A February 2017 survey by Vistage Worldwide found that 67% of small business owners report a shortage of skilled workers. To try and bridge the gap, 87% have increased recruiting and 60% have boosted wages.

The answers beg more questions

But, what company doesn’t worry about skilled worker shortages, recruiting, and wages? Costco, for example, pays 140% more than Sam’s (which recently “boosted wages”). But, Costco also:

• Hires the best caliber people
• Has demanding service metrics everywhere
• Cross-trains teams to deliver value that the Sam’s model can’t

What are the net results? Costco gets 157% more gross profit dollars per square foot and per employee. Plus, a higher profit margin, ROI and growth rate per store. And, Costco has applicants on file ready to hire, who currently work at less attractive jobs.

Do you worry about losing your best employees to firms like Costco? Instead, why not become one? If you boost wages to reduce turnover or increase head count, you must also ask the question:

• What is your new strategy to get a return on your increased wage investment? Won’t you, otherwise, reduce profits?

Chasing sales growth harder without customer profitability analytics won’t work. You will grow your losing customers, lines, and orders as fast or faster than profitable ones. Increasing sales, margin, and rebate dollars all seem like good ideas. But, if additional people costs rise faster than margin dollars, then profits go down.

Volume is vanity. Profit is sanity. Free cashflow customers are vital.

FedEx’s “People, Service, Profits” strategy                                                 

I bought a money-losing distributor in 1982. Low-pay and no raises had driven away the best talent. At the time, FedEx’s high-performance service practices were teaching the world to want guaranteed, on-time service and soaring profits. I aspired to copy FedEx’s model of high pay for great people in order to generate standout service and earn great profits.

My customer profitability analytics revealed a core customer renewal path that required FedEx’s people-first strategy. But, it also required a doubling of gross profit dollars per employee to finance the migration from low pay, low output to high pay and even higher output.

All my stakeholder groups – employees, customers, suppliers and shareholders – won big from our service-value innovation. For a detailed description of that plan generalized for all distributors request my “Roadmap” from [email protected].

Conclusions

Tactical solutions and best practices are not a new strategy for dominating the most profitable customers and customer niches. But, before paying more to retain the same average caliber employees, rethink your strategy. Get the data you need with customer/SKU profitability analytics to find your own core customer renewal path.