Would you wait 30 minutes to save 10c a gallon on gas? If you had a 20-gallon tank (which is a massive gas tank) you would save $2 – that’s it. If you value your time at $4 per hour (or less) then this is a good deal, but if you’re like most people and think your time is worth more than $4 per hour, then this is a terrible deal.
This happens all the time. It happens when waiting for gas, but it also happens in business: owners don’t invest in technology, only to spend more on time and labor than the cost of the technology.
Hiring is a perfect example of a business process that can be automated with technology. A turnover rate of 50% is on the low end in the quick-service restaurant industry and in certain markets 50% turnover would be considered exceptionally good. If you run a standard medium to large format operation (think of a McDonald’s for context) that means you’re probably hiring about 20 people a year.
Hiring is a time-consuming process, and it’s filled with its fair share of frustrations and pains: getting too many applications, not getting enough applications, people not showing up for interviews, unreliable employees, hassles with paperwork, the list goes on and on.
Many restaurants have managers whose full-time job it is to manage the hiring process, which alone could be costing $40,000 per year or more.
With the cost per hire from strong reviewing paper résumés priced at $6000, using an applicant tracking system can save about 6 hours per hire (or more if your situation is particularly challenging). These savings come from automatic resume filtering, automated interview scheduling, and sending paperwork digitally once you’ve found a new hire. These efficiencies work out to 120 hours in time savings per year – how much is 120 hours worth to you?
If you’re an owner who makes an after-tax profit of $60,000 a year and you work full time (2,000hr per year), your hourly rate would be $30/hr. $30×120 hours hiring = $3,600 – that would be the value of savings from using software to automate your hiring. To get the most value from investing in hiring software, it should cost less than $3,600, or preferably less than $1,800 per year (if you make big changes you want to see big savings), to ensure the investment has a good return on investment. That means any software that could save 6 hours of time per hire and $3,600 a year in costs is good value for money if priced at $150/month (or less).
While it’s not easy to run through mental math trying to value your time, if you can, at least remember that time does cost money and then you’ll start to find ways to save – even if those time savings do cost some money.
Why is opportunity cost important for restaurant owners?
Opportunity cost, or putting a $ value on your time, helps you to figure out what tasks are worth your time to do as an owner. If your opportunity cost is low, that means there are lots of tasks where it is probably best for you to handle yourself, like working a shift or cleaning up a spill. If your opportunity cost is high, then it wouldn’t make sense for you to work a shift. Opportunity cost is all about being able to get the most amount of rewards from your efforts.
Opportunity Cost and Growing Your Business
You as an owner are a precious commodity. If a customer is unhappy, if an employee quits, if a recipe needs to be changed, if a marketing campaign needs to be launched, all of that comes down to you, and if you’re doing all of those things yourself, it is more challenging to expand your restaurant empire.
Most owners already accept this on a micro-level – it makes more sense to hire a server than do it all yourself, hire a manager rather than working 7 days a week yourself, or hire cooks rather than to cook everything yourself – you as an owner are valuable and you should treat your time the same way.
The key to being able to grow and scale a restaurant business is to be able to determine which tasks can be given to others and which tasks you should keep doing yourself.
For example: when you own one restaurant, you will probably do all the hiring yourself, or alongside your manager. However, if you manage 10 locations, it doesn’t make sense for you to manage every single hire yourself, you should probably focus on hiring good general managers for those locations.
If you have multiple locations, you might even invest in a district or area manager to oversee multiple locations so that you can focus all of your energy on expansion, strategic decisions or just enjoying the fruits of your labor.
There is a reason Amazon CEO Jeff Bezos doesn’t deliver packages, it would save Amazon money but he can produce much more overall value as CEO than as a courier.
As a restaurant owner, you have a lot on your plate, and when you have a system that seems to be working, it’s easy to understand why you wouldn’t want to change things. To expand your business, you need to free up your time by understanding your opportunity cost and making strategic investments in the right people, processes, and technologies.