Remember that crazy guy who cut his own income to pay for a guaranteed $70K base pay for his employees? Remember how…

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Remember that crazy guy who cut his own income to pay for a guaranteed $70K base pay for his employees? Remember how everyone predicted the sky would fall?

Well, uh, nope. At least not yet. Here’s an update:

Is there a magic number that keeps workers focused while still generating a profit? Price calculated a figure but never imagined the publicity he’s gotten would boost new customer inquiries from 30 per month to 2,000 within two weeks. Customer acquisition costs are typically high, so in that sense, the strategy has paid off. And in this business, customer retention is key. Gravity’s 91 percent retention rate over the past three years — far above the industry average of about 68 percent — has been crucial to its success. Maria Harley, Gravity’s vice president of operations, looks at a different set of numbers. While the company had to hire 10 more people than anticipated to handle the new business, most nonlabor costs — rent, technology, etc. — have remained the same, thus improving operating ratios. “We don’t need our sales to double,” she says. “We only need them to increase marginally — by about 25 to 30 percent. When I started being more logical than emotional about this, I said, ‘This is totally possible.'”

Six months after Price’s announcement, Gravity has defied doubters. Revenue is growing at double the previous rate. Profits have also doubled. Gravity did lose a few customers: Some objected to what seemed like a political statement that put pressure on them to raise their own wages; others feared price hikes or service cutbacks. But media reports suggesting that panicked customers were fleeing have proved false. In fact, Gravity’s customer retention rate rose from 91 to 95 percent in the second quarter. Only two employees quit — a nonevent.

http://www.inc.com/magazine/201511/paul-keegan/does-more-pay-mean-more-growth.html
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