Costs for small businesses are through the roof. The employees are feeling it, too. You need to find a way to protect your profit margins while giving your staff more money before they talk to your competition about better pay.
Choosing a job isn’t all about pay. Workplace culture is important, too. So is an alignment of employee and corporate vision. And workers require an opportunity for professional advancement. However, those benefits won’t matter if wages are not high enough to pay employees’ bills.
On a recent weekend, I visited downtown Great Barrington to enjoy al fresco dining on the promenade. However, one of my favorite restaurants could not seat us outside because there weren’t enough workers to serve those tables. They also didn’t have the cooks required to prepare dessert.
The next day, Tractor Supply Company in the same town was closed with a sign on the door saying, “Closed: Lack of Help.” If you believe the approximately 200 comments on the Great Barrington Community Board’s Facebook page, “if the cost of living was manageable, people could work for minimum wage and survive.” And, “it’s not that people are not willing to work; it’s that they aren’t willing to work for a non-livable wage.”
What was a “livable” wage in 2021 is not the same in 2022. Inflation is up 8.6 percent year-over-year. Higher prices cost the average American household $460.20 more per month for the same basket of goods bought a year ago, or $5,522.40 annually.
At the same time, nearly every small business owner (92 percent) reports that inflation has increased the cost of running their company. More than four-out-of-five (81 percent) say their costs have increased by more than 20 percent. Nonetheless, it’s time for you to pay your employees more. Great Barrington is in Berkshire County. The county has a median household income of $61,166. Even if top earners are making double that, an inflation “tax” of $5,522.40 is hurting employees enough for them to consider leaving your company for a higher-paying job.
Many small businesses are raising prices less than their cost increases, shrinking their profit margins. Let’s explore how to find the necessary cash flow to pay employees a competitive wage that will retains them.
You may be reluctant to charge your customers more. More than one-third (35 percent) of business owners say it is a bad time to raise prices because they fear losing customers. Those concerns are validated as 37 percent of small business owners say that customers have complained about inflated prices at their companies.
But it can be done. Large companies have successfully raised prices and passed on the costs to consumers. The profit margins of the companies which comprise the S&P 500 index have increased from 12 to 13 percent.
You don’t have to raise prices in a vacuum; you can raise prices and do things that set you apart from other companies. Plato stated that necessity is the mother of invention. He was right. He’s still right! Companies need to modify their business model so their competitive advantage is not price but value and customer experience.
Carol, the owner of a clothing store in Saratoga Springs, New York, raised her prices. She promotes her products by offering a taste of mint julep for shoppers. Those who make a purchase receive a pair of pewter tumblers that could be taken to a local restaurant for a complimentary mint julep fill-up. Carol also encourages shoppers to pose for photos for the store’s Instagram page. Shoppers have fun walking the mini catwalk, looking their best, and enjoying a coy “oh, if you have to take my picture, go ahead,” moment. Carol’s shoppers can then share the fashionable photos with their own followers. The shoppers are buying clothes they can get cheaper elsewhere, because they are paying for the experience.
The other side of price control is cost management. Owners need to be more sophisticated in determining when to accept a price hike from a supplier. Business owners are taking it on the chin by accepting new price increases without question or negotiation.
Forty percent of businesses are combating rising costs by reducing their marketing budget, which is a standard first move in cutting costs during tough times. It’s an easy idea if you need the cash flow. However, suppose you prefer to invest in offense instead of playing defense. In that case, you could shift your marketing to target less price-conscious consumers.
Roughly half of companies plan to reduce inventory. Some hold only the most popular items and integrate online ordering as part of the in-store shopping experience. Depending on the industry, others have converted to primarily customized products that demand little on-shelf inventory and command a premium price.
Forty-four percent of companies have purchased business expense tracking software, such as Expensify, BizXpense Tracker, or Certify, to be more sophisticated about their cost elimination. (Berkshire Money Management uses QuickBooks.) Barney, an accountant in Salisbury, Connecticut, discovered that he was paying for six software as a service (SaaS) licenses when he only needed two, saving his company $34,000 annually. Joy, a Great Barrington retailer, used Truebill to identify underutilized subscriptions that were valuable to her previously, but her company had outgrown them. That change netted her $900 per month of savings.
Many large companies are reversing work from home (WFH) policies in favor of an office-first environment. However, some small companies could maintain COVID-19 pandemic-era WFH policies as a cost savings strategy. With more employees working remotely, companies can move to a cheaper workspace. Many workers prefer the WFH option, creating a win-win situation.
It’s always a good time to invest in your employees. Giving them more money, whether in the form of a bonus or a raise, may feel like a painful expense when your costs have increased. It would be wise also to consider the pain employees are feeling. Some businesses will need to step up and do the hard corporate things to do the right things for their employees. Otherwise, your next expense might be the Help Wanted ads.