The Effect of Employee Turnover on Hotel Profits: A Test Across Multiple Hotels

Employee turnover is generally recognized as a costly phenomenon, and hotel companies consequently have initiated various turnover-reduction programs. Despite many studies, however, it remains difficult to assess exactly what effect turnover has on operating profits—and thus to assess the return on investment for initiatives designed to reduce turnover. An analysis of gross operating profits and employee turnover rates at 98 full-service hotels at one hotel company yields an estimate of the actual dollar costs of employee turnover. In general, the cost of turnover increases with ADR. That is, the cost of a 1-point increase in turnover is greater for a hotel with a high ADR than for an economy-tier property. On average for this sample, the cost in GOP of a 1-point increase in turnover rose $525 with every dollar increase in ADR. Thus, for a hotel with a $125 ADR, each point increase in turnover cost another $32,750 per year in GOP. On the other hand, a hotel with an ADR of $65 would be losing just $1,250 for every additional point increase in turnover.