The small mistake that’s eating your restaurants profits

cover-1-copy-18

You have an amazing menu in place, you are set up in a great location and you have created the perfect atmosphere. But despite all of your perfect planning and hard work, you’re hitting a rock and the numbers don’t add up. Is it the food quality, poor service or something else?

Running a restaurant is a combination of art and science. It starts from the kitchen with the creativity of the chefs and ends with the calculated decisions of business-minded managers. To keep the show going one may need to take hundreds of decisions on daily basis spread out in all sorts of fields – food quality, inventory, customer service, marketing, hiring. Sometimes in that pile of decisions there may be one small mistake that has been left unnoticed that can cost you months of hard-work – feeding itself of your profits.

“It’s not hard to open a restaurant. The hard part is to stay open, make money, and do it over a long period of time” Ming-Tai Huh, PuritanCo

Your business may be a leaking bucket

The restaurant industry has been way too consumed with attracting first-time guests for a long time. The reality is that almost two-thirds of our business comes from repeat guests. And besides providing a good service most places don’t invest in other activities that could make customer stick around.

“Wasteful marketing to new customers, without a retention strategy = thing profit margin.” – Clara Somayeh, Egg Fabric

This matters a lot, because it can make profit margins significantly thinner without noticing it. Assuming that you pay for marketing, every new customer comes at a cost that you need to cover before you make any profit. Let’s say you are spending a few hundred pounds on Instagram and Facebook ads every month and the results are impressive – the place is filled every month and the total purchases number is high. You’ve gained 300 new customers, but at the same time you’ve lost 225 of the ones that came last month. Some never came back because of the location or other personal circumstances, but what if 150 out of the 225 left because of a disappointment or dissatisfaction with your restaurant? Regardless of their reasons, whether it was service, quality of the food, or price, the effect is the same – your business has grown by a net of only 75 new customers.

You can see that revenue & profit growth doesn’t necessarily come from expanding the customer base. A long-term relationship with customers may unlock a ton of value overtime. For example repeat customers have tendencies to bring other people with them and to spend more on what they like.

Few facts about repeat customers

  • They are more likely to return
  • They spend more (67% more according to Bain & Co) They promote your business
  • Acquiring a new customer can cost 6 to 7 times more than retaining an existing one (Bain and Co.).

It takes more than ever to win repeat customers
Before:

  • Great service
  • Food quality
  • Close proximity
  • Clean place
    Now
  • Great service
  • Food quality
  • Close proximity
  • Clean place
  • Online delivery
  • Social media Presense
  • Rewards
  • Personalization
  • Online menu

The fundamentals for keeping people around have extended overtime and what seemed to be nice to have, now is influencing everyone’s decision. One can no longer rely just visit the place because they have no other options around or because. There’s too much choice and the competition have shifted

Customers are slipping away, but you don’t see it
When a complaining customer leaves a restaurant and never returns again, it’s not shocking because they are vocal about it. But, what about all the customers who walk out without the fuss?

Long gone are the days where you could memorize the faces of your customers, what they like or how often they come. For a brick & mortar business today it’s really hard differentiate between new and existing customers, as well as where each set of customers came from.

After speaking with a few venues in London about their experience with customer churn we found that most couldn’t really tell the ratio between new and existing customers. Except for one fellow restaurant owner who was progressive enough to have started tracking it.

He is running a casual dining restaurant serving italian dishes with a decent location. What he found out was that more than 55% of his customer base was temporary. That means that from 50 customers per week 25 would never come back for some reason.

What’s more interesting is that once he knew that he started asking questions. He started collecting feedback from every customer and found out that the service he found that there are

It’s tempting to think that once you’ve won someone as a customer, he’ll be coming back forever. Truth is that the relationship with customers is not static, it’s fluctuating all the time. People who were once devoted advocates of your dishes may turn against you, because they were not treated properly one time.

Compared to online businesses that can slice & segment data about each customer with surgeon’s precision…

…restaurants are struggling to answer basic questions:

  • How many new customer have you gained last month?
  • How many customers have you lost this month?
  • What is your customer’s lifetime value?
  • What is the whole purchase history of an individual customer?
  • What is the average spending of your new, regular or loyal customers?
    Who are the biggest outliers who come almost everyday and bring friends with them?

Most importantly – what actions can you take to influence those numbers? This makes for a painful truth about local businesses – most of the decisions are based on intuition rather than data.

London cafes hit list for 2019

London is home to tens of thousands of local businesses — from cafes, restaurants to specialty shops. In theory one could spend a lifetime without visiting the

Read More »