Do you know what your turnover is doing to your annual profit?
It’s crushing it.
A study done by the prestigious Center for Hospitality Research (CHR) at Cornell University found that the cost of direct training was only about 25% of the total expense in replacing an employee. Given that three-quarters of total expense is untrackable, that figure should scare the POOP out of you. Additionally, as our economy has recovered from the Great Recession over the past eight years, turnover rates in our industry have escalated. Given the estimates made by CHR at Cornell, staff turnover could be as high as $5,864 per employee.
The National Restaurant Associate estimates that turnover was an average of 61% for the total restaurant industry. Unfortunately, that number is deceiving because it includes staff positions at chain operators and line managers where the turnover is far lower. The estimated turnover for regular line employees is closer to 110%. By doing some simple math, that level of turnover will cost the average full service restaurant operator $146,600 annually. If that number doesn’t motivate an improvement in your staffing and retention policies, I can’t imagine what will.
The hidden costs of staff turnover
We thought we should at least examine how this breaks down.
The CHR at Cornell study identified five cost categories that contribute to the total turnover bill. By far the most expensive was productivity loss, accounting for an average of 52% of the total cost of staff turnover.
The real problem here is that these are silent expenses. You typically can’t track this cost unless you set up elaborate systems for tracking productivity. Silent costs like productivity loss makes them particularly dangerous because they aren’t obvious and don’t show up on your regular reporting.
Add to that a growing issue with turnover and you have a recipe for a bad meal (pun intended).
Staff retention a growing problem
The National Restaurant Association estimates that turnover has increased steadily over the past six years and turnover rates are approaching pre-recession numbers. Since an historical low in 2010, turnover has grown by 17%. That means, even if you are good at managing turnover, it’s still costing you much more now than it did just six years ago.
It’s one of the great ironies in our business — bad economy means a great labor market for employers, good economy means a challenging labor market. It’s your job as a restaurant operator to manage in both environments, so these numbers better be alarming to you.
That brings us back to our original question: What is the real cost of turnover in your restaurant?
Even if you defy the national average, it’s still a staggering amount and on average it’s costing restaurants close to $150K annually. I don’t know about you, but I’m a big fan of profit. If you told me I could add $35,000 to my bottom line for almost no additional expense, my first question would be how.
That’s what we mean to answer with our webinar series The War For Talent. We start with some great hacks to retain staff and improve your employee turnover results. Join us and learn how to improve your performance by managing details that make a difference and will deliver immediate results.