Happy Employees Make You More Money: The Secret to Increasing Profit Margins for Franchises

Business.com / Strategy / Last Modified: February 22, 2017

You may think there are only two ways to increase your profit margin: cut costs or increase prices, but a third way remains.

As a franchise owner, increasing your profit margin tends to be a source of frustration.

There are really only two ways to increase your profit margin: cut costs or increase prices. As a franchisee, you have a suggested retail price from the franchisor, but overall it’s in your control if you want to raise your prices. But, if you can’t cut costs or raise prices, how are you ever going to increase you profit margin?

When faced with the scenario above, most franchise owners give up and accept that their profit margins are set in stone. However, many of these franchise owners are overlooking obvious areas where they can cut costs. For instance, learn how to staff people at the right times, train employees to cut down waste and learn how to reduce turnover rates to significantly cut costs.

According to the Center of American Profits, as reported by Zane Benefits, it costs 16 percent of the annual salary for low-paying jobs, 20 percent of the salary for mid-level jobs, and up to 213 percent of the salary of high-paying jobs.

Related Article: Real Talk: Is Franchising As Profitable As You Think?

For example, if you own a hot dog franchise like Hot Dog on a Stick, Zane Benefits explains that every time you have to replace an employee who is paid $10 per hour, it costs you $3,328. That’s just for low-level employees. Imagine if you had a high turnover rate for your managers or other high-level employees. The costs are astronomical.

So, how do you reduce your turnover rate, thereby reducing costs? First, don’t always assume that your employees are happy. In fact, “80 percent of people are dissatisfied with their jobs,” according to Business Insider. Employees will very rarely express their discontent to their boss for the obvious reason of getting fired. As the franchise owner, you have to go out of your way to find out how your employees really feel. Encourage feedback or conduct monthly surveys to determine what you can do to make your employees happier.

Also, don’t assume that all employees want is a higher paycheck. In fact, according to ASAE, The Center of Association Leadership, while 89 percent of managers believe their employees leave for better pay, 88 percent of employees leave for reasons other than money. So, if money isn’t the fix-all incentive, what else can you do to retain your employees?

First, many people want a better work environment. A better work environment is a strong incentive because the average employee spends a third of their time at work. In other words, the average American spends more than 90,000 hours at work during their lifetime, according to Business Insider.

Since your employees spend so much time at work, try to make your business a place they want to be. This idea was best captured by Betty Bender when she explained, “When people go to work, they shouldn’t have to leave their hearts at home.”

Find out what can make your employee’s job more fulfilling for them or improve comradery among your employees to increase morale. People who find personal fulfillment and enjoy their co-workers love their jobs and, therefore, don’t quit.

Related Article: Why Company Culture Matters More to Employee Than Pay

To provide personal fulfillment, offer more opportunities for growth. According to Leigh Branham, author of “The Seven Hidden Reasons Employees Leave,” one of the reasons why employees leave is because there aren’t enough opportunities for growth. ASAE found that “while 85 percent of employees say career growth is a key reward, only 49 percent say their companies are providing it.” If your employees see that there are opportunities for them to advance, they will stay with your business and stay engaged.

To make your franchise a better working environment for your employees, train your managers to praise and recognize your employees. Recognition is an innate human desire that many businesses ignore. According to Leigh Branham, “60 percent of employees… feel ignored or taken for granted.” Don’t let your franchise be one of the companies that disregards its employees.

Train your managers and don’t underestimate Millennials. According to Entrepreneur.com, Millennials, the generation born between 1980 and 2000, are stepping up in the franchise industry and bringing with them a willingness to learn. Value these employees, undervalued and unappreciated employees will leave, increasing your turnover rates and your costs.

Another way to decrease turnover is by offering benefits to your employees, like health insurance or profit sharing. Offering benefits can be costly so keep the benefits you offer proportional to the level of your employees. As we saw above, high-level employees are the most expensive to replace so offer these employees the best benefits or a small percentage of ownership.

By staggering benefits to the level of your employees, you can keep benefit costs low while still reducing turnover.

If your turnover rate doesn’t decrease after making these changes and you see an increase in employees quitting, conduct exit interviews to determine why your employees are leaving. You may be surprised by the answers.

In summary, decrease employee turnover by encouraging feedback, improve working conditions, offer benefits, and conduct exit interviews. Reducing employee turnover can save your franchises thousands of dollars each year and leave you with an experienced team dedicated to seeing your business succeed.

With a dedicated, long-term team, your profits will increase in addition to cutting your costs, increasing your profit margin even further.

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