Do You Know what Your Employee Turnover is Costing You?

The October unemployment figures came out last week and I don't need to tell you the results; unemployment is low, and wages are increasing. In most industries at least. In the food space, particularly restaurants, an industry with very low margins and very little wiggle room, rising wages and low unemployment have combined to create a terrible labor shortage.

You are most likely concerned with finding warm bodies as opposed to finding someone who is the right fit. Maybe you are also dealing with intense competition from other industries in your region that pay better for less labor intensive work. In the SF Bay Area, we've seen our well-trained employees jump ship to work in better paying tech jobs with better perks.

In today's market, the employee/job seeker seems to have the upper hand. It's a buyer's market, the "buyer" being the employee/job seeker. Once you have enrolled someone in working with you, are you invested in keeping them? If the answer isn't "yes" it should be!

The cost of employee turnover is perhaps greater than you think. The National Restaurant Association has estimated the cost of replacing an employee in our industry can range from $4K to $14K per employee. The Center for Policy and Economic Research has created a neat little calculator to help you determine the real quantitative cost of turnover. Find it here.

Once you have an idea of what it's costing you to hire that person's replacement, you can begin to see the enormous value in focusing on retention. Let's examine this more closely.

There are real quantifiable costs of having to replace an employee.

Screening and recruiting – Today, you will post on job boards online so it reaches more people and many of the boards help you isolate by keywords. It's easier than it used to be for potential candidates to find you and to apply for your position. Many of these boards have made it easier for your manager to sort through the many resumes and applications you receive.(cost savings over the old days!) But someone still has to spend time looking over resumes, calling, arranging for interviews with the team, etc. Let's assume about four hours per applicant, all together. That includes the time each member of your team spends evaluating the new hire.

Administrative costs – The cost of on-boarding the new hire includes the time your HR person or manager spends going over all the paperwork, the employee handbook, the online portal you have for your payroll, going over policies, benefits enrollment. In many small businesses that don't have full time HR departments, the manager is accountable for this so you are pulling the manager away from essential functions of his/her job.

Training – Depending on the position, this could be more or less costly. The more skilled the position you are replacing, the more costly it becomes. Let's assume for the moment we're talking about a manager, someone responsible for a team of people. The new hire will need more training around your processes and culture, and the learning curve can be steep. Realistically it may take the better part of a month to get someone completely trained.

There are very real soft costs of employee turnover as well.

Trust and social capital suffer. Teamwork is essential in our workspaces, and takes time to develop. The kitchen and dining room perform a dance every night based heavily on trust and teamwork. If the person next to you on the line is constantly changing, it is nearly impossible for you to develop a sense of trust with that person immediately and it can take a while to develop it. High performing teams require a high trust context and that takes time to develop.

The overall morale of the team can suffer when there is high turnover in the workplace. The high turnover might be for a variety of reasons which all eat away at how the remaining folks feel about being there. I worked for one company that had ridiculously high turnover. In fact, I probably had to cut at least 5 termination checks a week. Most of the terminations were people who had worked for less than two months before leaving. Employees who stayed became resigned to the fact that whomever they were training would be out the door in a few weeks. They became resentful of management who didn't care enough about the quality of the candidate. And they couldn't do their own jobs well while training others.

Quality of food and service can suffer which nobody wants! A team of folks who have worked together closely, who have come to understand the menu/winelist, who have become familiar with customers - this is what maintains the quality of everything you are trying to create in your business.

You may be asking yourself now, "how can I reduce my turnover without spending more money than I'm saving? I mean, employee benefits would be great to offer, and I wish I could give everyone a $2/hour raise. But I can't. So how can I compete?" This is precisely what I intend to tackle in my next post!

You can find this post on Bernoulli Finance's site as well under The Workshop