Last semester one of our graduating students wrote an UGSRP discussion paper on the cost of restaurant management turnover. While as an industry we often speak to the ‘cost of turnover’, there has been very little effort to try and provide a breakdown of these costs. Here is an excerpt from Jacqueline Simard’s report. The full report is available at the end of the blog post.
The cost of restaurant management turnover. High-level employees quitting any organization voluntarily presents major problems affecting every industry. In Canada, the problem is incredibly relevant as Canadian Restauranteurs continue to face a growing labour shortage of skilled candidates. The restaurant industry posts some of the highest turnover in the country, and has the second highest job vacancy rate of all sectors at a consistent 4.5% in Canada. (Statistics Canada, 2018) For the first time in
2018, Restauranteurs rated labour costs and recruiting and retaining employees their top 2 challenges facing the business. (Restaurants Canada, 2018) With rising labour costs, lack of available talent, and economic indicators predicting a slowdown or possible recession in the near future, restauranteurs must be diligent to reduce costs wherever possible in order to remain competitive and profitable. (Restaurants Canada, 2018)
The cost of turnover is difficult to calculate and is never presented as an expense line on an income statement, as costs are absorbed into a variety of expense categories. There are no accounting systems designed to evaluate the financial impact of voluntary turnover. Research from a variety of organizations in a variety of industries presents concrete dollar amounts in wild variations. For example, a 2009 study was conducted to evaluate the cost of labour turnover in Australian four and five star hotels
and found that the cost of replacing a management or executive level employee averaged $109,909 after considering direct costs and indirect costs such as loss of skills, inefficiency, and loss of expertise. The same study also found the average cost of replacing an hourly employee at $9,591. (Davidson, Timo, Wang, 2009) A comprehensive report by Deloitte found that the cost of voluntary turnover for management level employees was on average $109,676 per employee when evaluating direct costs and
loss in productivity. (Erickson, 2016) Research shows that while managers tend to understand that turnover is costly, few have strategies in place to reduce and mitigate turnover. (Hinkin & Tracey, 2000)
This paper will explore factors contributing to both indirect and direct costs associated with restaurant management turnover, and will provide a general framework for restauranteurs to understand the financial impact of losing key managers within their restaurants.