How Automated Tip Management Is Transforming Restaurant Operations - With Kirk Grogan (Ep 245)
Tipping is an important element in running a restaurant. Employees often receive several tips in a single dinner service, and sometimes keeping up with it is quite overwhelming and confusing. Kirk Grogan is here to discuss how automation can ease the burden of this particular task. Joining Jaime Oikle, the Co-Founder & COO at TipHaus shares the many benefits of using an automated process in computing, recording, and distributing tips, which results in a more optimized and streamlined restaurant operation. Kirk also explains how improving your tipping system greatly helps in improving employee retention and building a healthy workplace culture.
Find out more at https://www.tiphaus.com/
---
Watch the episode here...
Listen to the podcast here
Read the episode here
We've got a great episode for you as I'm here with Kirk Grogan, Cofounder and COO at TipHaus. I love the name. Let's start there. Who picked the name, and how did that come about?
TipHaus is a great, lofty, bold name that came out of a joke. A restaurant consultant was working with two large groups in the Seattle area. Both of them, while we were able to solve a lot of their issues, what we couldn't solve was their tipping problem. We vetted the market, and there wasn't anyone out there. There was one incumbent who was a classic Monopoly situation. Only dominant player, so bad customer support and expensive pricing. There's no one to compete against.
We got a couple of developer friends together. We started it up. We started working with those groups, particularly, and then we were looking for a name. Tip in the name made a lot of sense. Haus is the German spelling of it. Germans are known for solid engineering. We went with it, thinking we'd quickly rebrand or rechange it, but we loved it, so it stuck around.
It's interesting to always think about the origin of names. Give a little bit more description about what you guys do. You're solving that tip pooling and tip sharing problem, as well as the software and headaches that go with it. What does it look like?
You nailed it. The easiest way to think about it is that we solve tip problems. We started by solving and making sure that groups understood that tip sharing, tip pooling, all of these things are critical in a restaurant. Get your team functioning as a true team. You want to incorporate these. You need to make sure that you're supporting staff. Those assisting the guests who aren't directly serving them are cutting in on the pools. That's a very important piece.
However, to do so is a technical hurdle. It's a legal liability hurdle. There are often cash handling problems. There are lots of issues that go into tip. We started simply by automating directly into the point of sale and their time and attendance system, pulling that data in and calculating their tip pools, their tip shares, no matter what you want to do. It's a user-managed system, so you create all your own logic and all your own tip rules.
That quickly evolved into us making sure that we could handle things like an employee app for transparency for them and satisfaction, and then we introduced patented distribution methods so that you can run your restaurant as detailed and dialed as you want. Banquets, events, and all of that led to the logical question for restaurants. We’re calculating your tips, how much you owe your employees, and how to make sure they're made whole. We’re making sure that every single penny that comes in as a tip leaves as a tip. That is required in all 50 states. The house can never hold it.
After the calculations, we eventually got asked, “You're doing a great job at this. Why don't you move the money for us? Why are you making us do that and submit it to payroll?” We released our earned tip access program. We're partnered with a couple of banks. You have a couple of different payout options to receive your tips on a daily basis. We have continually driven it forward. We've got QR tipping modules and things like that used by some massive groups.
In reality, what we want to do is make sure that tips are not a part of the operator's life, that it's not a hurdle that they have to deal with, and that employees are receiving their money when they earn it. That way, they're happy and productive, they show up to work on time, and you've got a well-functioning restaurant.
It's one of those invisible things that the customers may not appreciate the level of complexity that goes into that piece of it. You think that you get the credit card slip, and you leave the tip, and it goes there. Sometimes, it's cash. You assume the server is getting it easy-peasy, but no. There's a lot of stuff that happens in the background. I'm guessing that one of the things that people like about it, especially the staff, is the ability to get the money quicker. Is that a fair statement?
100%. My first job was at Chili's when I was sixteen, and then I moved to a server and eventually a bartender. In high school, I forgot it's my girlfriend's birthday coming up, or it's Valentine's Day. I'm sixteen. I'm an idiot. I'm forgetting these kinds of things. I need to make a little bit of money. I can pick up a double shift on Saturday or work Saturday and Sunday and walk out with that cash. At sixteen, eighteen, and twenty years old, a couple of hundred dollars is real money at that time.
A great piece about the industry that I always loved and that always attracted me to it is making more money the more you want to work instantaneously, that instant gratification. As COVID hit and as cash has fallen out of the economy, that's gone by the wayside. You don't get that opportunity to hand out cash. Restaurants don't want to make bank runs. They don't want to deal with armored cars.
