What do higher wages have to do with Martin Luther King, Jr.?
Martin Luther King, Jr., the Civil Rights leader our nation remembers officially on January 19 with a holiday and day of service was a gifted orator and a man who set high moral standards for both this country and the world. And yet even today, so many years after his death, we are still a good distance from realizing the vision of America he set forth. In some parts of the country, there is still strong resistance to the concepts he advanced, such as peace, faith, respect, and facing the future together as one nation based on freedom and equality.
But this column is not about changing society per se. The media will be full of scholarly and opinionated commentary about our nation’s struggle with its societal issues. In this post, which is focused on small and medium-sized businesses, we look at one of Dr. King’s better-known themes — poverty — and ask a very commercial question: How can we apply Dr. King’s high standards to our businesses when it’s so difficult to manage the cost of doing so? How can a small business afford higher wages?
Low and Minimum Wages
In the nation, but particularly the Northwest, the minimum wage is a burning issue. While most business owners don’t want their staff to be poor, many are worried that higher wages could injure their existing businesses. And this is a real challenge — because rising payroll costs must be accompanied by an increase in revenue. A knee-jerk reaction to cutting costs is no more than a temporary measure because, as we all know, you can’t save your way to profitability.
So for a moment — just for the space of this blog post — let’s release the fear of higher wages and simply start with Dr. King’s view of poverty, which frames the issue fairly clearly:
The curse of poverty has no justification in our age. It is socially as cruel and blind as the practice of cannibalism at the dawn of civilization… The time has come for us to civilize ourselves by the total, direct and immediate abolition of poverty.
You may know that while there are regional variations, the poverty line in the Northwest hovers at about $1,950 per month — yes, it costs almost $2,000 per month to be poor in America, because living here has become very expensive. But again, don’t let this number scare you, at least for the five minutes you spend reading this post.
Although small and medium-sized businesses didn’t invent and don’t wish to promote poverty, they do provide the best solution to it. Why? Because small businesses employ most Americans, and create most of the jobs in America, particularly at the low end of the pay scale. For a low- or minimum-wage person, often their only asset is their job. That makes them entirely dependent on the businesses that employ them. This means, in turn, that as business owners — whether one wants it to be true or not — we have a bigger responsibility for our employees’ circumstances than we might first assume because whatever we do has a large and immediate effect on their welfare. It may be startling to realize that small businesses have more power to end poverty than the federal government. In fact, popular themes such as “reducing the size of government,” or “reducing welfare programs,” or simply “get a job” only work when small businesses pick up the slack.
If we can find solutions within our small- and medium-sized companies to lift one or two people out of poverty, then we not only save those lives, but also we create new consumers who put those higher wages into circulation in the economy. The more active consumers we create, the better the economy does, and the better a small business will do. Four out of ten small business owners said they would voluntarily raise wages in 2015 with a coordinated hike in prices. Since then, higher wages have been mandated by the Seattle’s city government and are being phased in over the next several years.
A full-time employee making $10 per hour earns $20,800 per year. After rent, taxes, and food, there’s usually nothing left over. Often debt is taken on to handle emergencies, such as car repairs or medical expenses that are necessary to keep a job. If you have a valued employee at this range that you’d like to keep, it would cost about $3 more per hour to put them in a more stable financial position, i.e., not desperate, not having to work a second or third job to survive. This would cost a business about $6,240 per year, and that business would have to increase revenue by about $120/week to equalize it.
How can a small business owner pay for those higher wages?
We can’t all just raise prices, can we? In honor of Dr. King, we’ve compiled a list of ideas that might inspire you to find a way to make higher wages work in your business, as well as help your business thrive. If we can figure out, collectively, how to raise wages now, then when the $15/hour minimum wage deadline arrives, we’ll already be there, and profitable to boot. So let’s start now.
10 Wage-Raising Ideas for Small and Medium Businesses
1) Increase what your business offers for sale. Expand the product lines you already sell or bring new product lines into your company. Train employees in deep knowledge of these products, and make sure your entire staff knows that “In our business, everybody sells.” When employees see the direct relationship between selling more products to existing customers and earning higher wages, and they know enough about your products and services to be unafraid of selling, then your business can profit dramatically. For some businesses, this straightforward strategy can be the easiest path to earning more, and thus paying more. There are added benefits for your business when “everybody sells” and everybody earns: increased market share, lower turnover, and a more stable bottom line.
2) Expand into new markets. Take inspiration from recycle/reuse/repurpose enthusiasts and brainstorm new uses or customers for your product line. Involve employees in this and help them understand that if the business can use this tactic to improve its earnings, their wages will rise. For instance, if you supply specialty products to businesses, adapt one or more of them for the consumer market; or if you sell to schools, expand your marketing activities to similar uses at hospitals and retirement centers as well. Bicycle parts can become artistic clocks and coffee tables sold in your store, on your website, and on consignment in designer furniture stores; baby bedding manufacturing can be adjusted to create pet bedding under a new brand feeding into a second distribution system to draw profits from an entirely new sector, all without significant retooling. A caterer can expand to supply lunch entrees to office-building delis, or baked desserts to food trucks. How can your employees help you adapt your business to new markets so you can earn more, and then pay more?
3) Outsource a little. This may be counter-intuitive, but minor bits of outsourcing can help you preserve jobs and pay higher wages to your core staff. Use this tactic when the product of that outsourced work is used to contribute to a new revenue stream or to relieve staff overload. In the examples above, the bicycle company and baby bedding manufacturer could outsource product design work on a one-time, contract basis, allowing the existing staff to focus on manufacturing and selling. With an attractive, on-trend design from an outsourced professional designer, the end product will be more appealing and easier for everyone to sell at a higher profit, and the business wouldn’t have to carry the expense of a full-time designer. Alternately, if your assistant manager is overloaded with ten monthly tasks, outsourcing one or two of them (e.g., some of the marketing or bookkeeping) allows them to on face-to-face interaction (selling) with customers for perhaps five more hours each week, which can have a direct impact on the bottom line.
