When you run your own business, one of the things you’re constantly looking at is your profit margins. Did you make more or less this quarter than last? How are your yearly projections looking for this year?
What would you say if we told you there is one major issue that’s cutting out twenty percent of your profits every year? Employee turnover is a huge problem in the restaurant business. Whether you realize it or not, it’s costing you a lot of money every year. Read on to learn how much employee turnover costs you and what you can do to salvage that lost money.
What Causes Employee Turnover?
Employee turnover rates seem to stay particularly high in the restaurant industry. We’ll dive more deeply into those numbers in a moment, but first, let’s take a look at what causes employee turnover in the first place. There are a number of things that can factor in an employee’s decision to leave a job. Across all industries in exit interviews, employees listed their reason for leaving as, in descending order, a lack of career opportunities, problems with work-life balance, managers’ behavior, poor compensation and benefits, and their own well-being.
Restaurant Industry Employee Turnover Rates
The employee turnover rate for the restaurant industry is the highest of any in the country, at almost 75 percent. There are a lot of reasons that the restaurant industry, in particular, sees such an astronomical turnover rate. For one thing, restaurants are the leading employers of our nation’s teenagers. One-third of employed teens work in the foodservice industry. So when they leave to go to college, that gets counted into the statistics. Even once they go to college, many young people work in the restaurant industry as part-time or seasonal workers. If they come home to work in the summer and leave again, those numbers get counted, too. And the restaurant industry is contending with more local competition than almost any other industry. Employees may have upward mobility options with other restaurants in town that they wouldn’t have in banks, law firms, or manufacturing warehouses, for instance. So while the restaurant industry does see a lot of employee turnover, it isn’t because it’s a bad industry to work in. There are some artificially inflated numbers factoring into those statistics.
So how much does that 75 percent employee turnover rate actually cost? According to Cornell University, restaurants stand to lose as much as $5,864 every time they lose an employee. That may seem shocking, so let’s break those numbers down. Three percent of your profit, or $176, gets lost before an employee ever decides to leave. Once they do quit, you’ll spend another $1,173 on advertising and recruiting for the new position opening. When you get an applicant, you can expect to spend $645 on the selection process. Once you finally have the new employee, you’ll lose $821 on their orientation and training. And in all that time you’ve been doing the recruiting and selecting and training, you’re losing $3,049 in employee productivity.
How Much You’re Losing
So let’s break this down even further and say you run a restaurant with thirty employees. That means that over the course of a year, you can expect to lose twenty-three of your employees. At $5,864 an employee, you’re looking at losing $134,872 a year in employee turnover alone. That’s more than a reasonable mortgage in losses every single year. That means you’re losing as much as twenty percent of your profit margin to employee turnover every year.
Calculating Your Own Turnover Costs
If these numbers are sounding crazy to you, or if you want to figure out exactly how much it is you’re losing, there’s a calculation you can use to estimate your own turnover costs. You’re going to start by looking at your costs for four major areas: hiring, training, development, and time with the unfulfilled role. Keep track of the time you spend looking for, hiring, and training a new employee. Also, make a note of any money you spend on advertising the position and paying employees to train the new hire. Then estimate how much time you lose by being one staff member short. Take all those costs and add them together to get one big number that’s your cost per employee turnover. Then multiply your annual turnover percentage by your number of employees to figure out how many people you’re losing a year. Multiply that number by the cost of employee turnover and you have the exact amount you’re losing on turnover every year.
Preventing Employee Turnover
So now that you know exactly how much you’re losing, how do you stop hemorrhaging all that money? The first and most important thing you can do is to conduct exit interviews with your departing employees. You can’t fix the problems if you don’t know what they are, and this is the perfect opportunity to get first-hand knowledge. Once you know why your employees are leaving (and make sure to make notes of their reasons so you can run statistics on them), start working out ways to tackle those problems. Work with management on issues that have come up, and put in place a system to reward high-performing employees. Make sure your wages are competitive, review your benefits package, and check your hours to make sure employees aren’t being overworked.
Make Your Restaurant Better
Employee turnover can be a huge source of revenue loss, but it doesn’t have to be. The first step to improving is knowing what the problem is, so run the calculations and figure out how much this is costing you every year. From there you can start taking steps to make your restaurant a better and more profitable place for everyone involved.
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