Wages on the rise... what now?🚀

We are living in the great resignation era.

With remote work proving its value and companies adjusted to a digital-first workspace, a globally distributed workforce is here to stay. Employees now have the upper hand in the employment relationship which has created a war for talent and the result is significant wage inflation across the globe.

Recently, Gartner released a survey showing that 61% of companies interviewed have already started to pass through the wage inflation to customers in their final product prices.

As business owners, this is probably one of the most difficult strategies to assess: until which point should a business maintain prices in an inflationary environment? What is the trigger to start to pass through these costs to clients?

Although no silver bullet answer for this, the first thing that needs to be assessed is to have an outlook perspective: is this inflationary trend temporary or is it indicative of a new cost structure? Observe alternative suppliers, market prices, benchmark alternative solutions.

You also need to observe the competition. Are your competitors raising prices too? This is a critical step to understand customer price sensitivity to avoid losing market share by a mismanaged price increase.

If passing through rising costs to your final clients is not an option for your business, you need to look at the main expenses accounts in the PnL: raw material (the goods you need to buy in order to produce your product or service), salaries and distribution. One aspect that I often see CEOs doing is to review contracts with distribution and various suppliers but rarely do they re-thinking how to build their teams.

You need to take advantage of the remote work era and look further than traditional talent pools: how about including freelancers or individuals that are re-entering the job market after some time off? Or how about reducing salary costs altogether by relocating workers to areas with a lower cost of living? You could even consider outsourcing your employees altogether to different geography and take advantage of salaries arbitrage. This article walks through the pros and cons of offshore staff leasing.

In times of margin compression business owners need to be creative and agile to react fast to market dynamics in order to maintain relevance in their segment.

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🎧 AudioBook recommendations

▶️ 7 Powers: The Foundation of Business Strategy, by Hamilton Helmer: Simple, but not simplistic - the main takeaway from this bible of business. Stanford Professor, early investor, and consultant of Netflix, Hamilton Helmer progresses the theories and ties up all the concepts with mastery. It wasn’t an easy read: had to stop, make notes, listen again - but this is a master piece of identifying isolated business attributes that lead to the creation of value. I have an Evernote with my summary and screenshots of the frameworks explained in the book that I am more than happy to share with those interested. Just reply to this email and I’ll send it over.

(I just read one book last week so no other podcasts recommendations, hehe 😬 )

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This is Open Books - a weekly newsletter carefully curated by me, Leticia Souza. Every week I’ll be compiling relevant topics around finance and financial strategy - from choosing your first accounting system to how to successfully close a fundraising round to your business.

In a world full of noise, I aim to bring clarity and direction to your finance processes so you can manage your business in peace. If you find the content useful, do your friends a favor, and please share this newsletter with them.

See you all next week 👋🏼

Leticia