How e-tips can increase restaurant profitability

It's no secret that restaurants are struggling with profitability. Between rising labor and food costs and inflation, there are many pressures on the industry. Handling tips is another issue, as cash management is both consuming and costly for restaurants.

One solution to this issue is to deliver electronic employee tip tools that can automatically push out tips to employees. This can both improve employee satisfaction and boost profitability. A session at the Restaurant Franchising and Innovation Summit, held from March 24 to 26 in Kansas City, Missouri, addressed this topic in detail.

Andy Korbak, VP of sales at Instant Financial, moderated a panel that included Jay Kazlow, president and COO of Dantanna's Restaurant Group, and Neil Newcomb, CEO of Kelly's Roast Beef Franchising.

More money, more problems

Kazlow pointed out that with Dantanna's Restaurant Groups on slow days in several locations they would usually have $1,000 in tips to hand out and $5,000 on a good day. However, since 90% of their sales were from credit cards, they would have to make runs to the banks every day to get the cash for servers.

"It was time consuming and dangerous," Kazlow said. This was especially the case with workers carrying bags of cash in dangerous parts of cities. At one point he saw a worker driving with the window down with a bag full of at least "$20,000 in cash."

He said the one incident that put a fire in him to adopt e-tipping.

E-tipping in a nutshell

"We started doing electronic tips within ten days of that experience," he said. As a result, Dantanna's turned to Instant as a way to integrate e-tipping. This in turn eliminated paper for the restaurant. The restaurant now uses Instant for payroll as well. Instant is a wage access and e-tipping tool provider for businesses to provide instant access to pay for employees.

Newcomb said Kelly's Roast Beef Franchising was a bit different. It is a limited-service chain, and pains employees a competitive hourly rate. It added tips on top of that to entice more employees to join and it "distributes through kitchen and front of house."

He said this is more of a tool to improve worker morale and in turn effectiveness.

"For kitchen to get that[tips] also, creates a better team environment. They get more concerned about ticket times and food presentation," Newcomb said. "It's more of a way to keep the staff happy."

Workplace marketability

For both panelists, one of the best benefits of e-tipping is that it improves your marketability as a workplace and makes it easier to get employees.

"Anything you can do to sweeten the pot, like paying them every day, makes it easier," Kazlow said.

Newcomb said that adopting tips for both front and back-end staff has "lessened conflict" between the two groups.

Pain points and first timers

When asked whether there were any pain points in adopting e-tipping, Kazlow said that while some employees were leery of signing up online to use Instant, once he told them their options were either to sign up or to accept that they would not get paid every day, it was much easier.

In addition, it helped out the employees, since they are less likely to go use predatory cash checking services and are able to establish banking practices.

"First-time people in restaurant industry, usually they don't have any banking or credit. Through this process they have a credit card they can use," Kazlow said.

On the cost savings level, it is primarily a time saver, both for transporting cash and handling payroll.

"Whoever goes to the bank, it takes an hour and a half to go there and back," Newcomb said in a trip that's supposed to take 20 minutes.

Kazlow also pointed out that with tools like Instant, he can handle payroll and payments instantly, as opposed to signing hundreds of checks at the end of a week.

Reducing human error

Kazlow addressed how e-tipping has dramatically reduced human error with tips. Traditionally with cash, managers would have to give out tips at the end of the night and mistakes were easy to make and difficult to correct.

"If they make a mistake, it can be recalled. It's hard to recall cash when you put it in someone's pocket. They're doing it at a time of convenience online rather than a time of necessity," Kazlow said.

Ultimately both Kazlow and Newcomb said the true value of e-tipping is to make your restaurant more competitive in a tight labor market to attract employees.