How to Manage Business When Minimum Wages Rise

How do you manage the pay for your business?

Increases in minimum wage levels can be a challenge for businesses. They mean higher labor costs if you employ minimum wage workers, which can mean lower profits. Even higher skilled and better-paid workers may feel they deserve more to stay above “unskilled” rates. Many union contracts require a guaranteed pay above state or federal minimum wage. A higher minimum wage pay can also drive up costs as suppliers manage labor expenses.

There is no single way to deal with an increase in the minimum wage, but there are principles and strategies that may help.

Analyze the real impact

Before taking any action, analyze the percentage of overall expenses that labor represents and then consider how much a specific increase will affect the business. If, for example, labor is 30% of costs and a minimum wage increase will push labor up by 10%, then you face a 3% total increase in costs. Knowing the actual amount helps you design proportional action.

Delight your customers

One survey by the Harvard Business School NOM Unit shows that minimum wage increases raised the chance restaurants would go out of business, but only if the restaurant had indifferent ratings by consumers. Although restricted to the food industry in California, it may suggest that when customers love your business, they will more likely continue to come to you, even if they cut back their overall spending.

Reexamine staffing

Staffing, like anything, can become a habit. Ask whether you still have the right staffing levels. Too much can drive up costs unnecessarily. Too little may discourage buyers. Maybe use of temporary or even contract workers could help reduce overall costs. A higher caliber of worker may be able to do more and ultimately save money.

Consider adding self-service

You’ve likely seen shelf-checkout in grocery and big box stores. That’s an example of customer self-service. The concept may be applicable to other areas of your business. For example, a strong website with enough useful information might offload customer questions. Or e-commerce could help handle simple purchases, freeing employees to do more valuable work.

Test pricing changes

Many business owners are understandably skittish about raising prices. There is the chance that you could drive business away. But staying with a set of prices out of fear can be poor business. Try testing prices of various items. Look at products or services where there is less competition. Maybe you can raise prices at certain times, like a restaurant charging more for breakfast on a weekend than a weekday. Or look at ways to improve cross-selling and add-on sales, so instead of increasing individual prices, you get a higher average order size.

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