Turnover Is a Pac-Man: Waka, Waka, Waka as It Chomps Through Your Profits

Turnover Is a Pac-Man: Waka, Waka, Waka as It Chomps Through Your Profits: SuperPumped Business Episode 034

[00:00:00] Ben Walters: Did you know there's a silent cancer in your organization that's voraciously eating up all your profits like Pac-Man. Waka, waka, waka, waka, waka. What if I told you, you can invest a small amount of money and a little bit of your time and eradicate that cancer, get your profits back rolling in the right direction, get a huge ROI on that investment, and begin to finally start to generate the profits you always dreamed of when you started your business. Now, I know the stress you're going through because I have run so many different businesses. You're going through your P and L, you're crunching the numbers. You're really just struggling to figure out, why am I not making money?

[00:00:44] I've spent decades owning and running and managing restaurants, and construction, and commercial cleaning businesses, and even hotels, and these are high turnover, low margin businesses. There is literally [00:01:00] no margin for error because the margins are so very small. And so if you can't keep your turnover down in these businesses, you will quickly go from profitable to out of business in the blink of an eye.

[00:01:17] I have lived that stress and I have come out on the other side. Many lessons learned the hard way through trial and air ,through hard knocks. Now I have strategies that will help you conquer and cut out the turnover, cancer and begin to change the future of your business. ​

[00:01:42] Welcome to the SuperPumped Business Podcast where passion, purpose, and profits collide. If you want to launch the kind of growth that changes lives from the bottom all the way to the top of your organization, this is the place. I'm Ben Walters, a serial [00:02:00] entrepreneur, pastor, coach, and consultant. If you are ready to stop playing small and start building something extraordinary, let's get SuperPumped. 

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[00:02:13] Ben Walters: So I wanna talk about this. Many of us run our budget forecasts almost like we're in candy land or fantasy land.

[00:02:20] So we make the assumption in our modeling and our budget forecasting, from the starting point that we will consistently have a full team of people in place to deliver the good or service that's at the core of our business, right? That's, kind of, just a baseline assumption, right? We're gonna be able to do what we need to do.

[00:02:41] We're gonna run projections that if we have this many employees at this wage and they can produce this many units of output, we're gonna make this much profit, right? But those projections, we either ignore or we underestimate the devastating power and cost of turnover. [00:03:00] So today I wanna share three examples of how turnover will gut your profits.

[00:03:05] Now, just for ease sake today, I'm gonna give you a simple example. I'm gonna say you're either a cleaning company or a construction company or a, a small independent restaurant. Maybe a franchise restaurant, and you have around 50 employees and a million dollars in top line revenue. Okay? So that's, kind of, your, your general setup. And your targets are 60% variable cost, 25% fixed costs, and then a 15% margin.

[00:03:33] That's, that's what you're targeting. And in these businesses I'm talking about 15% is doing really well. Some of those are down at three to 5%, others are around 10%. So we're gonna be optimistic, and you're gonna be optimistic in this example, thinking you're gonna get a 15% margin. So, again, no turnover or open positions.

[00:03:54] You would make 150,000 in profit in addition to whatever you're paying [00:04:00] yourself in salary for the work you're doing for the business or for the company. Okay? So, that's a pretty good scenario, right? Let's say you pay your salary to yourself of a hundred grand, and then because you're the business, so you're an owner-operator, and then you pay, you generate 150,000 in profits as the business owner,

[00:04:20] your bottom line, when it all trickles down and comes through the wash, you're making 250,000. That sounds pretty good, right? I think most of us would agree that's a, that's a solid, solid income. But for many of you, you're not hitting that. The reason is because, in the real world, outside of our modeling and our projections, turnover does exist.

[00:04:44] And if you can't get that cancer eradicated in your business, or at least isolated and, kind of, kept at bay, it's gonna do one of three bad things. And you have essentially three bad choices if that cancer is running through your organization. [00:05:00] So I wanna talk about each of these options and why each of them is bad in its own way.

