Why Customer Lifetime Value is Key in the Restaurant Industry

Your Source for Restaurant Marketing & Retail Marketing Best Practices

Posted by Robin Johnston on Jun 19, 2018 7:00:00 AM
Robin Johnston

Customer retention is a crucial factor in the success of all businesses, but particularly important in the restaurant industry. Among the KPIs restaurants need to track, repeat business is a significant indicator of customer loyalty and helps drive the lifetime value of a customer.

Loyal customers typically fall into these three categories:

Evangelists

These are customers who not only visit constantly, but recommend your restaurant to others, post positive reviews online, and mention you on social media. These advocates are invaluable, boosting your brand awareness and visibility, and providing unbiased referrals to everyone who they influence. Brand evangelists are key drivers of long-term success in any business: not only do they advertise your restaurant at no cost to you, but their recommendations are trusted by 92% of people, compared to the 24% of people who trust ads. In most industries, a single brand advocate generates 2.5 new customers, but in the restaurant industry that number is much higher.

Frequenters

These customers have made your restaurant part of their routine, whether it's coffee every morning, or brunch every Saturday. Among a wide variety of options, they continue to choose your restaurant. In fact, psychology studies demonstrate that once a consumer has formed a habit by repeating the same choice over and over again, the behavior reinforces itself and will continue unless the brand changes so much that it prompts a new choice.

Special Occasioners

While special occasioners are sometimes slightly maligned as the compromise choice (the one restaurant the whole family can agree on, for example), these customers also have significant lifetime value. Whether it's the family tradition, the annual birthday or anniversary, or the favorite restaurant during vacation, these customers choose to create and share some of their most special and significant moments in your restaurant, building important lifetime memories around their experience. 

No matter which kind of repeat business you have, there are important reasons to track the lifetime value of your customer.

WHY TRACK YOUR CUSTOMER LIFETIME VALUE?

  1. It informs your business. Knowing the value of your customers allows you to more accurately predict their behavior and inform inventory and staffing decisions. It has also been shown that restaurant service improvements are a great way to convert customers into brand evangelists and improve loyalty.
  2. It informs marketing decisions. Once you know the lifetime value of a customer, you can spend your marketing budget on the initiatives and programs that make the most sense. There are a variety of innovative ways to market your restaurant, but your marketing strategy will be best informed by prioritizing a desire to recruit new customers or deepen relationships with existing ones.
  3. It informs your loyalty program. Speaking of deepening relationships, once you know the lifetime value of your customers, you can craft a more effective loyalty program. Good loyalty programs are an excellent way to convert frequent customers into brand evangelists, and restaurant loyalty programs increase a customer's lifetime value by up to 30%.

CALCULATING CUSTOMER LIFETIME VALUE

If you haven't yet figured out the lifetime value of your customer, the folks at nextrestaurant.com have come up with a convenient calculator that allows you to calculate the lifetime value for free, anonymously. Importantly, you can even store the results and track changes over time, to see how your efforts are paying off.

In every business, customer lifetime value is an important metric to track. But in restaurants, where competition is so fierce, loyalty is key to survival, and word of mouth can make or break you, it's more important than anywhere else. If you aren't yet tracking the lifetime value of your customer, and using that information to inform business and marketing decisions, it's time to begin, and know the real value of your customer.

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