Wages and Profits

Written by CMG News Contributor, Doug Carleton

Shortages and delays and on and on: semiconductors, chicken wings, needles for blood tests, toys, shoes, truck drivers, and much more. And one major shortage, in particular, stands out –labor, especially at the normally lower end of pay scales and at many larger companies in a wide variety of industries. Restaurants, for example, normally one of the lowest-paying jobs, are having to raise wages dramatically across the board and are still having difficulties finding workers (who will stay). Many former restaurant workers are not going back because of low pay, long hours, and poor treatment. Also, in many other lower-paying industries, people are not going back to work in those industries but instead looking at new careers. In the distribution and logistics industries, two of the giants, Walmart and Amazon, are looking to hire more than 60,000 workers. Walmart’s average wage for supply-chain workers is now over $20 an hour; warehouse workers over $15 – unheard of since before the pandemic. Amazon’s starting pay for warehouse workers was over $17 an hour, up nearly 14% from the same period in 2020.

Facts like these coupled with the continuing labor shortages lead to a couple of conclusions: wages will probably continue to rise into the intermediate future, and short-term profits will decline as wage costs rise faster than prices can keep up. This puts an even greater emphasis on your pricing strategy because every day, you make that $1 sale (KISS), but your wage cost has gone up $.02 without a commensurate increase in the price to cover it; it is a hit to your bottom line. Looking ahead to growth and expansion for your company as the pandemic continues to ease, you might be facing a need for financing. But if you have had profits decline in the recent past, when you go to face the music (the lender), you might consider adopting one of the major tenets of the Securities Act of 1933, which was “full and fair disclosure.” Bankers know that many industries have experienced lower profits because of the pandemic. But if when presenting your case, it’s something like, “We took a big hit because … but here’s what we’re doing about it, and it’s already starting to pay off. We expect to return to our previous profitability (in other words, you can be comfortable that we will be able to pay your loan back) by … and we need this loan to accomplish it.”

What is your labor situation now? Is it a tight labor market? Have you already had to raise wages, and if so, do you expect them to stay there? Do you have a plan? To maintain profitability, will you have to cut costs somewhere else? Raise prices? Some combination of both? It’s a tough time to be a small business owner. A SCORE mentor may be able to help.

SCORE is a national all-volunteer organization that, in conjunction with the US Small Business Administration (SBA), offers no-cost confidential mentoring and advice to startups and small business owners provided by experienced business executives and business owners.