Tips must not be a part of the operator’s life. Employees must receive it when they earn it, which leads to a well-functioning and productive restaurant.
There are a lot of logistical nightmares that go into it. You're spot on. The ability to get that money faster and live back into the glory days of the restaurants where you're able to take a shift and then earn that money is super critical for customer or employee retention. Overall, it's expected in the industry, so we needed to find a digital way to solve that problem.
I could probably Google this, but I'm curious. You may know, because you're in the business. What percentage of sales these days, on average, is credit card versus cash sales?
Over 90%. It depends on the restaurant. It depends on the geography. More than 90% of sales, largely post-COVID. We were already trending out of cash. COVID fears happened, and it never came back. A vast majority.
I deal with cash a small percentage of the time, and I always feel like I'm doing something wrong. At a restaurant, usually, it's the phone here. It's, “Tap this. Tap that.” I appreciate that most of it's happening digitally. You talked about that aspect of employee retention. It's a big deal. Employers are looking for what makes me different. Why choose me over someone else? Things like culture, payroll, leadership, and all this stuff are part of it, but little tools like this can swing somebody's decision. Talk about how you guys use that as a benefit.
You're spot on. We've run a lot of case studies, and we were shocked by the numbers. We've seen a 30% boost in retention for restaurants. This is an industry that experiences over 100% turnover. That means on average, ten years less than a year at most restaurants. Harvard Business Review put out a great study years ago. $2,800 roughly is the cost of each employee that turns over, whether that's lost productivity, training, the HR process, etc.
Being able to keep 30% longer on these employees, you get to keep that $2,800 in your operating account and use it for expenses. It is a massive boost, as well as it's good for the culture. You get these employees who know what's going on. They stay longer. They help train these new employees, or they help bring back in regulars.
Hospitality is truly the people. It's the servers and the bartenders. The food must be great, the atmosphere, and all of that fun stuff, but at the end of the day, if you have a terrible experience with servers, you're typically not going back. We blew our own minds when we ran those studies, and we were seeing that. When you offer same-day tips or when you offer these tip liabilities disappearing from managers and the employees having to figure it out and them second-guessing if they're getting the right amount of their tips, and you give them that confidence, they do stick around longer. That's a massive benefit.
How Restaurants Should Optimize Tip Logic
I 100% agree with that. I was curious. You mentioned the word logic earlier, and I want to go back there. Different restaurants and different concepts treat this differently. There are probably more varieties than I can even think of. What are some of the best practices inside of that? What are some things that you've seen?
You are spot on with the idea. There is no standard operating procedure for restaurants. No restaurant has the same tip structure. They may be very similar, and they may operate under the same philosophy of what they're trying to do, but they have different roles. Some have food runners, and some don't. Some may have a hostess who does above and beyond and busses tables as well. Each restaurant needs to be able to customize the tip logic as needed. That's the power of TipHaus. We allow you to manage all of that yourself.
Typically, you see that oftentimes, bartenders will get tipped out a percentage of alcohol sales because they're taking time away from their guests at the bar to make those drinks for the floor. You see supporting staff typically earning between 10% to 20% of these tips. These would be people like food runners, expo, hosts, and bussers. These are individuals who are assisting that overall guest satisfaction and the guest experience, but who aren't directly serving the guests themselves.
Most of the time, we'll see servers earning and keeping between 75% and 85% of their tips, sometimes a little higher. Restaurants, if they're doing a lot of the work, buss it themselves, reset the tables, and do all of it. Sometimes, you'll see it even less if it is a massive support system. Fine dining restaurants where you have a ton of visible or invisible support that's helping you as that's gone out, you may see that up to 40% of those tips are getting kicked back.
The trick with the restaurant, in my opinion, is that you need to optimize for the results that you want. Every restaurant is different. If you don't have a busser, you may want to give more money to the host to encourage them to be able to accomplish this task. If your servers do everything, you have 1 bartender, 5 servers, and that's it for front of house, you want the servers to keep the lion's share. You may give a little bit to the bartenders for their drinks.
You need to operationalize your tip logic and tip structure to suit your goals. If that's reducing turnover, there are ways to do that. If that's ensuring that the host is going above and beyond, there are ways to do that. We don't think about tips, but it's a lever. It's something you get to manipulate to try to get the results that you want. In TipHaus, we'll walk you through how to adjust them, how to monitor, and all that fun stuff so you can get those results.