4) Repackage. Create a deluxe or advanced model of your most popular product or service so that your customers have a way to upgrade. For instance, you might offer a color or size option, or add accessories, or apply the customer’s logo, or offer a free warranty, with certain higher-priced models. Alternately, you might bundle a popular product with others less popular products and price the bundle at an attractive level to sell more overall items, particularly in slow months. Excellent customer service is the key to deluxe or bundled sales, so make sure your staff is completely familiar with the new (repackaged) products.
5) Use commissions or bonuses as a bridge to higher wages. If your employees have a way to influence the number of purchases each customer makes, or to bring new customers into the business, or to increase the amount a customer spends when they stop by or call, then you might offer financial incentives for those increased sales. How? By adding a healthy commission on top of the employee’s existing wage. The added compensation is funded by the additional sales each employee creates, which means a business owner pays a higher wage only when earnings go up. It’s imperative in such a system that the incentive is attractive enough to get serious action from employees, and that no one is in a position to earn less than their regular salary, only more. In a group selling situation, the added earnings might kick in once the entire store has reached its minimum threshold of sales for the month, or the earned bonus might be shared, meaning everyone in the store would earn the same extra amount at the end of the month if they all pull together. The point is, higher wages can be tied to specific performance that pays for the increased cost.
6) Offset a portion of wage hikes by reducing financing costs. This is fairly obvious but if your business can reduce the expense of borrowed money or financed vehicles or equipment, then it should. Be creative. For example, if you are using a credit card to finance a seasonal float, you could be paying 13%-26% interest on the funds you borrow; meanwhile, your favorite Aunt Emily is earning a paltry 2% on her private investments. If Aunt Emily were to finance some or all of your seasonal float, you could cut your interest expenses by thousands while she triples or quadruples her earnings rate — a win-win situation. Or, if your company leases delivery vans or other vehicles, consider moving to smaller or used models when each lease expires, or reducing the number of vehicle leases by using rentals for occasional heavy periods. Your insurance will decrease accordingly. These tactics reduce your cash-flow enough to give your best low-wage employee a significant monthly increase — an investment that could become far more valuable than any one vehicle.
7) Automate a little. If some of your employees are doing clerical or manual work when they could be making sales, find some automated or mechanical system or tool that makes the non-selling part of their work go faster. Every minute you keep an employee in sales mode is an opportunity for your business to profit; but too often we’re tempted to pile on the projects instead of focus on an employee’s face-time with customers. Look at this short video to see how the DC Cupcake sisters gained more time to grow their business, simply by finding the right point-of-sale system.
8) Take a broad view of benefits. If you still can’t see your way to higher wages, use creative benefits to reduce the stress of poverty where you can. Why? Because employees at the low end of the pay scale spend considerable time and energy figuring out how to make money on the side because they can’t make ends meet on one low salary. This means they’re often tired, and not laser-focused on your business because they’re constantly juggling financial worries. Relieve some of this pressure if you can. For example:
- Offer some or all of your staff a ten-hour, four-day work week. This saves them 20% of their weekly commuting costs and gives them one extra day per week to earn money elsewhere — a very big deal. If your business has slower and busier days of the week, four-day staffing allows you to keep minimal staff on the slowest days and maximum staff on the busiest days, which means more sales for you.
- Re-evaluate your business hours. If your entire staff doesn’t actually need to be present from 8:00-5:00 — perhaps 6:00-3:00 or 3:00-12:00 could also work for some positions — then make those alternate hours available. A huge problem for low-income people is managing their time and resources. If your business can operate outside of 8-5, then good employees will stay with you longer because of the hours you allow them to work.
- Acknowledge the cost of basic needs, even if you can’t pay enough to cover them. For example, you might provide occasional bonuses in the form of a Safeway or Chevron gift card. If you’re in the food or restaurant business, you might give employees quality meals to take home. If you’re a dentist, you might give your staff’s families free dental care on two Saturdays a year. Or, if you’re an auto repair business, you might trade the dentist some of your services in exchange for services for your employees. Stay focused on necessities like food, transportation, and health care when you exchange services.
9) Use your employees’ interests to grow your business. Community promotional activity can draw new customers to your business in support of higher wages. So, work with your employees to find out what kind of activity they would like to help you support. A dry cleaners’ staff might suggest a bi-annual clothing drive for the poor (“donate clothes even with stains — we’ll fix them”). This drive trains potential customers to find and visit your store and reminds them that you can fix stained clothes, a big promotional victory. An employee who is a parent might be aware of how schools or sports leagues could benefit from your products or services. A personable employee might be a perfect representative of your business at the local chamber of commerce, which is ideal for any B2B business. All of these employee-driven promotional activities can raise your company’s income and can be used to support higher wages, which in turn will reinforce even more promotional activity by employees.
10) Share a staff person. Do you need a part-time bookkeeper/office assistant/inside salesperson? You’re not alone. Find out if a neighboring business has a similar need. Together you’ll have enough budget to offer higher wages to a full-time employee, ensuring a higher-quality bookkeeper/office assistant/salesperson than if you each settled for a part-time person.
Try one or two of these ten tactics to make higher wages a normal part of your business rather than a frightening prospect. Then feel the satisfaction of solving one of the world’s most difficult problems, in a way that has real meaning to your staff. Higher wages don’t have to come out of your existing profits if your business is pro-active and earns more to cover the difference.