The Law of Conservation of Cost

The total cost of an isolated system remains constant, it is said to be conserved over time.

Photo by Sharon McCutcheon on Unsplash

In the video above, we see the simplist and most adorable explanation of the law of conservation of mass I’ve ever seen. If you’re not in a place to watch a video, here is the summary:

The child has several lego-like blocks and a cooking scale. The blocks are red, green, blue and yellow, stuck together haphazardly. The weight of the blocks is 52 grams. The child demonstrates that if the blocks are taken apart, they still weigh 52 grams. He also demonstrates that if they are put back together in a different configuration, their weight remains 52 grams.

Basically, you can move it around but it’s all still the same shit at the end of the day. So too with business costs.

Here’s a real life example: A business owner pays minimum wage. They do not offer health insurance or any benefits beyond what they are legally required to offer by the state they operate in. There are no opporunities for advancement.

The business has several workers comp claims, and is constantly paying to recruit new workers because people quit, usually by way of no-call no-show. This is affecting the bottom line. The business is losing income as a result of its inability to maintain staff.

Whatever profit the business owner is making by employing people at minimum wage, they are paying out two to three times over in lost clients, workers comp claims, and general incompetence because the pool of workers who have to settle for this job lack the training, experience or even the fuck-its to prevent common issues like ordering mistakes, damages, and general miscalculations about what a job needs in order to get done.

If you are paying less than $15/hr in your business today, this business owner is you. Further than that, if you are paying less than market rate for any of your employees today, this business owner is you.

You are competing with Taco Bell for minimum wage workers, and do you know what Taco Bell has to offer? The pay is notoriously shitty, which is at least one point of commonality between Taco Bell and most other service-oriented businesses. However, there’s also a lot of turn over so there’s room for advancement in the “Taco Bell Family.” Taco Bell also trains people for customer service, kitchen work, corporate culture, as well as general process and procedure. Something most small businesses don’t do. And Taco Bell provides health insurance. Another thing most small businesses can’t afford to do.

So workers don’t have an incentive to choose you unless you pay them more to make up for the ways you are not Taco Bell. And don’t say that the reason you can justify your lack of Taco Bell appeal is because you treat workers like family. First off, family is just labor you don’t have to pay for except in guilt and subtle emotional abuse, and secondly unless you’re willing to wipe your workers ass and breastfeed them for 2-3 years before they make you a single cent, this isn’t a family relationship.

A worker paid minimum wage is not making enough money to live. They likely have another job in order to make ends meet. This other job likely also pays minimum wage. So your worker is working as many hours as they can get, they are also under the strain of having to keep two businesses in their head at all times. Your business processes and their other employer, your uniform and their other employers, your sales, deals, and policies and so on and so on.

This worker is likely tired, when people get tired, their fight or flight response kicks in and they become reactive instead of proactive. If you are paying minimum wage, you probably have to spend hours of your time every week reminding workers to do something you clearly state they must do all the time. Do you ever wonder why simple tasks get done poorly or not at all? Because the cost you think you’re saving by paying minimum wage is coming out of your hours in the form of having to over-manage a tired worker who isn’t making enough money to survive, much less thrive. And when workers don’t thrive, you don’t thrive.

Even if you think you’re fine with things being a little bit shitty for your customers and clients, the real kicker here is that when you under-pay, your primary victim is you. In order for us as employers to believe that paying minimum wage is morally neutral (as opposed to morally bad) then we must also believe that it is okay for someone to work without compensation.

What I mean is that because minimum wage doesn’t appropriately compensate workers for their time, then it follows that at least some of the time minimum wage workers spend working is uncompensated. Therefore, as business owners when we pay minimum wage we are stating that we believe in free labor. And because the human mind doesn’t sit well with injustice, we usually end up working free hours ourselves as a result of this fallacy.

If you will be at work for 12 or more hours today, and if that is a normal day for you, you may be a victim of the free labor fallacy. You have internalized the myth that you can get something for nothing. In an average day you will have worked yourself for 12 hours and paid yourself a reprieve of 12 hours. Which is not enough time to take care of a human body before sending it to work again.

Your calculation is that if you get X amount of work from eight hours, you probably get 50% more work from 12 hours. But you’re taking those four hours from all the things in your life that will allow you to work 8 good hours and call it a day. Even if you are a super-sleeper who only needs 3 or 4 hours of sleep a night, you still need time for your mind to focus on other things. Things that will inform your working hours and allow you to make the intuitive leaps you need in order to have a competative edge.

Numerous studies have shown that overworking leads not only to less productivity for the day you’ve over-worked in, but it’s a cumulative issue that makes you shittier over time. So add up all the days you’ve worked more than 8 hours and you can now see a metric, in real numbers, of what is wrong with you right now.

The good news is that now we know why things are going the way they are, we can easily solve them by paying people what they’re worth. Starting with you.

When you start paying people what they’re worth, you get that value invested back into your business instead of having it lost to the ether of shitty business mistakes. When you start taking the breaks you need, you will notice that you have the capacity to deal with problems before they’re crises. When you extend the same luxury to your employees, two things will happen.

First, problems that used to be daily and chronic are no longer problems. Surprisingly, they will become opportunities for your employees to use their natural talents and perspectives to create solutions you yourself would never have access to on your own.

Secondly, you will have your pick of people in your industry. If you are in an industry where minimum wage is standard, or if you were paying the low-end of the market for these jobs, you will find that the caliber of applicant and the length of their stay at your company increases exponentially for as long as you pay a living wage.

As long as you live in a world of scarcity, a world where you must underpay others, you will also underpay yourself. Perhaps you will have more money on the books for certain line items, but over and over again, my experience has shown me that you will have expenses you can easily avoid. Both monetary and emotional.

Your employee is not simply a cog in a wheel that runs with or without appropriate supervision. Any business owner knows this. Invest in your customer, your client, and yourself and if you only remember one sentence from this entire post, remember this: **When you underpay your workers, you underpay yourself. **