[00:05:05] So the first option is you have constant turnover, let's say really high turnover, like 400%, which means your turning over, every position, every three months. And I've seen a lot of businesses, in fact, some of my early cleaning businesses, we were turning over those positions every two and three months. So I, I, I'm not throwing shade on anybody, I'm just saying, it is not out of the realm of possibility that you have that level of turnover. I see it. I'm working in a hotel doing some stuff, and they turn over the dishwashers every couple months. So, you know, you might be having a 600% turnover if you're turning over every six months. Or every two months. So in that scenario, there are some organizations that just continue to pay whatever it takes to refill, and fill, and fill again, the positions that keep turning over so they're in this constant just churn of, [00:06:00] somebody leaves and then boom, we're gonna hire again and go through that whole process, and we'll talk about that. Second one is keep, keep production rolling along at the optimal level without new hires, by basically leaning harder on your existing people. So the people that are showing up, pay 'em overtime. The managers that are in charge of that particular piece of your business, they're gonna be pulled in to do some production or frontline delivery type of stuff. So that's the second option.

[00:06:28] Third option is, hold the line on hiring budgets and overtime but cut production. So if 60% of your people are showing up, you just put 60% output. Now, in the real world, you often mix and match. So, you know, you may use option two in the immediate, where you're gonna pay people overtime and they're gonna do their thing, and then you're still working on hiring, but then maybe you cut production a little bit.

[00:06:55] So it's, it's a little bit of mix and match. These are not isolated, kind of, [00:07:00] binary decisions. Those are, kind of, your three options, so let's explore each of these. Scenario one, you are committed to fill those open positions no matter how often they pop open. Your recruiting budget is going to be astronomical if you have high turnover, and I almost guarantee you in your budgeting and forecasting, you're not putting hundreds of thousands of dollars into employee recruitment.

[00:07:25] Now, I could be wrong, but I have worked with a lot of companies. I've yet to see any that allocate the full cost of this high turnover. So, but think about why it's so costly, 'cause some of us just, kind of, gloss over that turnover. Isn't that costly, right? First off, you're gonna pay someone to write the help wanted ads, right? If you have an HR person or maybe an administrative person, you're gonna have them working on that. So it's a piece of their time first, right? Then whatever platforms you're gonna put those ads on, whether it's Indeed, or, you know, monster, or [00:08:00] any of the other ones, and there's several of them, you're gonna be paying to get those ads out there, right?

[00:08:05] So there's an additional cost. Then you're gonna be paying, most likely, someone to do the interviews. Then if you find someone you like, you're going to have to drug test them, most likely you're gonna have to run some reference checks. So, again, these are most likely outsource things. You're probably not having to pee in a cup in your administrative offices, right?

[00:08:26] So you're outsourcing that to a third party. You're having a third party run the background checks, you're checking the references, all that. So a lot of cost involved with that. And if any of these fail, they fail the drug test, and that's against your policy, you're back to square one, right? So you've invested all this time and money, and then you've gotten nowhere.

[00:08:45] So that's, kind of, the first hurdle you gotta get over. And some of you were gonna say, well, I'm turning this over to AI. But even AI, you've gotta manage it. You've gotta have somebody who's kind of working on putting that all together. So there's really no way to avoid this, this [00:09:00] type of cost. So let's say you get through all that you, you place the ad, you hire somebody, you get through it, you make that offer, right? Do you know what happens? A lot of times the candidate ghosts you, or here's another one, it's a real kicker. They politely let you know, oh yeah, I took another job yesterday, or a week ago, 'cause you were a little bit slow in your process. Or, yeah, I heard your offer, but I actually have been interviewing with a bunch of companies and this company's paying 50 cents more. So sorry about that, but I'm good.

[00:09:33] Again, you've done all this work, right? You've invested in the background check and the drug test, all the, the things that go into this, the ads, and you've gotten nowhere. You're back to square one. So that's another possibility. But even when the stars align, right, they pass all the screens, they accept the job, they actually show up on the first day, you're still not out of the woods. If you think you've hit the, the, the golden ticket, you're wrong. [00:10:00] Because you still have the cost of training them and you still have this idea that you hope they're not going to be misaligned with the work. That the work, they're going to think, oh, that sounded fun, but boy, it really isn't that fun.

