Getting the most bang for your buck on a restaurant marketing strategy is critical, especially when your marketing dollars are limited. And, with so many traditional and digital marketing opportunities available to the restaurateur, it can be a daunting task to understand where to spend those dollars. And then, how do you calculate the return on your investment (ROI)?
By creating, calculating, and consistently monitoring your marketing budget, you can not only see how marketing dollars are performing, but you also can gain valuable insight to make marketing decisions much easier. While not all marketing expenses can be easily connected to dining sales directly, there are a variety of “softer” metrics that will work with your entire restaurant marketing strategy. They can provide you with data that will help you market your restaurant better.
Here’s a few steps to get you started on better understanding the performance of your restaurant marketing strategy — and how much these dollars can add to your top and bottom line!
Step 1: Create Your Marketing Budget
First things first. You’ll need to get a handle on what your current restaurant marketing expenses are.
Gather up all the invoices and receipts that encompass the cost of your restaurant marketing strategy. There are several options for creating an actual budget document, from the common spreadsheet to more complex accounting software. Anything you can use to track them accurately is your best bet. Typical restaurant marketing expenses include:
- Website or app development and maintenance
- Advertisements (newspapers, magazines, online ads/PPC/SEM, radio etc.)
- Direct mailers (design, printing, postage, etc.)
- Marketing collateral (brochures, coupons, flyers, table tents, etc.)
- Outdoor signage
- Public relations
- Focus groups
- Photography, general design needs, etc.
If you can, try tracking marketing expenses for the current year and for several years back so you can see how those dollars change over a period of time. That way, as you start to calculate ROI in the next step, you’ll see where you’ve spent the majority of marketing dollars over time, and what’s driven the greatest (and the least) ROI.
Step 2: Calculate Your Restaurant Marketing ROI
Depending on how you understand the value of your restaurant marketing strategy, what constitutes actual ROI can be seen different ways and depends on what the marketing expense is. As a restaurant owner, you will typically look at ROI as it relates to top line revenue and bottom line profits.
While there are several ways to calculate ROI, we’ll give you an example of a specific marketing strategy campaign to get you started. This campaign centered around the promotion of a steak special designed to drive more foot traffic during a slower part of the week for a restaurant. The steak special promo ran for four weeks and was only available Monday through Thursday.
In this scenario, we count up all the checks that included the steak special within the promotion period. Then, we perform the following tasks to calculate ROI of the marketing campaign:
- Calculate total sales generated: all guest checks within the four week promotional period where at least one guest has ordered the steak special. (These are typically your top line sales.)
- Subtract your COGS (cost of goods sold). This will give you the gross profit of the campaign.
- Now deduct your expenses. This can simply be the marketing expense itself, for instance: printing, design, or email production expenses associated with promoting the special. After deducting the marketing expenses, you now have your net profit.
You can also calculate some other interesting metrics looking at the numbers you just produced:
- Divide net profit by total number of covers to determine the amount of campaign profit per cover for those who dined as a result of the promotion.
- You can also take the gross profit and divide by the total marketing expenses for the campaign to calculate the ROI percentage. If your ROI percentage is 300%, that means you’ve made $3.00 of profit for every $1.00 spent on the campaign itself.
Going one step further, take the same formula and look at the four weeks prior to running the steak special for comparison. You can also compare this data to other guests who dined without ordering the steak special during the promotion.
For instance, you might notice that guest checks with the steak special saw more alcoholic beverages or appetizers ordered compared to other guests that did not order the steak special. You might also discover that guest checks with the steak special had more covers per ticket compared to other guests during a non-promotional period. All this can factor into your overall evaluation of a campaign and whether it delivered the ROI you were seeking — and how well you are meeting your overall restaurant marketing strategy for growing your business.
Step 3: Consider the Lifetime Value of Your Marketing
One significant goal for any restaurant marketing strategy is to encourage repeat and loyal customers. But what’s the lifetime value of the customer? Let’s say you decide to continue running the steak special each month during the same days of the week. And, the same customer now comes back once a month to take advantage of that special, the price point, and the dining atmosphere they’ve come to love. Here’s how to calculate the possible lifetime value of that customer:
- Add up the total from checks that include the steak special and calculate an average ticket size. For practice, we’ll say the average ticket size is $100.
- Now, determine the total number of covers from those same tickets with the steak special, i.e. the average party size. Let’s say that the average number of covers on a guest check where a steak special is ordered is 3.
- Multiply the average ticket sale and the average party size. This will be the monthly sales your average steak special customer (and their accompanying friends) bring into your restaurant. In our case, $100 x 3 = $300/month.
- Take the monthly sales that customer brings to the table and multiply that number by 12 months. This gives you the dollar amount they are projected to bring to your restaurant annually. In our example, $300 x 12 months = $3600 to your top line.
- Deduct your COGs and marketing expenses for the steak special accordingly, and this can then give you your net profits for the year.
The Other ROI: Soft Metrics
It’s important to understand that not all marketing has an easily calculated, monetary ROI. Marketing can often benefit your overall brand and affect your business in less obvious ways. But, every marketing effort is important to your overall restaurant marketing strategy, and can help drive new and repeat customers to your restaurant and increase check averages, if carefully planned.
Let’s take another look at our steak special. From our calculations, we know hard numbers such as sales, as well as gross and net profit. But what about accounting for the expense of your restaurant’s website? As a step in their dining decision, your customer visits your website after they received an email about the steak special. There, they can hopefully see photos of the dining atmosphere they would experience were they to visit.
Your website is important in that customer’s decision process, but difficult for a restaurant owner to attach a specific ROI value to — even though it’s a true marketing expense with costs incurred to develop and maintain it. If you ran several email campaigns in a given year, you could spread your website costs against each one in order to help spread them out and attribute them to your ultimate ROI. This would make your break-even figure higher (as the costs of the website have increased your marketing expenses line item) but it is a more realistic look at your net profit.
On the other hand, you can also apply “soft metrics” to figuring out ROI for your website and whether or not it’s helping you meet your restaurant’s marketing goals. While the value of your website itself can be nebulous in terms of monetary ROI, it’s still important to make sure it’s performing well enough for the dollars you are investing in it.
One way would be to take a look at your website analytics and note any traffic spikes during the time of the steak special’s promotional period. This can give you insight into the relationship between a specific offer’s effect and how your website performs normally. You might want to put more marketing dollars into improving your website’s performance via SEO or SEM tactics during non-promotional periods. That way, you can be found more easily by diners that are researching your specific cuisine or geographical location at any time, not just when you have a special promotion.
You can also look at soft metrics for the email sent about the steak special. If promotion of the offer was only done through restaurant email marketing methods, and several emails over the year are sent with specific offers, the restaurateur can see which emails perform better overall, at what times of days, and on which days during the week.
By combining hard and soft metrics, you can get an overall view of the dollars spent with your restaurant marketing strategy and the ROI they’ve delivered. Then you’re set to make better marketing decisions that drive the growth of your restaurant!
Want to see how a loyalty program can build even more ROI for your restaurant? Check out our free eBook on secrets of a great restaurant marketing strategy:
