Minimum Wage Increases: Is it Doom & Gloom or a Proactive Fire Starter?


What Minimum Wage Increases Actually Mean for Your Small Business

Fact: Without profit, specifically Net Profit vs Gross Profit, businesses do not exist. Hell, without more revenues than operating expenses, even non-profits won’t exist. It’s only our Federal and Provincial governments can continue to operate in the red year after year and stay in business… but I digress 😉

As the Government increases the minimum wage, business owners, particularly small business owners, are finding themselves up against more and more challenges that come with this increase.

If your business relies on minimum wage labour to provide products or services, before you even consider laying off staff, you still have many proactive, non-punitive choices you can implement and execute.

So, what should businesses be focusing on?

So, what should businesses be focusing on to be proactive with the minimum wage increase before cutting staff?

First, look at your margins

Why do this first? Because it costs almost zero money to look at and tweak your margins. Where to start looking:

Look for ways to manage and/or reduce existing expenses. Some business owners do this task once a year – others, a few times a year. I suggest you do it at the end of every month. For every percentage point saved in expenses, that same percentage point adds to your bottom line – your Net Profit.

  • Look at every expense line item, one by one – what, if anything, can be trimmed? Nothing should be sacred, review everything.
  • Rent is often one of the biggest line items and often only second to wages – can you renegotiate rent/lease with your landlord? Yes, this can be a tough one, landlords have to make money too, but it’s still worth asking.

Look for ways to manage and/or reduce existing Cost of Goods (labour & materials).

  • Adjust hours. Labour, as a percentage of revenue, has a cap. If you don’t know what your cap is, find out. Regardless, adjust accordingly.
  • Ask vendors about volume discounts. Adjust your spending in a way that both you and your vendor benefit from,
  • Ask vendors about discounts if you pay invoices sooner, etc.
  • Avoid cash gaps – ie: situations where you pay your vendors before your customer pays you. Where possible, look for ways to pay vendor invoices
  • later – ie: Net 30 – which gives you 30 days to receive the product and sell it before 30 days is up.

Reduce existing staff inefficiencies and create an environment that empowers your staff to achieve improved results from less effort. Examples:

  • Implement systems or new software,
  • Review staff training procedures – work alongside your staff an mentor them,
  • Hold team contests vs individual contests,
  • Build a team vision, mission, and core set of values together, etc.
  • Reward the behaviours you want to see repeated more than recognizing the behaviours you don’t want to see repeated.

The important thing is the let your staff in on the challenges you’re facing with the increase in minimum wages as well as the opportunities. Let them be involved in understanding the impact and the opportunities available (besides keeping their job).

Next, increase sales

While COGS will go up by a similar percentage as your increase in sales, expenses as a percentage of sales will drop, therein lies your increased profits. Think about – your rent is a fixed cost and thus when sales go up, fixed costs – like rent, phones, accounting fees, etc. – decrease as a percentage of revenue.

Increase sales with existing recurring customers first.

Why first? Becuase it’s a lot easier to earn more revenue from an existing customer who already knows, likes and trusts you.

Some people feel that trying to increase sales with an existing customer is being pushy. It’s not being pushy. In fact, the customer appreciates the ask more than you realize – it suggests you’re listening to their pains and finding solutions. You are a more than an order taker, you are a solution provider.

Increase your average dollar sale. If your average transaction is $100, create offers to increase the sale, while adding VALUE. A “Do you want fries with that?” type of relationship. Examples:

  • Add-on sales, “Do you want a muffin with your coffee?” or “Do you want a nan bread with your soup?” You get the idea.
  • Buy-two-get-one-free,
  • Make suggestions, “People who buy X often buy Y,” etc.

Increase the number of times your existing customer buys from you.

  • Influence more purchases from the same customer within a measured period of time. If they buy three coffees a week, what can you do to earn their patronage to buy one more… or two more? They’re buying coffee from someone, it may as well be you.
  • If you customer buys 2-3 times a year (ie: a Garden Centre), think of what can you do to influence an extra one or two additional purchases a year.
    Increase NEW customer sales.

It’s unlikely that existing customers alone will generate enough new revenue. So, you have to earn (hunt for) new customers.

“But I don’t like sales. I’m not a salesperson.” or some other self-limiting belief.

Point blank, if you struggle to convert prospective customers into new customers, then you risk going hungry. Much like animals that live in the wild, if you struggle to hunt, or worse, can’t hunt at all, you’ll go hungry and likely starve.

If this is you, get over it fast or face grave consequences. The pain you feel in “selling” will never be as painful as the misery you’ll feel when starving.

The pain you feel in “selling” will never be as painful as the misery you’ll feel when starving. – #vFowler

If you need help improving your sales skills, there are a number of low-cost solutions like books and YouTube videos. If you want to invest some money into improving your sales skills, let me know and I can make some relevant introductions.

Raise prices

“But I can’t. If I raise prices customers won’t buy from me.” Another self-limiting belief.

The fact is, we (the consumer) will happily pay 10-30% more for the same product somewhere else when the service is better. In fact, where service is measurably better, customers rarely notice the price difference.

Obviously, service levels have to be significantly higher. but here’s the key point, most of the time, increasing service levels (i.e.: your give a sh*t factor) is almost always a zero-cost effort.

Third, don’t ignore marketing

Marketing is critical. While there are free and low-cost strategies you can deploy, you cannot undervalue proven (paid) marketing strategies.

Do your homework! Figure out the cost of the strategy. Ideally, the profit from the first sale will pay for the strategy. If that’s not the case, determine how many sales it will take in collective profit to pay for the strategy over a defined period of time.

“That which is measured improves. That which is measured and reported improves exponentially.” – Pearson’s Law

Pay attention to Karl Pearson’s Law – “That which is measured improves. That which is measured and reported improves exponentially.” There is some debate whether Pearson said that or Peter Drucker. Don’t get distracted, it’s not relevant who said. What is relevant is that it’s true and your business needs that kind of focus.

Fourth, tough choices are part of business

Tough choices might mean a lot of things including letting a staff member(s) go.

For some business owners, reducing staff hours or letting quality staff go will be necessary. The reality is, wages as a percentage of revenue can only be so much, thus staying on top of your numbers and executing the previous strategies can greatly mitigate the pains that come from letting go of staff.

Note that I have not met a single business owner who takes pleasure in letting go of great staff – or even “good” staff for that matter. It’s often the last thing they want to do.

In fact, most business owners I’ve spoken with who have let go of staff say they feel a lot of emotional pain, loss of appetite, loss of sleep, etc. It’s just part of the business.

On the other hand, staff who are low-in-character (e.g. theft, manipulation, toxic attitude, etc), firing them is no different from cutting out cancer. Do it and do it fast.

Some final words

Reality check – the Government will do the what Government will do. They always have and they always will. You have very little control over their decisions and behaviour and decisions. Focus on what you can control, not what you can’t.

It’s your business. YOU are the one responsible to make it viable, sustainable and profitable. You. No one else.

You are surrounded by solutions – all you have to do is pick a few and execute. Thus, you are not the Government’s victim. You are a victor… act like one.

I say all of this with gratitude and optimism, “Together, we can make today better than yesterday.”

This is not an exhaustive list of ideas. More could be done – what would you do?

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