Business Model That Works - The Missourian: Letters To The Editor

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Business Model That Works

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Posted: Tuesday, June 25, 2013 6:32 pm | Updated: 8:10 am, Wed Jun 26, 2013.

To The Editor:

I recently read about Costco’s soaring profits that really told the story about what is wrong with our economy.

Costco paid its typical worker $45,000 per year in 2011 compared to Wal-Mart-owned-Sam’s that paid its sales associates an average of $17,486 per year. How can they do this and still be profitable?

That’s easy! Turnover is unusually low, at 17 percent overall and just 6 percent after one year’s employment.

In contrast, turnover at Wal-Mart is 44 percent a year, close to the industry average.

In skilled and semi-skilled jobs, the fully loaded cost of replacing a worker who leaves (excluding lost productivity) is typically 1.5 to 2.5 times the worker’s annual salary.

To be conservative, let’s assume that the total cost of replacing an hourly employee at Costco or Sam’s Club is only 60 percent of his or her annual salary. If a Costco employee quits, the cost of replacing him or her is therefore $21,216.

So by paying their employees well to begin with, they retain them, have better morale and productivity, not to mention revenue.

Revenue per employee at Wal-Mart/Sam’s is $211k compared to the $620k for Costco. By paying more, Costco saves the taxpayers money as well, because they don’t need or qualify for state assistance.

Costco is the model businesses should follow, instead of giving it all to one guy and hoping it trickles back down, they pay their employees a living wage.

Wal-Mart must not know “you get what you pay for.”

Washington needs a Costco. I’d shop there.

 

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