Scary Math Part II - Nine Ways to Offset Higher Minimum Wages
By Anthony Analetto
Not too long ago (Auto Laundry News, September 2016), I wrote about the impact a $15 minimum wage could have on the car washing industry and how inaction could significantly impact revenue growth. In the past few years, 29 states and the District of Columbia have raised the minimum wage above the federal rate currently set at $7.25 per hour.
I’ve read numerous articles about how increases in the minimum wage are supposed to be good for the economy. Higher wages supposedly encourage spending and spur greater business activity and job growth in the long run.
Still, I’m receiving a steady flow of e-mails and calls from car wash operators concerned about how minimum wage increases could affect their bottom lines.
Although the general health of the economy is currently good, there are still concerns about how to sustain revenue growth in states and cities facing steep wage increases.
In some states, the wage increases are periodic events based on market conditions and labor demand whereas in others, increases are staged over the next several years. Regardless of how they are rolled out, the real cost of labor in terms of salary, taxes, and benefits — combined with inflation — will force many of us in the industry to re-evaluate our operational practices in order to adjust.
The last time I wrote about this topic, I did a deep dive of sorts into the math behind the actual burdened cost of labor. Instead of rehashing that, I would like to focus on operational efficiencies and methodologies that may help you offset wage increases, while hopefully boosting your bottom line and profitability.
Start Work Week on Thursday
One way to take the bite out of paying higher wages is to reduce employees’ hours. The upside is that the business can immediately recapture additional labor costs attributable to higher wages and reduce overtime hours at the same time.
Car washes are much busier as the week progresses toward Saturday. Shifting your workweek to start during peak times allows you to pay staff at regular rates when busy and effectively reduce overtime.
Improve Labor Efficiency
Avoid the temptation to hire the lowest hanging fruit. Invest the time and money necessary to recruit, train, and retain the best talent in your market. Make the best use of that talent by cross training employees so that fewer employees are capable of performing more diverse tasks on the lot.
A high turnover rate could make the business less appealing to your customers, which is why owners need to keep their fingers on the pulse of the business more than ever. Hiring and training new employees due to high turnover is expensive. Avoid this practice and you will save money in the long term.
Check Trends in Unemployment
Even if minimum wages are higher than average in your local market or you operate in a state adopting federal minimum wage standards, a slight wage increase may not hurt your bottom line as much as you think if local unemployment rates are high.
The reason for this is that you will have more candidates vying for available openings and no incentive to pay employees any higher than what the local market will bear. Fewer available jobs means the candidate pool will typically be large and more willing to accept the starting rates you offer.
Increase Average Ticket
Increase your value proposition by making sure customers know exactly “why” they are paying for a higher-ticket wash. Use high-quality foams, and install high tech lights and signage to support your value offering.
Likewise, the customer service skills of your employees can drive customers away or keep them coming back for more. Make sure these individuals are properly trained to greet and process customers through the wash in an exceptional manner so customers see obvious value.
Improve Customer Retention
Leverage unlimited wash clubs and towel exchange programs to keep customers coming back. Stay on top of social media sites to maintain and improve your brand image.
The value of membership and gift card programs can’t be understated. Use them to your advantage. Always keep in mind why customers pick a brand or bring repeat business — because the experience makes them feel good.
Review Your Existing Business Model
Do you know exactly how much money it costs just to keep the doors open at your wash? Or how many cars you have to process daily to make a profit? If you see red when you crunch the numbers, you should reevaluate your business plans and look for gaps and or inefficiencies.
For example, if you operate a full-serve wash, you might want to consider adding an express lane with a state-of-the-art touchscreen pay station as an added revenue stream.
Do you use labor to towel dry cars? If you do, consider investing in a more effective drying system and a buffing machine to replace those employees.
Keep Waste to a Minimum
Although you can’t skirt hourly wage increases associated with legally enforceable minimum wage hikes, you can offset wage increases by operating a leaner, more productive, and efficient business.
By making your car wash more cost-efficient, you offset the financial impact of higher labor expenses. Are you processing vehicles hourly to your highest capacity without risking the quality of your wash? Are you tracking non-labor, variable expenses like electric, water, and soap?
Calculate the savings of replacing older motors on some equipment with newer, more efficient products on the market. Likewise, check nozzles and valves for leakage that can lead to excessive soap consumption and water waste.
Any first-year economics student will tell you that a price hike can lead to lower demand. Raising the price of goods or services, however, is sometimes the best response to increased labor costs but only as a last resort after all other avenues of efficiency are exhausted.
Still, some car washes raise prices across the board on all menu packages. I prefer to roll them out more gently to avoid alienating regular base-wash customers who occasionally splurge on the top package.
In practice, I may raise the price of the basic wash by $1 but offer an early bird or other daily special that allows those customers to keep the lower price — but only at times when volume is lowest so as not to stifle the potential to earn during peak hours.
Reduce Staff on Payroll
No small business owner wants to lay off employees. But if the business relies heavily on non-exempt (overtime eligible) workers, a significant bump in the minimum wage can leave owners with no choice but to reduce the number of employees on payroll.
This may be the time where it makes financial sense to invest in automation to replace or reduce labor. Doing this could result in a significant investment in technology upfront, but cutting back on manpower can be an effective way to improve business value in the face of rising labor costs, provided reduced staffing doesn’t jeopardize operations or safety. As with raising prices, reducing staff should be considered a “last resort” option.
View paying higher wages as an input-output dynamic. How do you produce more income despite having to pay higher wages?
Look at your procedural efficiencies. Make sure to “plug any leaks in the dam.” Look at ticket prices. Look at your marketing efforts. Remain diligent concerning micro and macro demographics in each area or region you operate in because they may affect how much you need to pay in wages depending on market pressures.
Be prepared to tweak operations and offerings at your car wash to ensure maximum revenue is being realized from each location. Don’t be afraid to raise prices if it makes good business sense. Lastly, if you are going to pay higher wages, make sure to vet the best workers to justify the salary.
Good luck and good washing.
Anthony Analetto has over 35 years’ experience in the car wash business and is a partner at SONNY’S The Car Wash Factory. Before coming to SONNY’S, Anthony was the director of operations for a 74-location national car wash chain. Anthony can be reached at (800) 327-8723 x 104 or at AAnaletto@SonnysDirect.com.