The way out of wage cost problems

If you're feeling the crunch of rising wage costs here may lie the answer.


The same debate comes up time and time again. Someone in a training course makes the assertion that they don’t have the time to recruit or train their staff properly, and the company won’t allocate them any more money. My response is always the same: ‘Why should they? If you owned your own business and you didn’t have enough money or labour hours to do what you needed to do what would you do? Borrow more money from the bank?’

It’s like throwing hand grenades. The resulting heated discussion invariably leads to the need to generate the money internally to pay for the ordinary operating requirements of the business. After full and frank discussion, we then end-up back at the subject of internal selling skills. Then I always focus them with the same question: ‘How much money do you think is walking out your exit doors, intact in wallets and purses, which would have been left there if someone had made the right noises?’

I’m a case in point. I have a bit of a passion for good wines, properly matured. I don’t think I’ve ever been to a restaurant or hotel with a budget. Credit cards do that to you, it’s like carrying $20,000 around with you in your pocket. Every now and then, probably every 50 visits or so, some enterprising waiter spots the passion and sells me a $200 bottle of red. The other 50 assume that because they wouldn’t spend $200 on a bottle of wine, neither would I.

Don’t get me wrong. I certainly wouldn’t spend this kind of money every visit — I’m not that rich, but I would almost certainly do it more often if good deals were presented to me. It’s all a matter of perspective — your perception of expense is directly related to your income. If you earned $100 per week a $200 bottle of wine is an unconscionable extravagance, but if you earn $1 million dollars a year a $200 bottle of wine is no more than petty cash (I wish).

So the perception of expense differs radically according to who you are dealing with and what they earn, but that $200 bottle of wine always means the same thing to your business — assuming a 120% markup it represents about four more labour hours you can now afford without altering your labour percentage. You could do a fair bit of training in four hours. Imagine if you sold six premium bottles a week, or ten, or thirty, or fifty? How much labour could you afford then?

Most of the business managers who send people to our training spend between 1–5% of their income on marketing and promoting their businesses, with the intention of attracting more customers. Everyone wants more customers. A customer per se is not all that interesting to me. It’s what they spend that makes them interesting. The more each of your customers spend the easier your business is to run.

Getting people to come to you is only half of the problem. Once there, you have to take advantage of the situation, and here is where I find that hospitality businesses commonly fall down very badly. Marketing expenditure will lead to new customers or an increase in repeat trade, but it must be followed-up with sales and merchandising skills or the increased trade will probably yield very little profit.

This is the issue of the decade for the Australian hospitality industry because labour costs are rising much faster than selling prices, and the result is that everybody is struggling to maintain wage percentages at a reasonable level. If you put up your selling prices you price yourself out of the market, so the only way to go is to increase your customer average spend.

The only other option you’ve got is to sustain a decline in standards. Here we’re back to the arguments in training courses about being able to afford to recruit and train properly. Let us consider the problem from the other perspective for a moment: What will happen to your business if you don’t recruit and train your staff to a competitive standard?

In the short term you will have to spend increasing amounts of marketing money to replace the customers you lose because you are seen as poor value for money. In turn, this will decrease your profit even further to the point where you may have no choice but to join the other 15,000 people who are desperately trying to sell a non performing hospitality business.

So, the skills of sales and merchandising that were merely interesting ten years ago, and only practised by the fast food industry and the most professional mainstream hospitality operators, are now becoming the saviour of those under financial siege. Take careful note, and have a good, long look at your last quarter’s P&L. If your profit is shrinking and you can’t put your prices up, your future is predictable unless you change something.

I guess the crux of solving the whole problem is adopting an optimistic rather than a pessimistic attitude. Don’t get bogged in cost cutting, it’s a very limited process with the potential to damage your business. Grow your revenue by applying better sales skills; and most importantly, the next time a supervisor or manager says they haven’t got the time to recruit and train properly, ask them how they are going to generate the money.

Oh, and it doesn’t have to be a premium wine. A bowl of soup or any other high margin add-on will do the trick, you just have to sell more of them.


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