Most restauranteurs, and business owners in general, understand that cost of labor is most often the biggest expense in running any business. That is true in the restaurant more than any other business. In fact, it cost sixteen times more in labor dollars to run a restaurant as compared to say running a grocery store. Compensation being the greatest impact on that labor cost.
However, I want to talk a little about the next biggest impact on labor cost, and that is employee turnover. A couple of statistics worth noting: It costs a business approximately 30% of wages to replace a front line employee. And, restaurant (hospitality) businesses suffer from 100% turnover a year. Let’s talk about those rather staggering numbers.
Replacing an employee
The cost of replacing an employee. Difficult to measure. It really is expensive, though. First you have to recruit. The time lost looking for an appropriate candidate, interviewing them, checking their references—and you really should be checking those references—really can add up. Then the processing of a new employee is also time-consuming.
Once you have found that right fit, you now need to spend money on the training of that employee. Perhaps you will need to supply them with a new uniform—another expense. But, the immeasurable costs of loss of production until that employee is trained and being fully productive, the loss of consistency during that time, and the inability of a new employee to recognize repeat clients -something customers are used to and miss when it doesn’t happen—is where the real expense lies.
100% Employee Turnover?
The loss of 100% of your employees in a year cannot be overstated. That means that if you have a staff of 40 employees, odds are that you will be hiring 40 employees every year! Of course, some of your employees are going to stay more than a year, but not much longer if they are constantly spending their time training new employees. Nobody likes to work in a place with high employee turnover.
Wall Street Journal
According to the Wall Street Journal, publically traded companies with high employee turnover suffer from a 28% loss in value when compared to companies with a relatively low employee turnover. So, the question remains: Do you have high turnover in your establishment? What can you do about it? Is there a way to stop turnover all together? These are questions I will be exploring in a future post.