What is Turnover Really Costing You?

written by Leigh Ann Teubert
Vice President – Horizon Hospitality

When a guest walks into your operation and sees the same reliable people, it increases their comfort and confidence that they will receive great service. They will keep coming back and confidently tell all their friends about their experience. So, when your hotel or restaurant sees a spike in turnover, what toll does it take on your bottom line?

I could ask you all day long about food or labor costs – those things are embedded in your brain…but turnover percentage or the average cost of replacement? Ironically, most hospitality businesses do not calculate turnover, nor look at it as an “expense area.” Most see it as just the “cost of doing business.”

The fact is that hospitality businesses should be consistently monitoring their employee turnover – both financially and operationally!

How to Calculate Your Rate of Turnover

Calculating employee turnover is simple.

Total # of Employees who left during the prior 12 months (Y) = Your Turnover Percentage
Total # of paid employees during the same 12 months (X)

So, once you have your rate of turnover, what next? How do you use this information?

How to Calculate the Cost of Turnover

The formula for calculating what turnover costs your company is also simple. However, before calculating, you will need to find your “Average Cost of Replacement”. And that is not so simple.
You need to account for:

  • Cost of Coverage for an open position (the role’s average daily compensation x the number of days vacant).
  • Talent acquisition costs like job advertising, hiring manager average hourly rates devoted to filling a role, background checks and assessments, etc.
  • Onboarding costs, as well as factoring in reduced productivity while the new employee learns the ropes.

Once you have totaled up all those factors that go into a position’s cost of replacement, you can calculate the Cost of Turnover for your business:

Total number of employees x Turnover Percentage x Average Cost of Replacement

While having a handy formula to put the cost into hard dollar amounts is helpful, the intangible costs can be harder to pin down. For example, what knowledge is lost by an employee’s departure? Will there be a hit to staff morale and productivity? After factoring in all these costs, you could face a price tag of anywhere from 50% of each entry-level worker’s pay or up to 200% of a management-level salary.

Get Ahead of Turnover

Understanding your turnover can give you a more holistic view of your operation’s health. It can signal that you need to improve other areas of your business, like hiring the right people in the first place! If your cost of turnover is hurting your business, take an honest look at your recruiting process and ask yourself:

  • Are you sourcing candidates from a range of talent pools?
  • Are you using behavioral interview questions that are objective and meaningful?
  • Are you setting realistic expectations about the role?
  • Are you finding all the “skeletons in the closet” with background checks, assessments, and thorough reference checks?

Horizon Hospitality provides our clients with exceptional hospitality management talent along with the most effective pre-employment screening tools for the private club, hotel, and restaurant industries. Make a small investment to hire the right talent and you will see a significant improvement in your bottom line.

Contact us to learn more.

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