How much is turnover reducing your profits?
Base premise: Each position at your property contributes to profits.
The Contribution Factor is a ratio on the expected profits each employee should contribute based on the number of years they have been in the same job. The Contribution Factor has been applied at hundreds of hotels, restaurants, and clubs, as well as corporate and regional offices. It has always predicted profits with at least 95% accuracy.
How much turnover is reducing your profits depends on which positions turn over and how long the employees were in that exact job when they left. Many positions have turnover within the first year when expected profits from the employee are the highest.
How does The Contribution Factor work?
|Years in same job
||Expected contribution to profit
Hotel, Resort, Conference Center Management Positions
||Improve operating profit by 5 times their total compensation.
||Improve profit by 3 times compensation.
||Improve profit by 1.5 times compensation.
|4th year & thereafter
||Improve profit by 1 times compensation.
Sales & Marketing Positions (including Corporate Sales/Marketing
|Every year on job
||Minimum contribution to profit of at least 10 times their annual compensation.
Corporate Management Positions
||Improve profit a minimum of 10 times their annual compensation.
||Improve profit 7 times annual compensation.
||Improve profit 5 times annual compensation.
||Improve profit 3 times annual compensation.
|5th year & thereafter
||Improve profit 1.5 times annual compensation.
Formula to determine how a current vacant position will impact profits each week the job is vacant.
- Title of the position:
- Salary/Wage and any bonus you expect to pay this position in the next 12 months:
- For all positions except sales positions:
Multiply line 2 by 5. (Example: $60,000 salary and bonus x 5 = $300,000)
- Divide line 3 by 50 weeks in a year to determine how much this position will reduce profits each week the position is vacant. (Example from above: $300,000 divided by 50 weeks = $6,000 profit reduction every week the job is vacant.
NOTE: Sales positions multiply line 2 by 10 and then divide by 50 weeks.
Vacant positions do lower your profits.
Formula to determine how much turnover reduced your profits the last 12 months:
1. List each of the jobs that turned over in the last 12 months. (List by Department to make comparisons.)
2. Enter weeks each job was actually vacant. (From last day incumbent worked until new employee started working.)
3. Enter number of weeks to reasonably expect job to be vacant: Management 5 weeks. Hourly 3 weeks.
4. Subtract 3 from 2.
(Ex 1: Management position vacant 7 weeks (From column 2) that should have been vacant 5 weeks (from column 3) equals 2 weeks of lost profits. Make entry in Red.)
(Ex 2: Hourly position vacant 2 weeks that was expected to be vacant 3 weeks equals 1 week of gained profits. (Entry in black.
5. Enter weekly profit contribution expected from the position the first year. (Use a split column, one side for Profit Contributions profits. Second side for Profits Lost.)
6. Multiply Column 4 by Column 5. Enter in appropriate sub-column based on profits gained or lost.
7. Add up each sub-column in 6.
a. The difference between the two columns is the total profit contributed or lost.
b. See Rule of Thumb below.
RULE OF THUMB: Spending 1/4 of the profit dollars lost from turnover, on training, should reduce your turnover costs this next year by 50%. Example: If your lost profits from turnover are $1,000,000, spending $250,000 more on training over the next 12 months should reduce your profits lost to turnover to $500,000. Stated another way. In this example, a property could spend $250,000 on training and still increase overall profits by $250,000 just by reducing turnover, plus the increased profits as a result of the increased training.
Your property needs to determine the average number of days the property is willing to have jobs vacant for different types of job categories. By grouping information on this chart by Department and position classification you can identify which positions have the highest turnover. That information can aide your property in identifying training and motivational needs to reduce the turnover.