Eh, let’s run some #'s:
Assume a fast food restaurant, $1m in sales. Being the Henry Ford of fast food joints, they have one product… burgers… and they sell their burgers at a math-easy $5 a pop, meaning they move 200k burgers every year.
OK, so a simplified financial structure of a fast food restaurant is as follows:
With the above %'s, our restaurant, SDMBurgers, has the following cost structure:
|
Original |
COGS |
$310,000 |
Wages |
$300,000 |
SG&A/OpEx |
$250,000 |
Gross profit |
$140,000 |
Sales |
$1,000,000 |
(I put sales on the bottom for reasons unknowable, sorry.)
So we are going to make some simplified assumptions regarding the payroll structure at SDMBurgers:
- Only 1 manager, and s/he gets 15% of payroll (currently $45k/year)
- All other employees are paid $8/hour, no overtime.
- I’m not adjusting for taxes, workers comp, etc. This is for a message board post, not my Ph.D.
So you are paying $255,000 for 31,875 hours of payroll, and a manager @ $45k.
Oh, no! A bunch of libtards raised the minimum wage from $8/hour to $15/hour, or 87%!!! How will that impact my business? I’m reading on Facebook that this is going to DOUBLE my hamburger prices!!!
Well, $15*31,875 = 478,125. Manager makes 15% of payroll, so his/her salary goes up to $84k. Total payroll is now $562,125, and now our financial structure… if we want to keep the same gross profit margin… looks like this:
|
Original |
Revised |
COGS |
$310,000 |
$310,000 |
Wages |
$300,000 |
$562,125 |
SG&A/OpEx |
$250,000 |
$250,000 |
Gross profit |
$140,000 |
$158,000 |
Sales |
$1,000,000 |
$1,280,125 |
So:
- If the business needs to keep hamburgers at $5 per, and does not want to make any efficiency changes, they will need to sell an additional 56,025 burgers throughout the year, or an additional 156 burgers a day.
- If the business needs to keep volume the same, and does not want to make any efficiency changes, they will need to raise the price of their burgers to $6.40. (The above #'s reflect this approach, a nice way of saying I didn’t adjust COGS to show point #1, sorry.)
This is where the bootstrapping ingenuity of the American entrepreneur will come into play. The business can make efficiency changes to their method of production. They can substitute ingredients, or do a better job on their sourcing. They may make the burger patties 7% smaller, place tomatoes on an “as asked for” basis, not be as generous in napkins and to-go condiments, more. They may even let 1 or two people go, reducing the number of hours paid for from 31,875 hours to 28,875 hours ($45k in savings), but revise procedures so that the remaining team is more productive per person. And they may raise the price of burgers.
And all the above is perfectly fine, is also what the business owner is paid to figure out. Objections to paying a minimum wage based upon raising the price of the product generally are made by people who haven’t actually run the numbers. Well, in this example, the business owner can improve operations, raise the price, or a combination of both, but what won’t happen is that the price of the burger will double because payroll doubles.
And, in the end, if you can’t make this work, everything dies, even your bad business model.