According to the United States Bureau of Labor Statistics Job Openings and Labor Turnover Program, the overall annual employee turnover rate in 2016 for the “restaurants and accommodations” sector was a jaw-dropping 73%—the highest of any industry!
Let that sink in a moment.
That is astonishing. Our readers are in it every day, but when you put a figure like that on paper, you take notice.
A study conducted by TDn2K in 2018 dubbed, ‘Recruiting and Turnover Report,’ reported that the average cost of turnover per manager for restaurants is $13,867.
Sure, the transient nature of the restaurant workforce plays a part. But for many restaurants, a disengaged work culture is also to blame. Disengaged employees are more likely to leave and less likely to engage customers.
This is an ominous problem as the industry faces evolving consumer demands and disruption to the traditional service model. For restaurant leaders, optimizing customer experiences to boost customer loyalty is more critical than ever.
Have you thought about the substantial cost of recruiting, hiring and training? Investopedia says the cost of hiring an hourly employee can be upwards of $3,500 when you factor in the entire hiring process.
Recruitment is just the first step in this costly process: according to business advisor William G. Bliss, there are various, potentially high costs in the process of recruiting alone, including advertising the opening, time cost of internal recruiter, time cost of recruiter’s assistant in reviewing resumes and performing other recruitment-related tasks, time cost of the person conducting the interviews, drugs screens and background checks and various pre-employment assessment tests.
Once the right person is finally in place, businesses need to provide adequate training so the new employee can do the work and start producing for the company.
Training turns out to be one of the costliest investments a company can make.
And, in a 2017 study by Training Magazine, companies spent an average of over $1,886 annually on training per employee. When that investment walks out the door, your bottom line takes a direct hit.
Not every new hire will demand the same process, but even an $8/hour employee can end up costing a company around $3,500 in turnover costs, both direct and indirect.
How to calculate your own cost of turnover
To help you quantify turnover cost, we’ve put together a simple formula: your company’s cost of employee turnover is equal to the number of departures, times the average cost of those departures.
The number of departures will simply equal your number of employees times your annual turnover percentage.
While we cannot capture every single expense or even some of the big intangible costs like impact on employee morale, we can get a good sense by analyzing four major buckets:
- Cost of hiring
- Cost of on-boarding and training
- Cost of learning and development
- Cost of time with unfilled role
So we can now describe your overall annual cost of turnover to be:
As an example, if you are a 150 person company with 11% annual turnover, and you spend $25k on per person on hiring, $10k on each of turnover and development, and lose $50k of productivity opportunity cost on average when refilling a role, then your annual cost of turnover would be about $1.57 million.
Reducing this by just 20%, for example, would immediately yield over $300k in value. And that says nothing of the emotional headache and cultural drain felt from losing great people.
You can use this spreadsheet to plug in your own numbers to get a sense of what the costs look like for you.
Employee turnover will always be a part of the restaurant game, but knowing how it affects your business is vital. There are techniques, technology and simple managerial skills to positively impact your employees’ well-being and satisfaction. When that happens, your employees worry less. They’re happier at work and they’ll stick around longer.
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