“If you build it, they will come.”
That’s the dream, right? You work hard to build your restaurant into the perfect dining experience for customers, prepare your staff, open your doors, and the diners will just start streaming in. Right?
Unfortunately, opening a restaurant is only half the process toward having a successful business. If you aren’t reaching out to customers — marketing for new and repeat business — you could be leaving your finances in fate’s hands. Devising a comprehensive marketing plan that includes advertising is key, as is understanding what the Return on Ad Spend (ROAS) will be for a particular campaign.
How to Calculate Return on Ad Spend
If you aren’t familiar with Return on Ad Spend, it’s a very simple formula, and one much easier to calculate than its big brother, Return on Investment (ROI).
ROAS is calculated as
Revenue from campaign
divided by
cost of the campaign
multiplied by 100
ROI, on the other hand, is slightly more complicated.
Gross profit
minus
cost
multiplied by 100
then, divided by
cost
Both ROI and ROAS have their roles and advantages for your planning, but looking at Return on Ad Spend on a purchase-by-purchase basis when laying out money for advertising can help you make decisions among all the options available to you.
For instance, if one advertising expense — let’s say a newspaper ad — gets you $2 in revenue for every $1 you spend, it can be said your Return on Ad Spend is 2:1 (double) or 200%. But if another advertising expense — like a dining rewards program — will drive $5 in revenue for every $1 spent, that ROAS equals 5:1 (five times the return) or 500%.
Both are profitable, but which would you choose? 500% ROAS is clearly a better return than 200%. But the comparison won’t always be so simple.
The Type of Ad Affects Your Return
Part of the decision is knowing whether your revenue stream from a particular campaign, program, or ad buy ends after a specified period of time or has a long-term effect that could drive more business.
Your immediate ROAS on a neighborhood flyer could be identical to the ROAS on a loyalty program for new and return customers, but the tail on results for the latter is much longer than on the former. A loyalty program is also a consistent expense producing consistent results, whereas every iteration of a newspaper ad or flyer has to be reinvented and repurchased without guarantee of the same results.
[And unless you ask every single customer that comes in why they dine, flyers and ads could be tough to measure results for. Loyalty programs like Rewards Network report out hard results every month.]
One restaurant could spend $1,000 and get 100 new customers who each spend $40 in the first month, totaling $4,000 of revenue.
($4,000 ÷ $1,000) x 100 = 400%
That’s a great Return on Ad Spend!
But of those 100 customers, how many will return for a second visit without incentive? It depends a lot on the offer.
Did you have to discount your product — as with a coupon or limited time offer — in order to get a 500% Return on Ad Spend? That discount won’t affect the ROAS calculation because it only includes revenue as a factor, not profit. If your profit goes down with one type of advertising, but not another, the ROAS by itself is not a useful comparison.
Moreover, if a guest comes to your restaurant based on an advertising offer that discounts your food, will they expect that discount every time they choose to dine with you? Or, said another way, will they only value the experience of dining with you at that discounted price? Will they even return?
That result does more than reduce your immediate profit. It could potentially damage your overall brand.
How to Get the Best Return on Ad Spend
One way to achieve the best ROAS for your restaurant is to choose advertising that encourages more — not less — spend from each customer.
When Rewards Network markets your restaurant through our loyalty dining program, we help fill in those valleys of traffic with exactly the type of customers you want: frequent diners who spend 13% more per check on average than others. And all without ever discounting your food or drink.
Rewards Network also tracks the movement of that spend, providing monthly and quarterly reports to let you know exactly how your marketing dollars are performing. Better yet, our marketing services — completely turnkey email and web advertising with over 17 million loyalty members of America’s most popular brands — are 100% pay-for-performance. You don’t pay unless you get actual traffic.
There’s no risk that your Return on Ad Spend will be negative (i.e. less than 100%). In fact, on average, the ROAS on Rewards Network Marketing Services is 500% — $5 revenue for every $1 of ad spend.
Our program also provides the added benefit of letting you know what your customers are thinking about their experience in verified reviews. Each review is tied to an actual dining check; that’s how we measure the quality of experience, as well as the quantity of revenue we drive through your doors each month.
As Michael Schatzberg of Branded Restaurants says, “The reporting we get on a monthly basis includes all the reviews from the customers who I know actually ate in the restaurant. It really is a great tool to help us monetize — we make money with these reports.”
Do you really know if your marketing is paying off — and how it compares to what your neighbors are doing? Download our free tool “5 Numbers Every Restaurant Must Know About Its Competitors” today!
