Q: I have always tried to keep my overhead low, figuring it is the best way to remain profitable. I pay my people minimum wage, buy at discount warehouses, and so forth. I sell a fairly high end product. Would you agree with this path, generally speaking?
Anzo
A: Generally speaking, even specifically speaking, the answer is: No.
Now, of course keeping an eye on your overhead is important, but it has to be done in relation to the rest of your business and your brand. Paying the least possible for products and people only makes sense when you are a discount shop.
I was recently in California and went to eat at one of my favorite old haunts – In-N-Out Burger. I like the place for several reasons: The food is always very tasty, fresh, the place is impeccably clean, the staff is sincerely friendly, and (pet peeve alert!) they never get my order wrong.
That last point is seemingly a simple thing, but it is indicative of a much bigger thing. When I order a burger sans mayo, for example, far too many places get it wrong. I’m used to that. But at In-N-Out, they always get it right. Always.
How could that be, I wondered?
When I was there last week, I discovered how. They were looking for employees. The first thing that caught my eye was that employees at this west coast burger joint (locations in California, Arizona, and Nevada) start out at $9 an hour!
With the federal minimum wage still stuck at a disgustingly paltry $5.15 an hour (the same since 1997), employees at In-N-Out Burger make almost double that. Moreover, part-time employees also receive
- Paid vacations
- Free meals
- Comprehensive training
- A 401(k) plan
Full-time employees also get complete insurance (medical, dental, life, etc.), and managers average $100,000 a year.
Why don’t they get my order wrong? It’s not a little thing at all. It’s because this smart company hires quality employees, trains them right, creates a positive, fun work environment, and pays them well. As in any other business, a little thing is often reflective of a much bigger thing.
If In-N-Out was only worried about keeping its overhead low, it would not have created the kind of business where my family wants to stop there every time we get near one.In-N-Out Burger spends more than it needs to in several areas, but by doing so they create incredible customer, and employee, loyalty.
Is this not what Starbucks does as well? Consistently ranked among the best companies to work for, the Seattle coffee giant, according to Fortune Magazine, pays salaried employees an average of $44,790 a year, and hourly employees $35,294.
In addition, employees who work more than 20 hours a week receive
- Comprehensive healthcare benefits
- Retirements savings
- Stock options
- Domestic partner benefits
The thing to remember then is that sometimes, the old adage about needing to spend money to make money is true.
Sure, you can go the Wal-Mart route and pay the least and offer the least amount of benefits and sell stuff cheaper. That is a valid business model. But if your model stresses customer loyalty and quality, then being the cheapest and spending the least should not be your paramount concern.
Today’s Tip: What do other companies that make the Fortune “Best Companies to Work For” list have in common? A commitment to treating employees well and reaping the financial benefit that comes with that:
- This year, the No. 1 company on the list is Genentech. 95% of all Genentechemployees are also shareholders in the company.
- According to Fortune, at W.L Gore & Assts (makes of Gore-Tex, etc) “there are no bosses, job titles, or organization charts, just sponsors, team members, and leaders.”
- What makes The Container Store great? “At this storage retailer, even part-timers can receive bonuses, and drivers are rewarded for long service and safe driving records. In 2004 one driver took home $5,000 for ten years of perfect driving.”
- At Amgen, employees get 16 paid holidays a year, which is almost twice as much as most workers get.