The effect of compounding pay increases can have a significant impact on your cashflow if it is not offset with regular price increases, productivity improvements or restructuring.
10 staff at an average of $40k per person at an average annual increase of 3% can result in a 38% increase in wage costs over this period and if this isn’t countered can cause both angst and stress for the average business owner. In a market of increased competition or diminishing returns, it is even more important to keep control of this compound effect.
This is tough when you want to reward staff for extra effort or if you find your business losing custom or facing increased price pressure due to competition. Knowing what to do about this factor, knowing how to monitor your staff costs and at the same time retaining margin can be the difference to surviving the tough times. I often hear of companies that will retain staff when the market slows for the cycle to return, this was fine in a high unemployment market but may not fit in today’s economy.
When was the last time you reviewed your wage collar as a percentage of sales? Maybe worth a look…
This was a yet another quality “Ranyard’s Ramblings” – writing location: Morning tea at home, one not so lazy Saturday.