Great conversations at Congress
By Warren Patterson
Each year, Landscape Ontario’s signature event, Congress, is the place to be for members of LO and the profession. Congress is a place to connect with others, do business, catch up with friends and chat about the year gone by and most importantly, the year ahead. Congress is all about great conversations.
This year, the topic on everyone’s minds was how to deal with the minimum wage hike to $14 per hour that went into effect the week before. While we have known about the increase for some time (and the next increase to $15 per hour on Jan. 1, 2019), it is now a reality and we are all affected by the changes in both our business and our personal lives.
The reasons why governments around the world continue to aggressively change the supply and demand dynamics of labour will never be fully understood. A material government influence on supply and demand requires strong business leadership in order to weather the period of transition.
In order to understand these effects, I tend to view my (and all) businesses as a mathematical formula. In our retail garden centre business, our formula focuses on the key metrics to make a reasonable return on our capital.
— Cost of Good Sold*
= Gross Margin
— Staff Cost
= Contribution Margin
* COGS – Product Cost, Warranty Cost, Inventory Shrink
Our contribution margin must be no less than 26 per cent of sales in order to cover overhead and meet profit requirements. Every business should have a formula.
Once you have a formula in place, you will be able to measure the impact of change that minimum wage will have on your business. For us, the effects of the increased minimum wage, vacation time and paid days off are expected to increase our staff costs by eight per cent.
The biggest dollar impact for us will be the increase in the cost of our products.
From the discussions I had at Congress, growers are impacted the most by the new minimum wage and their prices will go up according to their formula. Hardgoods suppliers rely a little less on minimum wage staff to produce their products, but like all businesses, costs for materials rise and so does the cost of doing business (ie: hydro, rent, taxes). Their prices must also rise in order to keep up with inflation.
So far, I have found there to be a wide range in the price increase among growers, depending on the type of crop they are producing. This range varies from three to 12 per cent. Using a weighted average of our purchases, our company expects our COGS to increase by seven per cent this year.
Now for the hard math: How much will we have to increase our prices to offset these increases in costs? Our preliminary calculations have prices rising about 5.5 per cent. I won’t count on increased sales volumes to offset minimum wage impact, as this is outside of my control.
I am very optimistic this year will be another solid year for our members and the profession. I am glad to hear others are equally optimistic.
I am very thankful for being part of Landscape Ontario and for attending Congress to learn how we, as a group of professionals, can all work together to help each other through challenges like this and continue to profit.
Here’s to thriving in 2018.
Warren Patterson may be reached at email@example.com