Watt’s Your Costs?

The dollar’s value changes with the economy. The fuel surcharges companies add during oil crises cause an inclusive price increase, and not only in paint, vinyl and other oil-based products vital to the sign industry. In the 1950s, when I was a child, bread cost 10 cents a loaf. Its current $1.30 cost shows a 1,300% growth over 50 years. The cost of health insurance can rise more than 30% in one year. A price increase or decrease in any product or service affects our prices.

The original minimum wage was established in 1938 to ensure a livable wage. Proponents of the pursuant Fair Labor Standards Act contended the increase in available spending money would benefit the general economy. Today, minimum-wage hikes may or may not drive inflation, or perhaps inflation drives minimum-wage standards. The government benefits through higher sales and income taxes.

While businesses that serve the minimum-wage employee may perceive an immediate benefit, the signshop customer is the businessman who has less money to spend. Regardless of direction, this will level out over time.

Since its inception 68 years ago, minimum wage has increased from 25 cents to $5.15 per hour. In terms of current dollar values, 1938’s 25 cents correlates to $3.85. In 1968, the buying power of the $1.60 minimum wage reached its peak at $8.98; since then, it’s been eroded by soaring prices that cover additional costs. Minimum-wage increases have been surpassed by the dollar’s loss of buying power.

Minimum-wage increases affect your business, even if you don’t employ minimum-wage employees — or don’t employ anyone. Minimum-wage hikes increase stock clerks’ wages, which increase the cost of bread, the cost of living and the cost of signs.

A current proposal offers to raise the Colorado minimum wage from the $5.15 federal standard to $6.85 per hour. My granddaughter is thrilled because, even though she makes more than the current minimum, the proposed level would heartily increase her wages. However, every product’s price will also jump.

If this bill passes, a short window of increased prosperity will open before every business has raised its prices, and, even though more dollars will be exchanged, the cost of bread will also rise.

The cost of living is directly tied to the local wage base and expendable income. Many corporations (and governments) tie their wages to a cost-of-living index. When minimum wage increases, everyone receives a raise. In the 1990s, when I traveled and lectured more than I do now, I compiled a national average for the cost of living, based on the cost of such items as gasoline, milk, bread, movies, Coca-Cola, McDonald’s Big Mac, Denny’s breakfast and Domino’s pizza. I compared this to the local costs for the same (or equivalent) items and prepared a ratio that could be applied to the national average for sign prices. I gathered some interesting results. In a future column, I’ll pursue this comparison in more depth.

Most large businesses employ someone full time to watch costs and evaluate pricing, but most small businesses generally don’t have the funds, or time, to devote to such analysis. However, you can easily compare utility and communication bills you’ve accumulated over the years.

Utility companies rely on economists who closely watch and consistently evaluate rates. Regulations directly key utility rates to the utility company’s costs (including overhead). If a utility’s costs increase, our costs increase. Comparisons of consumption levels and the actual costs per unit produce a clear picture.

Examining our own (business and personal) utility bills, I perused the effective changes over a five-year period. For 30 years, we’ve lived in the same house and run the same signshop with reasonably consistent electricity, water and natural-gas usage. Comparing the costs of these necessities, I observed certain phenomena.

The shop’s ever-expanding computerization is obvious in the usage levels. The electrical charges per kilowatt hour have slowly and steadily climbed, but the quantity discount, which brings a 9% reduction, occasionally alleviated the increases.

Thus, consolidating services on one meter could prove advantageous, but, by keeping them separate, hefty business use becomes fully deductible as a business expense. We would sacrifice more than we gain by consolidating.

Natural-gas charges climbed steadily even though we reduced usage. Three hefty raises occurred in the hundred-cubic-foot (CCF) rate. In 2001, the rate increased 50%, then returned to 2000 levels in 2002. In 2003, the residential rate doubled, then gradually declined, while the commercial rate slightly increased each year.

Then, in 2006, both residential and commercial rates nearly doubled, resulting in more than an $800 average monthly bill, despite conservation measures. This caused us to, at last, look for permanent measures to alleviate the cost.

Local water bills can be full of surprises. The City of Greeley, in an effort to standardize water-bill payments, simply billed more often. In 1991, quarterly water bills became bi-monthly (six times a year). In August 2002, a storm-water fee appeared to pay for system upgrades. The cost of water (per gallon) has increased 400% over 12 years.

Most utility companies (including city water systems) promote conservation, but nearly all give a quantity discount — the more you buy, the cheaper the cost — per unit. The Evans (CO) City Water District has an innovative system: Increased consumption equals increased costs per gallon — a true conservation incentive. Evans also provides non-potable water for lawn care.

In order to control these expenses, we emphasized energy conservation when we planned our a new shop. We’re using xeriscaping, planting natural grasses and efficiently using appliances to conserve water. Plus, the use of non-potable water will help control lawn-care costs.

We’ve investigated separate electric meters, and we’ll replace existing, individual-room air coolers with central air, which experts agree are more cost efficient. Ceiling fans effectively circulate warm (or cool) air. Area lighting will replace the whole-room lights we use in our 1970s house and shop.

By using lower ceilings, we’re reducing our cubic square footage by 27% while retaining 92% of floor space. We’ll also install radiant heat, which is unanimously supported as the most efficient system. Two furnaces and a series of baffles will help us create a zone system to minimize use. Double-paned thermal windows, R-19 insulation and, of course, real floors (to replace our current offices’ cement floors) should keep us warm enough to avoid the high cost of space heaters.

A few years ago, our electric company advised us to unplug an old refrigerator in which we stored acids — these particular acids, we discovered, didn’t require cooling. The savings were enormous.

Signshops should periodically check utility bills and other, ongoing, fixed expenses to ascertain cost leaders. Monthly energy savings gained by simply unplugging or replacing an appliance significantly accumulate over time.