Why Great Food and Services Doesn’t Guarantee Success for Your Restaurant Business?
In a perfect world, providing your customers with good food and service should be enough but it isn’t. Every year hundreds of restaurateurs who have good food and good service close their door for the final time. Their business, dreams and lives are often in ruins because they never got ever this obstacle.
Even great food and service doesn’t guarantee success, remember Gordon Ramsay’s Maze restaurant in Melbourne? It did $14 million in sales in its penultimate year and still closed with debts, Tony Bilson’s Bilson Restaurant which received its third chef’s hat in 2011 closed 4 days later?
There is more to the restaurant business than having a good product, and in order to be successful you must get over this obstacle!
Shifting to a repeat business mindset will change your old beliefs and believe me, until you see the money coming in as a result this will be tough! Old habits die hard and you are going to have to wrestle with yourself and maybe other well meaning people to change your behavior and maintain your course but it will be worth it.
Getting a repeat customer sometimes means losing money up front, giving food away, discounting your products and “looking like” you are desperate.
Warning: Many restaurateurs and chefs are so concerned with what they “look like” (eg) that they stick with the broken transactional model. At some bizarre level, they decide it is better to “look good” and hope things magically work out for them, than to do something that “looks bad” but actually makes them profitable. By the way “hope” and “magically” aren’t words to use on your business plan.
This is where most people wimp out, but please let me remind you, transactional business makes you money now, not much but some. The repeat business model gives you the chance to create “Customers For Life.” It makes you money now and more importantly it makes you wealthy in the future too.
Restaurateurs who realize the power of “back end, repeat business marketing” are even willing to buy customers so they can turn them into repeat business… Now that might seem crazy but let’s explore it. You are probably already buying customers – yes really.
If you currently rely on “a transactional business model” and you take an advert out in a local paper which costs you say $500, and you get 30 people to visit from that ad (which is probably generous but let’s stay with 30), then you have paid $16.67 for each one of those people. If they spend $100 with you and you have a net profit of 10%, then you have just lost $6.67 per visit or $200.10 from that marketing piece!
If like some restauranteurs, you use a PR company who charges you $4,000 a month for getting your restaurant editorial in magazines and newspapers, and those pieces send you 200 people (again I think this is unlikely but let’s be optimistic) then you have just paid $200.10 from that marketing piece!
If I like some restaurateurs, you use a PR company who charges you $4,000 a month for getting your restaurant editorial in magazines and newspapers, and those pieces send you 200 people (again I think this is unlikely but let’s be optimistic) then you have just paid $20 per person with the same scenario as above, you would lose $10 per person or $2000.00 from that marketing strategy!
Even though it’s not obvious in both scenarios, you are actually buying customers for $6.67 and $20.00 respectively.
Now is this a bad thing? Well, that depends. If you don’t have a system in place that encourages a large percentage of those customers to come back in, then it is a bad thing, and is another reason why restaurants go bust. They often lose money every time they do a marketing piece. However, if you have a strategy in place that encourages a large percentage of the customers to come back again repeatedly, then depending on your business figures, it could be a very good thing. I actually have clients who have paid over $20.00 to acquire a customer but because they have repeat business strategies in place. Those customers have been worth thousands of dollars to them within weeks.
This obviously leads to a more discussion about WOWing the customer, and systems for getting them back into your restaurant, but that will come in later chapters. For now, please see that making money from your restaurant is more than simply having a good product.
It’s not about the food! (Chef’s love this one!)
Ok this sounds a lot like what’s already been said, but it’s slightly different and really important especially if you are a chef, or you employ a chef with a strong personality and / or management responsibilities.
Firstly, let me make a point. I really admire chefs for their ability to do their job with 100% and under such extreme pressure. Time and resource constraints.
A great example of this is one of my clients who is a chef. He ran six weeks of 10 course degustations for rooms of 100 people to celebrate his restaurant 10th birthday. His ability to serve 1,000 perfect dishes night after night without missing a beat… and he skill to lead his team to achieve this gives him hero status in my eyes.
However, because a chef can do something like this doesn’t mean he/she understands marketing, sales, psychology or how to work the front of house. Yes he/she gets massive credit for running back of house, keeping costs down, ordering supplies, doing rosters and performing miracles in the kitchen, but that’s where his/her influence ends – sorry! By the way this chef/ owner gets this, so this is not a comment about him.
