Smarter staffing required for restaurants, retail and franchises

Last fall, Colorado voters approved a new minimum wage law that took effect this year. In addition to a significant increase in base hourly pay in 2017, minimum wage increases will continue each January through 2020. 

The new law brings many changes for Colorado businesses. Forced to take the requirements into account when managing the company P&L or scheduling staff, a business’ overall operation is significantly impacted. And with each new year, businesses will need to readjust to accommodate the additional increase in wage. Unfortunately, there are several common mistakes business owners make when attempting to offset increased labor costs.

The first and most obvious pitfall is assuming the increased cost can simply be passed on directly to customers, and therefore the overall operations and management of the business doesn't have to change. This strategy often proves to be a fool’s errand, because the business is assuming customers will accept the price increase rather than visit the competition, a very risky assumption.

Businesses, specifically restaurants, often fail as a result of this strategy, according to a study published by the Harvard Business School. It appears only highly regarded businesses with above-average customer service can increase prices without losing customers; essentially customers are willing to pay a premium out of loyalty. However, in cases when customer satisfaction is only average, it seems patrons aren’t willing to pay a higher price, often driving an establishment out of business. Similar scenarios have arisen in everything from car dealers to computers, and with extraordinary pressure on retail sales – thus, it doesn’t behoove most businesses to raise prices.

Another labor-cost savings strategy might be to offset minimum wage increases. For instance, an oil change shop might cut its work force from five mechanics to three. Some businesses can benefit from this strategy, but only if willing to train and support employees with tools to tackle an increased workload. Otherwise this solution can result in long customer wait times, reduced satisfaction and an ultimate decline in overall business success.

This can be especially damaging if there’s an unexpected rush. After all, how many of us have walked away from an errand — such as an oil change — because there was too long of a wait or the staff was simply too overwhelmed to help you?

Alternatively, many businesses may look toward automation, such as self-service checkout stands or touch-screen ordering to save on labor costs. There are many benefits to automation, but risks as well, such as malfunctions, and of course, the owner needs the capital outlay to make a large initial investment in automation. And for many businesses, such as a salon or an upscale retail boutique in Cherry Creek, automation isn’t compatible with the personal experience customers seek.

Another potential pitfall of the minimum wage changes is the complexity of the staffing models. Under the law, tipped workers such as servers have one wage, while another wage applies to a standard earner, such as a dishwasher. Managers must calculate their staffing costs according to different wage structures for different workers, generating a headache-inducing amount of work that also leaves a lot of room for human error.

Instead of potentially damaging price hikes, reduced customer service, or expensive automation, businesses must get smarter in how they manage their labor costs. Labor is like any other business expense: as the cost increases, so does the need to proactively manage it, minimize waste and use it most efficiently.

So does this mean every small business owner must become a master of minimum wage laws in each state, and spend dozens of hours each month just trying to mathematically predict the perfect balance of profitability and adequate staff to meet customer needs? Of course not, because technology can do it for them.

While large corporations have long taken advantage of complex HR and scheduling systems to staff their operations, many small business owners have either been priced out or assume the systems are too complicated for their needs. But with cloud-based software, which is cheap and ubiquitous, and usable from practically every laptop or mobile device, even the smallest of businesses can follow the same model as large corporations to get highly accurate, specialized, up-to-minute business forecasting, labor and staffing tools, inventory needs, and even dashboards that show exactly many customers to expect that day.

By incorporating these small technological advances into their businesses, managers can find the smallest of efficiencies that can offset the negative margin hits that increased wages bring.

Thriving small businesses are essential to Colorado because they create jobs, provide important services, promote innovation and entrepreneurship, and contribute to the vibrancy to our communities. Although minimum wage laws can adversely affect small businesses, new technology solutions are available to help them.