You need to optimize your restaurant for the results you want to achieve.
Working Around The Legalities Of Tips
That's great. The restaurant can jump in and tweak it to their formula that they use. There are legalities, and people will know some of what they are. What have you seen folks run into? There are certain people that you're not allowed to tip, and people who can't participate in the tip pool. What does some of that look like?
Complicated mine fields. It can vary on the state level, but it can also vary even on the city or county level. We do see that periodically. Typically, they revolve around tip credits. That's a very common one that certain states use. It’s big in the South, where you can pay federal minimum wage to $2.13 an hour, assuming that tips make up the remainder of that federal minimum wage to $7.25. That's a very common one. We see credit card processing fee rules where you can deduct the 2.5% that your credit card processor will take on the tip, not the total bill. That's a massive savings that a lot of people leave on the table in most states. If you're in California, you can't do that, so don't do it in California.
We see the 80/20 rule that Donald Trump, during his first term, put into place. If you spend 80% of your time or more serving the guests or assisting the guests, you’re tip eligible. That opened up a can of worms of a chain of service. The cook who spends all of his time making dishes for the guests, is he eligible? Generally, that ruling is yes. They are eligible back of back-of-house, assuming you don't take tip credits on the front of house. You start to get these layered rules. Bluntly, work with TipHaus or a group that's an expert in it because it's a landmine.
When these lawsuits happen, and they do, we've got a Slack channel in our company dedicated to Google notifications of it. They happen every day. These are typically 6 to 7-figure lawsuits. That's through no fault of their own. Typically, it's not fraud. It's incidental. When you've been messing up tip pooling or tip structures for two, three, or four years every single day and every shift of every server that works there, the end result of the amount of money that needs to get reallocated is massive. These penalties are massive, accordingly. It's messy. You mentioned earlier that it's a hidden landmine that sits around, and no one wants to think about it.
I've seen cases like that. These are the sort of things that will bust up restaurants because a lot of restaurants don't have 6 or 7 figures lying around to go back in time. That's the nature of the business. There is a technical thing that I'm curious about in integration with the POS. I know tech is becoming easy in some respects, but people who want to get started with the service that you guys integrate with a lot of platforms. What does it look like?
Our goal is to integrate with every provider out there eventually. We are well on our way. We've got 30 to 35 integrations between payroll, time and attendance, and point of sale. You name a major point of sale, particularly one that's focused towards full-service restaurants, we’ve got them. You can always find us. Some of these are in their marketplace. If they offer marketplace listings, sometimes, you have to message them directly to give us API keys. We have access to your data. Every group is different, but our goal is that no matter what service or technology you use, we will be able to serve you here over the next year or two.
Dark Side Of Personal Marketing Data
I’m changing gears a little bit. I saw on your LinkedIn that you did a TED Talk on The Dark Side of Personal Marketing Data. I can see that being the thing. What was that like? Tell me about that.
In a former life, when I moved to Seattle after I graduated from college, I got directly into advancing tech stacks for companies. Largely, we were looking at sales advancements and marketing advancements. That led me down a rabbit hole of marketing and, for a term at that time that was lesser-known but now is popularized, conversion rate optimization or conversion theory. That is how you get individuals to take the steps that you wish along the journey. On the TipHaus website, my goal would be to get you to click, book a demo, go through the steps, take a demo, and eventually utilize our service. That's a conversion journey that you might go on.
I did a lot of work with some Fortune 50 groups, some of which those headquartered out of Seattle. It was all driving around the idea of how to motivate individuals to take the actions we want. How do we prime them with blogs or marketing materials? How do you get as many exposure points as you can? How do you attribute that back to what you've done so you can create a funnel that consistently drives a percentage of people to the end goal you want?
Right around that time was when the Cambridge Analytica scandal came out from the 2016 election. That led directly into the rise of ISIS and things of that nature. I was listening to an NPR piece about ISIS and how they function. I was comparing that to what I was doing at work. They were unbelievably similar, but a different goals. My goal was to get someone to buy a pair of shoes from Amazon, where their goal was to recruit terrorists, but it was all the same. It was a sales funnel where you're trying to isolate these individuals. You're trying to expose them to your form of thought. You're trying to move them through this ladder of steps.