[00:10:16] I don't really like this. And so I've had this, where you go through this whole process and they show up for a day and then they never come back or they show up for a week and they never come back, or they show up for a month and they never come back. That has happened to me so, so many times. It is just so deflating, not only to you, but also to your entire team, to the person who trains 'em, to the person who hired them, all that investment in that, and you're back to square one with another open position.

[00:10:49] So it's a really difficult thing. Now, let's say you hit the home run on everything and they actually stick. They go beyond the week, and the month, and the quarter, or what have you. [00:11:00] Even with that, and this is your perfect scenario, their productivity is not at a hundred percent. You don't just hire someone into a position and on day one, they're cranking it out at a hundred percent capacity, right?

[00:11:14] They're not, and depending on the job it may take a week, or it may take three weeks, or it may take a month, or sometimes a full quarter to get them up to speed. So when you think about that top line output, right? You've, you've done these projections. If you're gonna be a million-dollar business this year, that's assuming you're at 100% output, but they're not gonna give you 100% output.

[00:11:36] So you're gonna be subsidizing that along the way. You may still be paying somebody a couple hours overtime while they're learning, or you may be paying somebody to train 'em. So all of that goes into why this is very costly. Very, very costly.

[00:11:53] The Society for Human Resource Management estimates for every new hire you're going to [00:12:00] spend $4,700, almost $5,000. Now you may say, we don't spend that much 'cause these are, you know, and that's an average, and some of that goes into executive pay. But I looked up specifically to industries. Restaurant workers cost their companies, just through the hiring and recruitment process, around $2,000 while cleaning, construction and hospitality those run around $3,500. In these industries, the average turnover is somewhere between 100%, meaning you're changing people every year, those positions are churning, up to 400%, meaning you're changing 'em every three months. So just a quick bit of math on that 100 to 400%. With only 50 employees, if you have average turnover levels, turnover's gonna cost your bottom line somewhere between a hundred thousand and $700,000.

[00:12:54] That is a lot of money. Think about that. Remember, in [00:13:00] this initial scenario, you were gonna come out with $150,000 in profit, right? So if you hit the a hundred thousand dollars, you've now squeezed your profit from 150 all the way down to 50,000. That really stinks. Now, I wanna tell you a, a super pumped hidden thing to think about that so many employers miss.

[00:13:22] Most of us outsource our payroll. Very few companies do their payroll in-house, so you have a third party, they take care of it. Paychecks or there, there's a whole lot of companies and the employers tend to forget that they are paying SUDA and FUDA payroll taxes on every employee. And so those numbers are capped at 9,000 and 7,000 per year.

[00:13:46] Those are state unemployment and federal unemployment. So what's cool is, if you keep somebody in a position all year, you only pay that tax on the first 7,000 or the first $9,000 of wages. [00:14:00] But do you know what happens if you turn that position over twice in a year if you're at a 200% turnover? You're gonna pay that tax twice.

[00:14:09] If you're at a 400% turnover, you're gonna pay that tax four times. If you're at 600%, six times. So you are just throwing money away, and that's at each employee. Remember, you got 50 employees. So all of a sudden, just on SUDA and FUDA, if you're at that a hundred percent to 400%, you're gonna cost your company an additional 10,000 to $40,000.

[00:14:36] That's not chump change. If your total profit projection is one 50 and you're, you're wasting 40,000 just on SUDA and FUDA, that's a real hit to your bottom line. And if you're in the construction industry, your base rate for unemployment is way higher. So that's a low number. It could be triple, quadruple that.[00:15:00] 

[00:15:00] It's pretty staggering how much money can be lost. So returning to this scenario 1, 60% variable costs, 25% fixed costs, 15% margin. If you have that 110,000 up to 790,000, or 740,000 in turnover costs. You're either gonna be very minorly profitable or you're not gonna be profitable at all. So that's, that's a scenario.

