Here's How You Can Afford to Pay Your Employees a Higher Wage

No matter where you are right now, the shortage of labor combined with the high demand for labor is a big problem.

This is not a selective problem. It has hit all employers hard in the U.S. and in Canada. Employers in every business sector are getting aggressive in their recruiting efforts to fill their staffing needs.

I want to walk through a real-life scenario that you may have experienced recently. One of your best employees who is making $16 per hour has come to you wanting a raise. He has shared that the construction companies in the area are paying $18 per hour and you are about to lose him. What do you do? You don’t want to lose him. Consider the current challenges of finding someone like him in the unemployed labor pool. Non-landscaping industry companies are competing for the same labor you are. Due to the current shortage of supply and high demand for labor, even employed workers have more choices today than ever before.

According to Payscale.com, 37% of workers have asked for a raise. The Harvard Business Review
found that 70% of employees who were denied an increase with little or no rationale said
they planned on searching for a new job within the next six months.

You may be thinking, how in the heck can you afford to pay him $2.00 more per hour? You may have heard one of my sayings, “Everyone must pay for their seat at the table”. I want each of you to think of the value this employee brings to your company. Then think about the cost of recruiting to replace them. Next think about the opportunity cost of not having them out working for you during the time it takes to recruit them.

According to Glassdoor, the average company in the United States spends
about $4,000 to hire a new employee, taking up to 52 days to fill a position.

Increase Your Price Per Man Hour
You can start by identifying the true cost of giving a $2.00 per hour raise to this employee. Look no further than GGPro to find this information. I ran this scenario through one of our franchise owner’s GGPro accounts. Their $16 per hour wage in the price list provided the current wage data. I then created a new labor item to include the $2.00 per hour raise. As you can see below, this only resulted in a net increase to the Price per Man Hour by $6.66. Simply using this new rate when estimating will allow you to recover this raise in pay.

Reduce Your Labor Costs as a % to Income
You may be asking yourself, "How can I reduce labor costs when I am increasing them by giving this employee a raise?" You can and should be looking at reducing your labor costs as a % to income through improving operational efficiency. Here are some simple things to focus on that can recover the extra dollars in wages and will even bring you more profit along the way.

Reduce “Unbillable” or as I call it, “Indirect” time. Put an emphasis on your employees managing their off-site time. White board this with your staff. You will be surprised as what will come from this discussion. Here are some things I have had my team share with me to improve our “Unbillable” time.

1. Stop sending them to vendors to get materials. Have the materials they need at your shop or on the job site so they can go straight to work in the morning. It amazes me every time I visit a nursery and see a crew sitting in the yard waiting for plants to be pulled and loaded. Please don’t be “that” company.
2. If you are going to a gas station to fill up, don’t send the entire crew to the gas station. This is especially true with larger crews. Time adds up quickly. I had a 6-man crew that was going to the gas station daily. It was their morning ritual. They would get their smokes, Mountain Dew, and other sundries and use the rest room. They would chit chat with the other landscape companies there filling up in the morning. We white boarded the math. The visit to the gas station took roughly an hour out of their day. 6 guys @ ½ Hour = 3 Hours times 5 Days = 15 Hours. We were able to cut just that crew’s unbillable time down to 1.0 hours per week at the gas station. 1 guy @ ½ hour 2 times per week. Multiply this across 15 mowing crews and 8 landscape crews and we really reduced our labor costs significantly.
3. Focus on density. I can’t stress this enough. You need to get your team to work more billable hours each day without adding hours to their workday. What if instead of doing 8 jobs in 8 hours, you can do 16? Density is the key to driving down your unbillable time and increasing your billable time. With every unbillable hour you convert to billable, you aren’t really cutting labor dollars, you are increasing your revenue per hour per person. You can’t lose by focusing on density, so stop trying to service a large area.

Improve “Operational Efficiency” on the Job
Getting more work done during the time your team is on site will drive profit and additional dollars to help recover the cost of increasing your employee’s wage. Here are some examples:

1. Sense of urgency is something I have studied with my crews over the years. I needed to understand what made them inefficient so I could help them be efficient. Often what I found was a inner sense of urgency that was lacking. Some people need a little push to get that little extra effort out of them. This is especially true with a team lead. Their team follows them. If you have “Heel Draggers” who lack a sense of urgency to complete the work timely, then work with them to teach them how to be more urgent. I found our operational efficiency improved by 15-20% when doing so.
2. Make sure your team has everything they need to produce the job they are working on efficiently. This includes maps, directions, visual aids like flags or marking paint, materials, tools etc. “Put your employees in a position to succeed”. Often their inefficiencies are a result of our inability to set them up and support them properly. You will be surprised at how much of an impact this will have on your bottom line and your employee’s morale. That’s another improvement of 15-20%.
3. Focus on Density. Not only does density help drive down unbillable time, it also drives up operational efficiency. You will have less time of team members waiting for another to finish their task. It helps to keep everyone busy all the time.
4. Increase your units per hour production. This one is similar to the first suggestion but is focused more on the amount of units completed in an hour. Let’s use mulch as an example. If you are tracking your team and they are laying 1 yard of mulch per hour worked for the day. This would be 8 hours times 1 yard per hour times 3 crew members = 24 yards per day. Now, let’s say you want to increase your output to 1.25 yards per hour to help pay for the increase in wages or you simply want to drive more profit. Then the math is 8 hours times 1.25 yards per hour times 3 crew members = 30 yards per day. If you were billing out $120 per yard installed, this would be a daily increase of $720 in invoiced revenue over what you were previously doing. Do this for 5 days and your weekly increase is $3,600 in additional billing, yet your labor costs stay the same.

1. Maybe your productive employees are less productive due to the people you have working with them. Simply improve the team and you will be able to get more from them. You know the phrase, “Your team is only as strong as the weakest member of it.” If you are fielding a B team, why not make it an A team?

Hopefully after reading this, you will think twice before letting your employee walk out the door to go work for someone else. Especially if they are a valuable and productive employee. Find ways to keep them. Find ways to drive income to cover their additional wages. I think when you do this you will not only find the money to cover their wages, but additional profit at the bottom line as well. Please focus on making smart business decisions, not poor emotional decisions. There is always an answer to your problem. Work closely with your FBC to walk through this together. It is about “Seeing the Forest through the Trees.” They can help you with that.

Sources:

https://www.payscale.com/data/how-to-ask-for-a-raise
https://hbr.org/2018/06/new-research-shows-how-employees-feel-when-their-requests-for-raises-are-denied#
https://www.patriotsoftware.com/blog/payroll/employee-asking-for-a-raise-steps/