Rising Franchise Labor Costs: Strategies for Navigating the New Normal

07.06.24 07:18 PM By Stacey Riska

In this post, we tackle the hot topic of inflating labor costs in the franchise market. Aspiring business owners will find this  particularly enlightening as we break down the complexities of labor costs and provide actionable insights for managing them effectively.

Here are the main points discussed:

  • Minimum Wage Impact: The discussion opens with the impact of California's $20/hour minimum wage and its potential influence on other states and businesses.
  • Labor Market Trends: They highlight current trends, including higher pay demands, the desire for remote work, and the aging workforce that still wants to stay active without necessarily owning a business.
  • Franchise Models: Not all franchises are affected equally by rising labor costs. Different models may require varying levels of external labor, affecting overall costs.
  • Assessment Strategies: The importance of evaluating labor costs, understanding the local economic trends, and knowing the types of labor required (unskilled, semi-skilled, skilled) is underscored.
  • Economic Data: Leveraging economic data and insights from other franchisees (via FDD Item 19) can provide a clearer picture of expected labor costs.
  • Pricing Flexibility: Some franchises offer flexibility in pricing, allowing franchisees to adjust prices in response to local labor market conditions.
  • Technological Solutions: AI and robotics are increasingly being used to reduce labor costs and increase efficiency. Examples include automated attendants and robotic systems like McDonald's "Flippy."
  • Franchise Support: Many franchises offer recruitment support, technological tools for scheduling and routing, and even call center services to help manage labor more efficiently.
  • Employee Retention: Retaining good employees is vital. Incentivizing and empowering employees through bonus schedules can foster loyalty and reduce turnover.
  • Employment Models: Evaluating the pros and cons of using W2 employees versus 1099 contractors or offshoring work can provide cost-effective labor solutions.

We will provide you with additional practical tips, emphasizing the importance of keeping good employees through effective retention strategies. We will highlight the flexibility some franchises offer regarding employment models, allowing franchisees to choose between W2 employees, 1099 contractors, or even offshoring.

A final reminder that while rising labor costs are a challenge, there are multiple ways to manage these costs effectively. By understanding labor market trends, leveraging technology, and utilizing franchise support systems, aspiring business owners can navigate this landscape successfully.

By following these strategies, franchise owners can better navigate the complexities of rising labor costs and continue to thrive in the ever-evolving market.

By thoroughly evaluating these factors and preparing accordingly, you can make an informed decision about transitioning from a 9 to 5 job to owning a franchise.

If you need assistance to help you acquire a the perfect franchise, please reach out.

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 Author Bio

I’m Stacey Riska aka “Small Business Stacey”, your franchise placement specialist. I help aspiring business owners find the PERFECT franchise so they can get to the next level in life and business.
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