[00:15:30] But, you know, that may be how you wanna roll. So let's move on to option two for business owners, and I've seen this a lot. This is bring in the ca, calv, cavalry. I can never say that word, cavalry. The white horse guys. Bring them in from within or turn to a temp service. So let's say turnover is gutting, about 40% of your workforce is just constantly churning, and that's a pretty standard number in, you know, restaurants, and in cleaning, and [00:16:00] construction, a lot of these things, hotels. So 40% churn. The other 60% of your people are pretty stable. So your game plan is just, that's all right, if they churn, I'm just gonna pay the people who show up. I'm gonna pay 'em overtime, they're gonna be happy. I'm gonna keep it flowing at a hundred percent output, right? So you do that, or maybe you augment your existing staff with temp workers.

[00:16:23] And if you've ever used, like, upshift, you're paying a 40% premium. So if you wanna set the wage at $15 an hour, you gotta pay a 40% upcharge to the company, so you're paying $21 an hour. Now what this'll do is it'll keep your top line revenue meeting projections. You'll continue to roll along, but you are going to eat up your profit margin.

[00:16:45] When I first started my commercial cleaning business, turnover was killing us. But here's the thing: I didn't have the option to just clean 60% of the building, right? If three of five people who showed up to clean a little three-story office tower showed up, [00:17:00] right? Guess what I had to do? I had to say, sorry guys. You guys gotta stay and, and work overtime because we've gotta get the building clean. We can't just skip 40% of the building. And so I was paying them overtime and then, of course, I was also pulling in the manager to be like, Hey, can you help them finish up this building? So the manager was there for a couple hours a night, even though I'm paying the manager at a much higher rate than a cleaner would be paid.

[00:17:24] And so all of a sudden it killed my bottom line. So, in this second scenario, I kept production rolling, right? I, I, I still continue to get those checks from the customers, but I absorbed a 25% bump in variable costs to cover the overtime and the manager. So if my variable cost projections were 600,000, right? And I had a 25% bump with all the overtime, and temp ,workers and management. Guess what? I'm at 750,000 in my variable costs. And remember, my fixed costs are still 250. So on that million dollars, guess what? 750, 250, [00:18:00] that's a million. So I have now had no profit on this business that I'm working my butt off in. That's not a very good scenario either.

[00:18:10] Now, a final option I've lived is to lower production output. So don't pay the overtime or pull in a manager. Don't keep running ads, just operate at a lower capacity, right? That'll keep your unit cost on target, and I saw this in my quick-serve restaurants. So coffee shop, for example. We need 10 people in the morning to really pound out those orders for lattes, and breakfast burritos, and all of that on morning drive time rush. That critical 530 in the morning till about 11:00 AM, right? But guess what? A lot of times, 4 outta 10 workers might might not show up. Guess who's gotta try to bust butt as hard as they can?

[00:18:51] The 60% that showed up. And so they did the best they could, but your capacity is cut because guess what? They [00:19:00] can only produce the stuff so fast when they're missing 40% of their team. And so, guess what? The lines begin to back up. You see the line on the camera inside the building backing up out to the street.

[00:19:11] And then the worst thing for me, it would just gimme a pit in my stomach, is you'd see these customers cars slow down, and often regulars, and they'd look at that line and they'd think, well, that's gonna be a while and I've gotta be to work at 7:30, or I've gotta be to work at 8:30 or 9:00, or whatever the number was, and then I'd see 'em pull off.

[00:19:28] And I knew, I knew exactly where they were going. They were either going to the Starbucks down the street, or they were going to the Tim Horton's down the street. So 40% of my business was just driving on by. Now that's a real bummer, right? But I kept my variable costs still at 60%, right? So let's run the numbers again.

