Teach Skills, Hire Character
A service business makes profit on the difference between the price the client (is willing) to pay and the cost of your employee.
So the higher your price and the lower your cost the more profit you make.
This is the reality of a service business.
So you can increase profit in 2 ways:
- Showcase the unique value of your offering better than anyone in your industry in order to get the highest perceived value — thus highest price.
…and
2. Get starting level employees and give them the tools, experience and guidance that will give them the skills they will use the rest of their life.
You can do both.
You can’t charge $20 for a coffee in my hometown
No one will buy it no matter how fancy.
People will pay at maximum around 5–7 dollars. There’s a price point in our minds for the things we buy.
This price can be stretched based on perception but unless you’re in a rich neighbourhood and have a luxury brand you won’t get away with charging more than what the general market is willing to pay.
Having said that, what many business owners get stuck doing is hiring based on experience only to never make a profit. They want someone of high level to represent their brand and end up very disappointed in the end. They do things differently. They want to do things their way. They don’t listen. There’s no consistency and trust for clients.
First off there’s more cost associated than simply the percentage split. For the business owner there’s rent to pay, advertising, accountants, tools, lawyers, bookkeepers, coaches. When you factor these things in it’s next to impossible to make a profit on a highly paid person.
I’m not saying you can’t hire people of experience, pay them more and charge more — but if you do that know that there will be less profit left for you and your business.
Less profit equals less money for growth, delighting clients with gifts and more stress on you who is taking all the risk.
Understand that there’s a churn rate
For a long time I would get flustered when staff would leave. And even more so when they said the reason was that they’re not being paid enough.
I kept thinking “I need to increase their rate” but how could I do this without eating into the profits that serve the whole in the end.
Even though I was paying more than anyone around it seemed I could never pay enough.
Until one day it dawned on me that there’s a natural churn rate in all companies.
That it’s normal in service businesses to lose 5% a year no matter how nice we are to them. That meant that at 50 employees I was going to lose 2–3 personal trainers a year regardless.
So I changed my focus to making sure I was providing and growing experience for my staff. Accepting that they would one day leave me but will have learnt a lot. And I kept working on raising my brands value.
I’m a business coach and a business systems expert -> www.coachjeanluc.com
