A huge controllable expense many restaurants ignore: Employee turn-over

A huge controllable expense many restaurants ignore: Employee turn-over

        

This may be a restaurant's largest controllable expense

By: Bob Tousey, FMP, MBA

       The margins in the restaurant business are so thin that effective managers must pay careful attention to each cost item in their budget. One controllable cost that many managers ignore is the cost of employee turnover. For years, many managers have considered employees to be expendable and would let good employees walk out the door without any effort to encourage them to stay or understand why they are leaving. I remember one manager saying "let them go, we can replace them". This combined with the natural turn over in an industry that hires a lot of students and part time workers its no wonder the restaurant industry has some of the highest turn over rates in the country. Let's take a moment to examine how dire the situation is.

       The Bureau of Labor Statics estimated that turn over in the restaurant and accommodations industries in 2016 hit an astonishing 72.9%. The Center for Hospitality Research at Cornell University estimates the cost of employee turnover is $5,864 per employee lost. The estimate includes costs associated with recruitment, selection, orientation & training as well as lost productivity. With the cost of turn over so high, it is something that deserves priority attention.

Before we discuss how to reduce the turn over cost it will be helpful to make sure the readers know how to calculate the turn over rate in their restaurant. This will allow them to recognize how implementing some of the ideas in this post can affect their bottom line. First, for count all the separations which occur during the period that is being examined (month, year, etc.). Only include permanent separations whether voluntary or involuntary. Do not include employees out on the Family and Medical Leave Act (FMLA), other leaves of absences or those on temporary lay-off. To determine the average number of employees for the period you average the number of employees that worked during the period. When doing the calculations remember to use actual head counts rather than full-time equivalents (FTE’s) for both the total separations and average number of employees. Once these numbers have been determined you simply divide the number of separations during the period by the average number of employees for the period. Let’s say the period is one year and you have 35 separations and the average number of employees is 50. The turn-over rate for the year will be 70%. With an average turn over cost of $5,864 that is a loss to your restaurant of $205,240. I bet that gets your attention!!! If you were one of those who thought that employees are expendable I bet, you are rethinking that. While a manager will never eliminate turn over it can be reduced.

       How to reduce the turn over rate will depend on your restaurant’s situation. As discussed previously turn over will always exist. However, the industry can do better. A good first step, is to begin to conduct exit interviews when possible. This will help you get a good gauge on why employees are leaving which will help you identify opportunities for improvement.

       Retention begins at the recruitment and selection process. Encourage strong employees to refer candidates to you. Often good employees will recommend other good employees. This can be done by offering a bonus for referring an employee. It is recommended that the bonus be paid in at least two or more increments such as half at the time the offer is accepted and half when the employee completes his or her probationary training. Another idea is to keep the lines of communications open with those employees who left on good terms. They can be the source of great referrals and maybe be able to return themselves. A great and fun way to communicate with alumni is to institute an electronic alumni newsletter. The newsletter can include information about what is going on in the restaurant plus alumni only specials. Not only is this be a wonderful way to keep in touch, it could also generate business on a traditionally slow shifts. Have the alumni show the manger their electronic newsletter (which is easy with cell phones and tablets) to be eligible for the special. One suggestion is on on a slow bar shift offer a $5 burger to alumni in the bar area only. This will encourage alumni to mingle with other alumni. Have mangers and top performers there to welcome them and talk. Another idea is to use culinary and hospitality programs at local colleges as a recruitment source. Social media and traditional advertising forms can also aid the recruitment effort.

       Once there is a strong recruitment program in place, it is time to consider the selection process. Managers should ask strategic questions that are geared to learning a candidate’s level of knowledge as well as determining whether they are a good fit for your restaurant’s culture. Once you determine that the candidate has the knowledge necessary and is a good “fit” you should ask for references and check the references. Obviously, it is important to confirm dates of employment and position held. Many employers will not share reasons for departure or if they would rehire, but by engaging in conversation, you maybe able to learn a candidate’s strengths and weaknesses.

       Once you the candidate accepts the offer it is important to effectively and efficiently use the orientation and training time to provide the new employee with all the tools necessary to succeed in the new role. Make sure your trainers are your "cream of the crop" employees. Have the management team meet with the new employees throughout training and most importantly make sure the new employee has mastered everything they need to know to be successful. If the employee demonstrates potential but needs more time, please extend them a reasonable amount of time to master the material. Often an employee who takes a little longer really masters the material and turns into a champion member of your team. The investment in some additional training time pales in comparison to the turn over cost. It is also important to provide ongoing training. This can be as simple as including a 3 to 5-minute training component to each pre-shift meeting. This should be part of a structured training plan and each component should be repeated throughout the week. It is important for management to determine whether the employees mastered the training goal. This can be done through observation or a short quiz can be given. Managers and top performers should be coaching on the topic throughout the week.

It is also important to recognize top performers through team member of the week or month programs. Provide an incentive as well as posting their picture so fellow employees and guests can recognize the achievement. Another effective way to keep employees happy and knowledgeable is to offer a shift meal before the shift begins. The manager selects a menu item to be served. This allows employees to eat before their shift, to gain menu knowledge plus ensures they will be on time for their pre-shift meeting. During the pre-shift meeting a member of the culinary team can take a minute or so to describe the item offered. It is also important when possible to honor requests for time off. Obviously, there will be times that you can not do that. This will occur on blackout days such as Valentine’s Day or Mother’s Day or when there is not adequate coverage. There are many times though a time off request can be granted and if it can be please grant it. One last suggestion is for management to be clear and consistent in its expectations. The managers should also be respectful and professional in their demeanor.

Hopefully, this article will provide you some ideas on how to reduce the controllable expense of turn-over costs and will make your restaurant more profitable and efficient.