[00:19:49] I've lost some money here on this 'cause I, I'm not producing as much. So now I'm only getting $600,000 a year from this business, right? But I'm only still paying the [00:20:00] 60% 'cause that's who showed up. So that's gonna be 360,000 in variable costs. But, my fixed costs, the cost of that building, I'm operating out of the cost of the air conditioning to cool it, the cost of the insurance and the taxes, those all stay the same. Those fixed costs stay the same at $250,000. So add the 360 and the 250 What do you come up with? You come up with 610,000 and I've kept my top line revenue to 600,000. Guess what? In this scenario, by cutting capacity to fight turnover, I've lost $10,000 that year. Now ,if I gave myself a hundred thousand dollars salary as an owner-operator, now I'm only making 90 with zero, actually negative profit. That's not a very fun scenario. That's not why you go into business. That's not the, the dream of being your own boss in the entrepreneur life, right? At least not for me.

[00:20:58] To go in and basically [00:21:00] bust my hump in a, in a grinding job, only to make less than I could make in corporate or in a, just a managerial job. That is no fun. That is no fun at all.

[00:21:13] Lemme tell you folks, reducing turnover is the key to stopping the losses on a failing business or moving from break even to profitability on an average business. There are tens of thousands, hundreds of thousands, even millions of dollars you can put back into your pocket, into your profits if you can cut out the turnover cancer. I was, like I said, I was able to figure this out the hard way. I was able to put in place programs, and incentives, and ways we hired to lower our turnover in industries that have incredibly high turnover. Commercial cleaning, fast food, figuring out how to motivate [00:22:00] people to show up to work. And do you know what began to happen?

[00:22:04] As I figured out this turnover cancer, as I began to cut that out of my business and began to just blow away industry averages, like the industry average would be this, and I could be holding on to people for years. When everyone would say, oh, you're gonna turn over restroom cleaners every, you know, four times a year.

[00:22:23] And I'd say, I, I've kept the same people the last five years. You know what happened to my business? It became incredibly profitable. Incredibly profitable. And this allowed me to embrace that entrepreneur dream, to allow my family to travel, to live in a dream home, to fully fund my wife and I's retirement, to fully fund our kids' college funds.

[00:22:47] I just wrote the last check for our, our youngest kid, his final tuition check. All three of those kids through schools with no debt coming out the other side. Boy, that, that makes you feel [00:23:00] proud as a parent. Not only that, be able to give to our church and other charities that we really value. Be able to give generously to those.

[00:23:09] But more important than all that personal gain, it allowed us as business owners to take care of the very people who were doing the work to take care of our customers. That would be our employees, we were able to pay them higher hourly wages, give them bonuses three times a year in industries where nobody gets a bonus at the frontline hourly worker level, and in turn, they loved working for us and we slayed the turnover beast.

[00:23:42] If you are tired of turnover, just waka, waka, waka, waka, waka, eating up your profits and sapping your energy. I would love to help you put a plan in place in your business to reduce turnover and to start skyrocketing your profits.

[00:23:59] All you [00:24:00] have to do is book our Rapid Results Consulting. This is the simplest thing ever. Book us for a day or two days. We will go in, dig into this with you and your team, we will figure it out, we will put a new plan in place, and we will get you rolling with a proven plan that will reduce your turnover and cut out the cancer that's eating your profits.

[00:24:20] Now, I am so confident in our turnover reduction strategies that if you don't recoup the investment that you make in us through lower turnover, within six months, I will gladly refund your consulting fees. I'll write you a check. There you go. Think about it. A day or two days, 3000 or $5,000, and you can put tens of thousands, hundreds of thousands, even millions of dollars over time, back in your pocket.

[00:24:52] To me, this is a no-brainer. I wanna thank you for joining me today on the SuperPumped Business Podcast, and next week [00:25:00] we will dive into the hidden costs of turnover and how turnover might be stalling your growth and undermining your customer retention. If you want help with turnover in your business, go to superedpumped.com to book a free consultation.

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[00:25:21] Ben Walters: Thanks for joining me today on the SuperPumped Business Podcast. If you enjoyed today's show, I have two quick next steps for you. First, subscribe or follow us on Apple Podcasts, Spotify, or YouTube. And second, jump on over to superpumped.com to find out all the incredible ways we can help you launch your SuperPumped Business.

[00:25:43] Keep well and I'll see you next time.