Marketing is about two things, psychology and maths. We will come back to the maths later but let’s focus on the psychology here. Getting someone into your restaurant means you have to focus on that “someone” and know what is going to make them give you their money on many occasions.
Your focus has to be on what motivates the person, not on the food that comes out on the kitchen. This is not to say that you don’t have to have great food! You do, remember warning and the golden rule from the start of my book More Bums On Seats? If you don't have Great Food, Great Service and Great Hygiene - SYOP! Only a tiny percentage of people buy from a restaurant just because of the food.
If not the Food, What do you sell?
The most successful “restaurant” in the world is McDonalds! And they know it’s not about the food. They sell fun, consistency, family, community, cleanliness, familiarity, happiness, speed, value for money, culture, Australia, American culture, success, health etc etc. One of my clients sells sustainability, fun, excitement, unique single origin meals etc. Another sells community, high quality in the region, retail produce and great coffee. Yet another sells a high-quality experience, culture, knowledge and community.
They focus on “experience”, not on ingredients or cooking ability. Sometimes the difference is only subtle, but people buy EMOTION and EXPERIENCE. Your marketing has to about those things too, therefore “it’s not about the food”. If you and your chef can get your heads around this, you will have a major advantage over your competition.
Create Customers For Life and You Will Realize the Lifetime Value of A Customer.
Although the idea of “Customers for Life” sounds like creating loyalty, it isn’t. Loyal football fans don’t change their allegiance because they move suburbs, states or even countries, - customer do!
Did you realize that it costs you as much as five times more to acquire new customers than to make sales to your current customers? That a 2% increase in customer retention has the same effect as decreasing costs by 10%? And in some cases, reducing your customer defection rate by 5% can increase profitability by 25 to 125%
In order to drive these points home, let’s look at the “lifetime value of a customer” to a restaurant or café where the average sale per person is just $20 and that they visit you twice a month. I know this is a very low spend and a fairly high visit rate but this is to accommodate all styles of restaurant. Below this is blank table so that you can figure out the real value for your restaurant.
The Lifetime Value Of A Happy Restaurant Customer:
Average Sale Per Person $20
Number of Visits Per Month/Year 2 / 24
Sales Per Customer Per Year $480
Average Sales x Number of People Per Table 2.3 $1104
Gross Sales Per Year $1104
Gross Sales Over Life of Customer (Lifetime of a happy restaurant client is 5 years) - $5520
Number of Referrals Per Customer 1
Gross Sales for Total Referrals $5520
Total Value of A Happy Customer $11, 040
Total Value of 10 Happy Customers $110,400
Total Value of 100 Happy Customers $1, 104, 000
Total Value of 1000 Happy Customers $11, 040, 000
In this example, the value of one happy $20 customer is $11,040. This should cause you to take seriously the reason to engage in repeat business strategies and look after those $20 customers too!
One example provided by one of my clients is an elderly woman visits their café several times every day, she only buy a snack, a cup of tea or a slice of cake but she does so several times every day. As you can see from the table above those small purchases adds up. She is one of the most valuable customers to that business and she is treated as such.
Below is the same table so that you can work out the lifetime value of a customer for your restaurant:
Average Sale Per Person $
Number of Visits Per Month/Year /
Sales Per Customer Per Year $
Average Sales x Number of People Per Table 2.3 $
Gross Sales Per Year $
Gross Sales Over Life of Customer (5 years) $
Number of Referrals Per Customer 1
Gross Sales for Total Referrals $
Total Value of A Satisfied Customer $
When you focus on retaining your customers and encouraging them to come back regularly, something else will start to play on your mind. “Why do people choose not to come back?”
Here are the reasons customers leave, according to the US Small Business Administration and the US Chamber of Commerce:
Why customers leave:
- 1% Die
- 3% Move Away
- 5% Follow a Friend’s/Relatives advice and switch to another business
- 9% Switch due to price
- 5 14% Switch due to dissatisfaction
- 68% Leave because of perceived indifference of the businesses – they felt unappreciated, unimportant and taken for granted.
More research done in the USA Revealed that business owners losing customers often think only 21% leave because of poor customer service, their assumptions is that the rest leave because of price when in fact only 9% do so.