reward the growth as it happens, cycle by cycle. Base raises reward the technician for sustaining that growth long enough to earn a permanently higher floor. Used together, they are what keep pulling labor cost back up toward target as a technician gets better at the job.

What to Do When a Technician Misses Their Numbers

If you have done this math correctly, meaning your expected revenue number is real, your labor cost target is realistic, and your base and commission structure leaves genuine room to earn, then a technician falling short of their numbers is almost never a pay problem.

At that point look at coaching, look at how the work is being marketed and sold to the customer, look at how closes are actually happening in the field. And be honest that sometimes the fit is wrong.

Someone who has no interest in improving, who carries an expectation that no math will satisfy, is a different conversation entirely, and no commission structure fixes that.

Why Paying Technicians More Increases Retention

The point of this entire framework is figuring out how much you can pay someone while the business gets stronger at the same time. Figuring out how little you can get away with paying them is the wrong question, and it is the one most owners default to. Once a technician is earning meaningfully more than they could anywhere else in the industry, retention stops being something you have to manage. It becomes a byproduct of the system you built.

This is the math performance pay is built on, and it works the same way whether you run an HVAC shop, a plumbing company, or any other home service business paying people for the work they generate.

If you want help running these numbers against your own business, book a call with our team and we will walk through your expected revenue, labor cost target, and break-even point together.

FAQs About Paying Technicians

What is a labor cost target?

It's the percentage of a technician's revenue that goes back to them as pay, counting base plus commission together. The article recommends treating 20 percent as the floor to build toward for most trades, not a ceiling to protect.

How do you calculate expected revenue for a technician role?

Use 12 months of the role's actual production data if you have it, or 3 months if that's all you have. For a brand new role with no history, take your own revenue as the owner and cut it by 30-50 percent, since a new hire's first year will fall short of the owner's own performance in the business.

What counts as break-even in this framework?

Break-even is the point where base pay plus commission together equal your labor cost target as a percentage of expected revenue.

Why does labor cost percentage fall as a technician's revenue grows?

Base is a fixed dollar amount, so base divided by revenue shrinks as revenue climbs. Commission, if it's a flat percentage, contributes the same share regardless of revenue. A shrinking number added to a flat one falls overall, meaning your best performers can end up with a shrinking share of what they produce unless you actively correct it.

What's the difference between a base raise and a revenue tier?

A base raise is the long-tail lever. It's reviewed every 3, 6, or 12 months and becomes a permanent floor once granted. A revenue tier is the short-cycle lever. It runs weekly, biweekly, or monthly, resets each cycle, and pays a higher commission rate only on the revenue earned within that band, similar to how a tax bracket works.

Do revenue tiers apply to all of a technician's revenue once they hit a threshold?

No. Each band applies only to the revenue that falls inside it. Revenue already earned earlier in the cycle stays at its original rate, the same way crossing into a higher tax bracket doesn't change the rate on income already earned in the lower one.

What should you do when a technician misses their numbers?

If the expected revenue figure, labor cost target, and pay structure are all sound, a missed number is usually not a pay problem. Look at coaching, marketing, and how closes are handled in the field first. If someone shows no interest in improving, that's a fit issue no commission structure will fix.

Why does paying technicians more improve retention?

Once a technician earns meaningfully more than they could elsewhere in the industry, retention stops being something you have to actively manage. The framework is built around figuring out how much you can pay someone while the business also gets stronger, rather than how little you can get away with paying them.

How to Pay Technicians More Than Anyone Else in Your Market