Mark Twain once said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Those wise words apply wherever incorrect ideas have become widely accepted. One example is the conventional wisdom that cutting hourly labor costs to the minimum is essential for profitability in a franchise. However, that perspective misses a crucial point . . .
Higher wages can lead to greater profitability through improved retention, increased operational efficiency, and greater customer satisfaction.
Redefining Higher Wages as an Investment
Yes, higher wages increase labor costs. Yet that narrow view overlooks the immense financial benefits of paying people more. Higher wages attract and retain more skilled employees and reduce the hidden costs of high turnover, including recruiting and training new employees. From this perspective, paying people more is not a financial burden, it is a strategic investment.
Let’s consider those benefits in more depth.
The Hidden Savings of Having a More Experienced Staff
Seasoned, long-term employees bring a level of efficiency and expertise that is hard to quantify, but easy to observe. Their deep understanding of the business and ability to solve problems reduces the need for oversight. That efficiency saves costs and builds a more stable and reliable operation.
Enhanced Customer Satisfaction Grows Your Business Faster
You might have to pay experienced employees more, but they provide superior customer service. And satisfied customers are the lifeblood of any franchise. It’s another reason higher wages contribute to your growth and profitability.
Costco: A Model of Efficiency and Profitability
Costco’s approach to employee wages is a prime example of this strategy in action. By offering higher wages than its competitors do, Costco has built a loyal and efficient workforce and seen higher profitability and productivity. This demonstrates that higher wages, when strategically managed, can lead to a more profitable and sustainable business model, debunking the myth that higher wages necessarily result in higher overall costs and lower profitability.
Addressing Resistance to Paying More in the Franchising Industry
The franchising industry’s traditional emphasis on minimizing labor costs is understandable, but outdated. As the business landscape evolves, so must our strategies. The belief that higher wages automatically lead to reduced profits is a misconception that needs rethinking. By understanding the broader implications of higher wages, franchises can see them not as a cost but as an investment in their business’s future success.
Also Invest in Great Training
Higher wages are undoubtedly one key to improving employee retention and reducing turnover; training is another. Members of the younger generations especially desire training; they want to work in a place where they are learning and growing. And training repays you with other benefits, including higher rates of customer satisfaction.
When you have very high employee turnover, it becomes more difficult to implement effective training. It is easier to invest in training when employees stay longer, and that improved training will reduce your employee turnover rate even more.
Training is not an expense, it is an investment in your franchise. The winning combination is to pay a livable and competitive wage and invest in training your team.
In summary . . .
It’s time for the franchising industry to challenge its long-held beliefs about labor costs. Higher wages can lead to better employee retention, greater operational efficiency, enhanced customer satisfaction, and ultimately, significant cost savings and business growth. By reevaluating our beliefs about wages, we can unlock new profitability in the ever-evolving world of franchising.
About Evan Hackel
As author, speaker and entrepreneur, Evan Hackel has been instrumental in launching more than 20 businesses and has managed a portfolio of brands with systemwide sales of more than $5 billion. He is the creator of Ingaged Leadership, is author of the book Ingaging Leadership Meets the Younger Generation and is a thought leader in the fields of leadership and success.
Evan is the CEO of Ingage Consulting, Delta Payment Systems, and an advisor to Tortal Training. Reach Evan at ehackel@ingage.net, 781-820-7609 or visit www.evanhackelspeaks.com