What the $15 average McDonalds Worker REALLY MEANS (for those who are not busiess people)

A few days ago a big nationwide strike was called of people who work at Fast Food places.  They want the average wage to go from $9 for front line workers, where it is right now, to $15.

One's emotions can be tugged. There are people trying to make it on this low wage.  It doesn't work.  Government policy is driving incomes lower by imposing requirements that cause employers to cut hours to 29.

The real trouble is people do not understand what a $15 per hour increase means.

Here's the reality, any increase WILL be passed along in higher prices.  No question about it.  Or companies who can't, will simply close up.  There is no free lunch and this is  no exception.

Here are actual statistics from the fast food industry.  The assumption is a person buys a franchise, outfits a restarant, good location$$, and borrows the money to do it.  He also works there himself.

The average sales on a fast food (IE Burger King) per location nationwide is $1,200,000.

Here's how that works out:

Sales                $1,200,000.00    Average per fast food site  in the USA              
Food Cost        $250,000.00    Average ratio to sales              
Gross Profit     $950,000.00                             
                   
Payroll             $450,000.00    $10/hr av = $13/hr net    6.7 People $9-11 per hour.  Open 8AM-9PM 
Marketing & Franchise Fee    $15,000.00    10%+local      
Occupancy    $300,000.00    25,000/mo              
Utilities    $13,200.00    1100/mo                     
Cost of Money    $28,000.00    P&I on $300,000 to start up           
Total Operating    $806,200.00                         
Net Return    $143,800.00      Gross Income minus Operating Expense                     


He raises everyones wages and leaves prices alone
Gross Sales     $1,200,000.00
Cost of Food   $250,000.00
Gross Income  $950,000.00  

Expenses
Payroll                              $640,384.00    Changed to $15 per hour becomes $18.50 net
Marketing and Franchise $15,000.00  
Occupancy    (lease)        $300,000.00  
Utilities                            $13,200.00 
Cost of Money                 $28,000.00    
Total Operating Expense $996,584.00
Net Income/Loss            ($46,584.00)   Gross Income minus Operating Expense  

The result is he goes out of business.

The solution (if everyone in the market did it) is to raise prices on the burgers and fries to make up the difference.  They would have to go up about 17% to restore the income level the owner requires to take this risk.  His gross sales would have to go up to

That Means that prices would be $1,392,000.  That would also increase his expenses because of the increased franchise fee on greater sales.  That increase is about 17%

That means to keep the guy in business selling burgers, pay everybody $15 an hour (which after all government stuff is really more like $18.50 per hour) here's the price board.

Big Mac today:  $3.99   Big Mac after the payroll  and price changes needed  $4.75

Average Meal Ticket at McDonalds today in the USA is $7.00 
                     The average after the Wage Change will be $8.40


No to be fair, I can afford it.  I don't eat that many Big Macs.  What people need to understand is these things don't happen in a vacuum.  If you spend $500 per year in fast food restaurants (that's less than twice a week) you will spend nearly a Hundred Dollars per year more ($85).

So before all get weepy about how badly everyone in the front line food industry is paid, perhaps we need to ask ourselves, are YOU WILLING to give them a pay increase.. because that is exactly what you are doing if you do this.

I could list the bibliography for all these numbers. I looked far and wide.  Found lots of information. IF you want to call any particular number into question, I am happy to provide you the source.

There is no zero sum in life.