Tips & Turnover: What's the Correlation?

A man making a coffee behind a coffee shop counter while talking to a coworker

 

It’s no secret that the hospitality industry is experiencing unprecedented staffing issues across the nation. With the average employee tenure being under 2 months, restaurant operators are scrambling to keep up with demand, and often donning an apron themselves just to alleviate some of the demand. 

Losing employees doesn’t just cause longer wait times for guests and fewer operating hours. The loss and training of an employee can cause significant costs that are often not seen or calculated by managers on the floor. Cornell Hospitality estimates the cost of employee turnover at $5,600+ per employee.



Break down of employee turnover costs at $176 pre-departure, !1173 recruiting, $645 selection, $821 training, and $3049 productivity loss

 

Thankfully, there are some opportunities to improve turnover, and much of it can be done by maximizing your opportunities for tips. HBR notes for every 10% increase in base pay, you can improve turnover by 1.5%. You to save tens of thousands of dollars per year in turnover costs. 

 

Pay Attention To Take-Out & Delivery Tips

Understanding how to improve tips for meals taken off-site doesn’t have to be daunting and can be implemented in several ways. TipHaus, the industry-leading tip distribution platform, recently aggregated some of their customer’s tip data and found some incredible results. 

Pizza restaurants topped the chart with tips for delivery and to-go. They brought in between $1500 and $3500 in tips every week. The tips are directed back to their staff after accounting. This means they are generating an extra $3-5 per hour for everyone on staff, dramatically increasing pay and average tenure. 

If your primary sales aren’t pizza, don’t fret. A rapidly growing franchise popular for selling traditional American food of burgers, wings, and hot dogs is seeing tremendous results as well. They made an easy option to tip at the pick-up counter. They are averaging roughly $1,000 a week in tips for the staff across all locations, leading to an extra $1-2 per hour for each employee. 

It’s no secret that staff stay where they are paid well and appreciated, so it’s important to find ways to get tips in the door and into your employee’s pockets. Most POS systems have unique ways to offer tips for takeout and delivery, and you can even offer a simple tip option as a menu item for apps like DoorDash and Uber Eats. Instead of going to a 3rd party driver, these increasingly common "$1 to the BOH" options are a great way to supplement pay and keep employees longer. 

Speaking of tipping the BOH…



Find Creative Ways To Generate Tips For Your Employees

Not content with merely pooling tips and sharing with the BOH, restaurant owner and operator Patrick Whalen decided to open a model to directly tip the kitchen staff. While he met a lot of doubt and skepticism, it’s hard to deny the 1.1 million dollars he has generated for BOH across his 5 restaurants, virtually eliminating his turnover.

Other restaurateurs took notice, and have recently implemented similar programs. NY restaurateur Willie Degel plans to implement a BOH tip option in his 6 steakhouses, and several Los Angeles restaurant owners and operators have decided to do the same.

You can also try to use in-house drivers for your deliveries. However, it's not always practical for operators with too much on their plate already. As not all restaurants are capable of bringing delivery in-house, it might be beneficial to focus on carry-out.

Instead of paying hefty fees and surcharges, as well as losing the majority of the tip to an external driver, restaurants average tips of 3-5% of the total sales. Significantly down from the national average of 17%, but a massive revenue boost when executed properly. Those hot wings to-go generate an average of $3 extra per hour per employee for a national wing chain, according to TipHaus data. 

What’s their secret? They offer specific incentives for carryout, free or discounted low-cost items, and unique coupons only redeemable for future carry out purchases. This ensures a steady flow. It catches those customers who are too tired to cook on their way home and still have a coupon sitting handily in their car. 



Handle Tips With Transparency 

Last, but certainly not least, is how you handle tips among your employees. With an unlimited number of ways to structure your tip pools and tip sharing, it’s important you find the ideal method of distributing these tips among your employees. But don’t stop there, you also have to keep employees in the loop and informed.

More than 80% of employee-to-manager conflict is tip-related, so be sure to offer an easy and simple way for employees to track their tips and know how much they give up to other job positions and co-workers. While it seems counterintuitive, employees of transparent workplaces enjoy a 27% longer tenure, significantly decreasing your operating costs. 

If you use a simple house tip pool and group everyone together, this can be as simple as letting everyone know the totals brought in and the hours worked from everyone. However, if you use the more common tip sharing, such as 3% of alcohol sales go to a bartender, and hostesses earn 1% of total sales, you may consider a platform to help you track and calculate these numbers automatically. 

If you would like to learn more about tip transparency or understand common and best practices for tip distribution within your restaurant to improve employee retention, feel free to schedule some time



 

Published on 25 April, 2022

Written by Kirk Grogan

Picture of Kirk Grogan
Kirk is the COO at TipHaus, an industry-leading tip distribution platform.