As a small business owner, you may be aware, that there are increasing costs to your business coming from all directions. These cost increases seem to occur faster than your growth in customers, and continually chip away at your profit.
There are annual CPI increases in rent, cost increases from suppliers and farmers of produce. Some are due to weather conditions like droughts, floods, and storms. Energy costs just seem to increase exponentially without much notice.
There are also unexpected equipment costs for maintenance, replacement and just generally keeping up with tech.
But perhaps the latest increase in Australia for all businesses, was the recent labour costs associated with the Minimum Wage and Superannuation.
What is the impact of these increases
The most disheartening thing is that these increases just keep coming. Generally, as a cafe business owner the majority are unpredictable and out of your control.
Some increases you may have knowledge of, and that allows time for you to prepare. Some are decisions from industry, local councils and government regulations, which are outside your control.
There are pressures from companies, providing goods and services to growers and farmers who are trying to grow organically, and who seem to be squeezed the most. Transport costs are also having an impact on operations nationally.
These moving parts of the supply chain may only incur small increases, but they do have a large impact on your profitability. Particularly if you are not keeping tabs on your operational costs.
To compound this effect, we have customers who are not spending as much in the food and beverage areas. As coffee is generally classified as a luxury purchase, less spending is the net effect of rising interest rates and general cost of living pressures. So, to a degree we are all being affected in different ways.
National Minimum Wage increase
In Australia, Government recently announced a few months back, a National Minimum Wage increase of 5.75%. This increase took effect 1st July 2023, and is an increase in the minimum wage that businesses are obliged to pay their employees.
Take for example the increase of 5.75% on a small cafe business. This works out to be an average $40.00 per staff member per week for a cafe owner. Should that cafe, employ seven staff members, then that is a weekly increased cost of $280.00 to the business.
That does not account for the additional payroll tax and superannuation costs. In Australia there is also Workcover costs which would naturally increase because of the payroll increase.
When you experience this cost creep, as I call it, you begin to feel it is a constant upward battle, and that your business cannot return the profits you are wanting. You become torn to either cut costs or increase sales prices. Given the current economic situation there is a reluctance to increasing prices as you may scare away your current customers.
How to be vigilant at managing these increases
So as a business owner you need to manage smarter. You are required to know a lot of information about your business so that you can adapt quickly.
There are many options to counteract the issue of cost creep as highlighted above. However, before you implement many of these options, you need to answer some questions. Ask yourself some relatively simple questions in relation to your problem.
For the purpose of this post, let us concentrate on the minimum wage increase announced by the Australian Government. As this relates to staff and wages, then this will be the area we will focus on. Do not go increasing your marketing involvement or cut back on purchase prices to offset this.
Instead, just concentrate on the area where the additional increase in expense has occurred. This is where the issue needs to be rectified. Trying to fix it by increasing sales is not fixing the problem long term. That is just a Band-Aid fix.
Wage increases means you need to be more aware of your staff roles and productivity. Cutting a staff member as a solution, means you are only putting additional pressure on your remaining team.
Rather than cut staff – think productivity.
- Can you make some food or beverage items in store rather than buy them in.
- Can your staff be trained with skills to assist in this area.
- How can you motivate your staff to assist further in your operations.
- How can you promote goodwill amongst your staff and get them involved.
- Which staff have the initiative to want to learn more within your operations.
- Do any of your staff have a desire to have their own business one day.
Time to do a Brain Dump
To get you started toward fixing this problem, we are going to do a Brain Dump, so grab a few sheets of paper and start making a list of some options. Anything you can think of that relates to your staff as I have highlighted above. There are no dumb ideas, just jot down what comes to mind.
Give yourself sufficient time to do this by allocating 15 – 20 minutes. Aim for 1 idea a minute, but list as many as you can no matter how weird.
Once you have your list of ideas, go through it slowly item by item. Consider each item positively and seek out any changes to your business that may be required, and their effects. Could your business and staff benefit from this.
Now revisit the problem and see what you can offer as a way of solution. You may end up with 2 or maybe 3 options to choose from, or perhaps you can even combine some of them.
Do not be afraid to involve your team
Do not be afraid to have conversations with your team. They may see things differently to you, and therefore may have some concepts or ideas to fix a problem. Often a problem shared is a problem solved.
When your staff offer solutions, remember there are no silly ideas. Take their suggestions and feedback on board for consideration, and thank them for their input.
Think of solutions that could work in your favour. Quicker service to reduce wait times for your customers. Ensuring your processes are as efficient as possible.
Consider and offer staff in their roles, to come up with 3 suggestions to improve their section of the cafe operations. Reward the one with the best idea or solution. Your rewards need not be big. We used movie tickets, shopping vouchers, discounted or free lunch for family, and or friends etc.
Quite often it is a different viewpoint that you could not see that is the best answer. That is why you always employ people smarter than you.
Challenges make business interesting
Everyone grows from problems in their life. I have yet to see anyone I know not coming out of a problem feeling better for it. Treat problems as guidelines to opportunities. Some people choose to have problems so they can become better.
Ultimately you need to be on the front foot. You need to try and find ways to offset your problem, so you can efficiently keep your customers returning.
If your staff have to be paid more, then why not put them in the limelight. Show them off as part of your business, and your customers will love it just as much as your team.
How about a “Get to know your Barista” promotion. This would be good for your customers who do not know your Barista outside of the coffee they get. Highlight their skills and accolades, and make them the centrepiece of your business for the month. The following month do the same for another team member.
This will get your customers to talk to their friends about your Barista, and boast about how well they know them. This could include their likes or hobbies outside of work hours. Any interactions with your customers that extends beyond a simple hello is a worthwhile investment.
I will leave you with a great quote from Albert Einstein, “In the midst of every crisis, lies great opportunity”.
The key takeaway from this article is once you identify the price creep problem, no matter what it is, then work towards finding a solution in that area. Adjusting in other segments of your business, is not going to resolve your issue. If the oil needs changing in your car, then stop putting air in your tyres, and concentrate on changing the oil.
PS. If you have found some benefit from reading this post, leave a comment and let me know. If you are struggling with a specific problem then send me an email explaining your concerns, and I will get back to you personally.