Why Retention in Hospitality is the Most Strategic Investment

In the hospitality industry, turnover is a persistent challenge. It’s often seen as an inevitable part of the business, but the truth is: it doesn’t have to be. The hidden costs associated with turnover—both tangible and intangible—can significantly undermine long-term profitability. As the industry continues to face labor shortages and rising operational costs, understanding the impact of turnover and strategically investing in employee retention is more important than ever.

At Empowered Hospitality, we see this firsthand with our clients. The most successful operators aren’t just focusing on recruitment; they are shifting their focus to the more sustainable strategy of retention. It’s not just about hiring great people—it’s about keeping them.

Understanding the Costs of Turnover and the Importance of Retention in Hospitality

While turnover is often inevitable, the cost of employee turnover is all too real. To understand this, let’s break down the various factors that contribute to the expense of losing key talent:

• Recruiting Costs in Hospitality: Recruiting a manager in the hospitality industry involves significant time and expense. According to industry benchmarks, the average cost to recruit a manager can range from $7,000 to $25,000, depending on the position. This includes fees for job postings, recruiter services, and the time spent by senior leadership interviewing candidates.
• Training and Ramp-Up Time for New Hires: Once you’ve hired a new team member, there’s a period of onboarding and training before they can be fully productive. In hospitality, this can take anywhere from two to six months. During this time, new hires are often less efficient than seasoned team members, and your existing staff must dedicate time to training—both of which affect productivity and employee satisfaction.
• Impact on Team Morale and Employee Engagement Employee turnover is not just costly on an individual level. When a key team member leaves, it often triggers a ripple effect across the organization. Remaining employees may experience increased workloads, stress, or even dissatisfaction, especially if they’re not confident in the team’s ability to manage the extra work. This can affect morale, engagement, and overall performance ultimately impacting employee retention.
• Guest Experience in Hospitality: The Hidden Risk: Hospitality thrives on delivering consistent, high-quality service. When staff turnover is high, this consistency suffers. Guests notice when team members are inexperienced, when service isn’t as seamless as before, or when there’s a shift in the team’s dynamics. This can result in a direct loss of guest loyalty and long-term business. High turnover negatively impacts the guest experience in hospitality, leading to inconsistent service and reduced guest loyalty.

Investing in Employee Retention Strategies

In total, the cost of replacing a manager in NYC can easily exceed $30,000, and that’s not including the cultural or guest satisfaction impact, which can be even more difficult to quantify.

Employee Compensation Packages: A Long-Term Investment

We understand that budgets are tight, and margins are thin (or nonexistent)—especially in hospitality. But here’s an important consideration: sometimes, investing more upfront in talent can save you money in the long run.

Case Study: Successful Retention Strategy in Hospitality

We recently worked with a client in the New York City restaurant space who was faced with a decision: offer a highly qualified General Manager a salary of $90,000 or stretch their budget to $115,000. Initially, the company was hesitant to go above the baseline salary. However, they ultimately decided to invest in their team by offering a higher compensation package to attract and retain the right candidate.

Nine months later, they found the decision paid off. The GM they hired not only stayed long term, but also:

• Helped reduce turnover by 25% within their team
• Increased guest retention scores by providing more consistent service
• Helped reduce labor and COGS inefficiencies by over $60,000 by streamlining operations

In total, the additional $25,000 investment in the GM’s compensation saved the company well over $100,000 in turnover, training, and operational costs. Competitive employee compensation packages can not only attract and retain top talent but cause a ripple effect leading to reduced turnover and lower operational costs.

This example highlights how offering slightly higher compensation can lead to a more stable and productive workforce, saving money in the long term and increasing the bottom line.

Addressing Tight Margins: How to Implement Cost-Effective Retention Strategies

It’s no secret that many operators in the hospitality industry are working with tight margins, especially in the wake of rising food costs, labor shortages, and economic uncertainty. The idea of offering higher salaries or additional benefits may seem daunting when margins are already stretched thin.

However, the long-term cost of turnover far outweighs the short-term cost of investing in retention in hospitality. Here’s how hospitality leaders can approach this challenge:

• Understanding Total Employee Compensation: Compensation isn’t just about base salary. Employees value benefits such as healthcare, paid time off, and professional development opportunities. By focusing on the overall package, operators can offer competitive compensation without necessarily increasing salary significantly.
• Investing in Leadership Development for Retention: Investing in your managers can save you money on recruitment and training in the future. Developing leaders internally who understand your brand and operations can ensure that your team remains stable and well-supported. Leadership development doesn’t have to be expensive—it can include mentorship programs, training workshops, or providing opportunities for cross-departmental learning, all contributing to employee satisfaction.
• Employee Engagement Initiatives in Hospitality: Retention isn’t just about salary. It’s also about creating an environment where employees feel valued. Implementing employee engagement initiatives such as team-building events and recognition programs can significantly boost morale and retention. Fostering employee engagement in hospitality is crucial for maintaining a motivated and dedicated workforce.

The Bottom Line: Making Retention a Strategic Priority

When you focus on retention rather than turnover, you’re investing in long-term stability. Competitive compensation is one key factor, but so are internal growth opportunities, a positive culture, and effective leadership. The operators that recognize this are the ones that will stand out in the increasingly competitive hospitality landscape.