The more I looked at a lot of nefarious things that are going on out in the world, the more I realized that they were the best-run organizations. You hate to say that about terrorist groups, but if we recall what ISIS was, it was a marketing arm. They put out fabulously produced videos that were horrendous and awful. I don't mean to celebrate, but they have production value. They have a whole sales funnel dedicated to it. It's not what we think, but they ran entire server farms. They did a bunch of things that a lot of big businesses do.
The objectives are always different, but that was my attempt to highlight the idea that when you're taking a personality test on Facebook, that's being used to map against you as to what's going to be effective to work you through things, or it may be looking at phishing attempts. All the efforts and actions you take online in a digital world create a footprint of how to manipulate you if someone gets that data.
I know. It makes me nervous. I would say I'm going to jump offline, but I can't do that.
Find those unknown unknowns and make them known.
We've got bills to pay.
Best Personal and Business Advice
We can't do that. Let's jump to some personal stuff. What is the best advice you've ever received, whether it be business or personal? What do you think?
I'd say two things that I reiterate to myself. One is simple. It's to swallow the frog in the morning. It's a Mark Twain quote, but I've got that from an old mentor. Whatever it is that you're least looking forward to doing that day, do it first thing in the morning. Don’t drag it out, kick yourself for eight hours, and make it miserable. Get it done. It's rarely as bad as you think it is. Call that pissed off customer. Deal with whatever reporting thing you have to do for the quarter, whatever it might be.
The second more important thing, and this is from my mentor at the same marketing agency, is that your job is to find the unknown unknowns. That resonates with me a lot in my business and in life. There are the knowns. You understand what objectives have to be completed. There are the known unknowns. It’s like, “I don't quite understand the logistics or legalities of this, but I know generally enough that we can figure it out and I can map it.”
There are unknown unknowns. What are these pitfalls that you're not even thinking of? Those unknown unknowns are where millions of dollars get wasted and entire hundreds of hours of personnel or companies die. The goal that you should always have is to find those unknown unknowns and make them knowns. Make sure that it's a known entity. What do you have to do to overcome them? If you can do that, and you can do it fast, you're going to be very successful.
Kirk’s Book Recommendations
Both of those are good. I know I'm guilty. I got a piece of paper here. It's got a list of things to do. I find myself going, “Let me do the easy things,” and then I'm tired by the end of the day, and I don't want to do that hard thing. When you do that hard thing first or early in the day, it is great advice. That is a solid way to go. Give us a book recommendation. It could be something you're reading, something that you love, or something you tell people about.
I rotate between fiction and nonfiction. I try to read one of each a month. For nonfiction, Measure What Matters by John Doerr. It's the OKR framework. He brought it into IBM and popularized it across a bunch of companies. It's applicable to us. As we were looking for a new goal framework, I dove deep and read it, and all of his supporting work.
I was able to roll out a new goal framework tailored to TipHaus, but that has gone exceptionally well so far. A lot of credit to him. He paints the picture of how Google did it and how IBM did it. You go through intel on how these massive multibillion-dollar companies were still able to make sure that visibility through the entire org, and what we’re working towards.
For fiction, The Children of Time Series. I finished that. I’m a big sci-fi nerd. It's all about humans’ survival when we're trying to terraform future planets. It involves AI and us creating other species that are brilliant. It dives into philosophical questions. If you're looking and you enjoy sci-fi, that series is fabulous. It’s written by Adrian Tchaikovsky.
Using AI In the Restaurant Industry
Good stuff. I had it in my notes, but I didn't get there. Let's go to AI for a second. Is your stuff using anything, or do you see stuff in the future? My next question is about restaurant trends and where you see things going. Take it where you will.
You got it. We use very limited AI. There are major data sensitivities and security because we're dealing with financial data. A lot of groups are requesting that AI not be trained on that data, which makes perfect sense. We avoid that piece. We do use it internally for our operations. We use it to think through things. We've got some agents that we work through on that front.
Customer service is such a particular niche of, “Server X, Y, or Z did not get an allocation of $17. Could you tell me why?” AI is not ready to dive into that level of data and map through this. We'll say, “It looks like they clocked into the wrong job code. They were serving when they were supposed to be a bartender. We've corrected that for you. You're good to go.” A lot of personality is still needed on that.
For the overall trend, AI in restaurants is coming. A lot of the software around it is supporting it. You get some great hostess replicants. They can book reservations. They can move and modify those. They can take orders. Those are great. The real question is, to what level are we replacing the hospitality in hospitality? Some aspect of me thinks it'll never be able to replace servers or bartenders. Maybe that's my personal bias, but I don't like ordering from a tablet or anything, not having that human interaction. I want to sit at the bar. We can engage a little bit. I want to ask you about your favorite drink or your favorite menu item, and then I'll go for those. That's a complicated piece.
