The Tipping System is Broken. Why we moved to a “Service Charge” model at our restaurant.
The traditional tipping system is broken and after two and a half years of running Samples we decided to “call it”. We have moved to a service charge model. How are we doing this without inflated prices? We are able to pay our team competitive, livable wages WITH BENEFITS. As a result, we have a stable, high performing team that builds a repeat client base, thus increasing revenue. We also have significantly decreased turnover and save lots of $$$ in expenses to offset the cost of the increased wages. It’s a win/win/win for the customers, the employees and the business. I love to win.
Why did we make the switch?
- The “tipping” incentive doesn’t work. There are two assumptions in the tipping world: 1) Servers will provide better service if their paycheck depends on it. 2) People will tip better if the service is great. Truth is: Neither assumption is true. Everyone in the industry knows that a “tip” is not derived from amazing service but instead on the disposition of the customer. I ALWAYS tip over 20% anywhere I go — It doesn’t really matter whether the service I received was amazing or not so much. I simply think tipping 20% is the right thing to do so I do it. Somebody else may only tip 10% everywhere they go and it doesn’t matter if you bent over backwards and provided five star service — they are still only going to tip 10%. Generally speaking, the average tip is 18% regardless and this means that no one on either side of the table is motivated by service.
- We are removing the emotional guilt of discretional tipping. If you are like me, deciding what to tip is the worst part of the meal. Is it too much? too little? Does the person need the money more than me? Did their performance justify 15% or 25%? I hate all those thoughts and I will actually generally overpay to overcompensate for my emotional guilt of the power differential at a restaurant. Quite frankly — We believe it shouldn’t be the responsibility of a customer to determine the wage of our employees. That is their employer’s job and we are going to go ahead and remove that responsibility from you as a guest. You may even save money if you are a perpetual 25% tipper…You’re welcome.
- It is hard to maintain quality staff in a discretional tipped model. Servers are generally living paycheck to paycheck and they depend on high customer volume and good tippers to pay their bills. So then what happens if it snows and nobody goes out to eat? What happens if they have three tables that stiff them with no tip in one shift? The result is that these servers then struggle to survive and get anxious and start to look for other work. This environment creates stressed employers and stressed employees, which results in an unstable workforce, bad service and high turnover.
- We got sick of the “ME” mentality. In the serving industry there is an “it’s all about me” mentality that comes from the discretional tipped environment. In a tipped world, there is very little teamwork and it is all about what that server can get for themselves instead of what they can do for the company. This creates a dysfunctional working environment where people become laser-focused on only their world and not helping those around them. It also creates problems where a server may be making inflated wages while the kitchen staff is financially struggling when they are both equally important positions to the overall success of the business. We expect everyone to show up and be a teamplayer and yes, we are going to compensate people fairly and equally to do that.
- We want to give our employees health insurance and benefits. We want to retain the best of the best, and the way we do this is by creating a team of stable, high performing employees that are able to take pride in their job. We want a team of people that come to work feeling confident that they will make enough money to support their families, whether or not it snows. We create these teams by offering consistent full-time employment with livable wages, benefits and insurance, just like any other job. Isn’t it odd that we think it should be anything other than this?
- The discretional tipping model is insulting. There, I said it. In what other profession do we throw stacks of dollar bills at people or restrict it to minimum wage based on a point-in-time experience? Strippers and Servers are the only two positions I can think of that consider this an acceptable exchange of service and money… It’s funny that we treat restaurant employees as if they have to put on a show to earn their income instead of simply earning a fair wage to begin with.
What outcomes do we expect?
- Everyone will share an opinion. There are some customers that are so used to the way that discretional tipping has always been that they may decide they don’t agree with the service charge model. I would argue, however, that our service charge of 18% is the same that any reasonable guest would pay. This number was exactly our average tipped amount when we measured it over a 6 month period. If you aren’t willing to pay 18% as a service charge or a tip, then I would suggest you shouldn’t be eating out at a full service restaurant in the first place. Get fast food instead.
- People will assume the restaurant is making more money at the expense of our employees. It actually costs a lot more money to pay people an hourly wage when you take into account payroll taxes, insurance benefits, unemployment insurance and workers comp that will all increase based on your increased payroll. At the end of the day it is actually a loss to the restaurant even with the addition of a service charge of 18%. We accept this loss as we think it is worth it to offer consistent and stable income to our teams and consistent service to our guests.
- We can hold our team to a higher standard of performance. We believe that when you have a happy and stable team, you will provide better service to your guests. When someone isn’t worried about whether they can feed their family, they will have the space and energy to focus on skill, training and sales metrics. They can focus on team-building, helping each other and creating better authentic service because they care about the overall success of the company and not just themselves. What about how this impacts people who “perform better” than others? In this model, low performers don’t keep their jobs. Thus, the restaurant can hold everyone on their team to being excellent all the time, just as the employer does in any other business.
- We expect to have our service judged more. Good thing we are already expecting it to improve… Once you tell someone that they have to pay a standard service charge, they may evaluate the service differently. That’s ok with us, bring it on. Just remember that as a reasonable and consistent customer, you were probably going to pay 18% more than regardless (see point #1).
Have you been to Samples yet and tasted our Jim Burger? You may like it so much you want to leave a tip….but don’t you dare.
Now, you can just sit back and enjoy your meal. Yummmmmmmmmmmm.
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