More restaurants are no longer building dining rooms due to physical limitations. Due to smaller footprints in these areas, more action is happening in food deliveries.
Overall, in the restaurant industry, technology is going to keep consolidating. We're already seeing that. You get these full suite offerings. You were a point of sale. Now, you’re point of sale, time and attendance, and payroll. They keep consolidating, but all of those are going to need to be decoupled. As you do more and more, you move back toward the law of averages.
You cannot be exceptional at everything. As you try to boil the ocean, you end up in the middle ground. You're good at most things. A lot of these groups want the best in breed in each one of these categories. We're going to see that ebb and flow of consolidation and opportunity for new business and start-ups. They're leading a gap in the market. That's going to be interesting.
There's a big conscious decision for new restaurants being built of onsite or offsite dining. It's no longer you put a dining room because you need one. That's a lot of physical real estate to pay for the staff and clean. Unless we're building a culture and environment that we know we're going to have onsite dining and it's going to be fabulous, you'll see smaller footprints, more to-go, more delivery, and limited dining space.
The financial side is going to change, too, and it is. The financial side is changing quickly. How employees are paid, both wages and tips, we're leading that charge here at TipHaus on that front, but also payment processors, what the dominant point of sale providers are, some of these big players that may step into the space, where you keep your operating accounts and how you spend it, and what rewards you earn on that money. Restaurants have constant cashflow. It's a massive amount of money moving through. There will be a ton of changes coming over the next couple of years. Restaurants are traditionally a laggard industry. It's hard to adjust.
What Most People Does Not Know About Kirk
You hit on a lot of good stuff there. It's true. Restaurants tend to lag behind some of the tech challenges, but they're doing better, and they have to. They're getting pushed to and forced to because margins are so tight. If you can grab a percentage by implementing this tool, go grab it. If you can grab another from doing this tool, go grab it. You have to grab it. Tech is helping with those things. I’ll put you on the spot here. What would you say is something that not too many folks know about you? What do you think?
I'm extremely introverted. That's often mistaken for a lack of social skills, or you're not comfortable in social environments. I don't think that's it. It's that being around people drains me. It drains my energy as opposed to replenishing it. As a person who does public speaking on 100 road days a year on the road at conferences and events, that would shock people. If I am not needed at a function or if I'm not needed to be around people, you will find me at my house with my wife and my two dogs, playing board games, watching some trashy television show, or whatever it might be. I'll be in the solitude of my home and peace and quiet if I can.
Get In Touch with Kirk and Closing Words
I am with you. I see people running around all the time, and I'm like, “I have no problem kicking back at my house, relaxing, cleaning up, checking on this, and checking on that. I am good to go with that.” Is there anything we didn't hit on? Parting thoughts? Parting wisdom? Websites? Socials?
We do offer two-week free trials. If you email me directly, it's Kirk@TipHaus.com. I'll give you a month of free trial. It does not bother me at all. If it suits your needs, you can stay with us. It's month-to-month, so we don't charge annuals or anything like that. We don't lose customers either, so it should work out in your head that we do something pretty right.
Visit TipHaus.com to schedule and book a demo. Shoot me an email directly. I love chatting with customers, prospects, and partners. Email me at Kirk@TipHaus.com. We're on LinkedIn, Insta, and all that. Our marketing team publishes amazing case studies and state of the unions for the restaurant industry. I'd encourage you to check it all out.
We're an open book here at TipHaus. We’re always happy to consult. Even if you can't work with us, we'll guide you through what tip structures are legal where you are, how you might best work, or if we've got someone that we know you'd work well with. Even if you're looking at a competitor of ours, a different point of sale, we'll coach you with it. We're almost exclusively all 55 employees from the restaurant industry, so we've got a lot of opinions and hundreds of years of experience here. We like the industry. It's a good one. I always want to keep this flourishing and happy, and keep the hospitality in it.
I love it. Perfect stuff there. That’s a good summary to get us going. This was Kirk Grogan of TipHaus. You can find them on the web at TipHaus.com. For more great restaurants, marketing, service, people, tech news, and more, stay tuned to us here at RunningRestaurants.com. Do us a favor. Please like the episode and share it. Reviews and all that stuff are helpful. Rate it. That is appreciated. We'll see you next time. Thanks, Kirk.
Thank you very much.