A restaurant marketing plan is difficult to follow. When you own a restaurant, you’re able to advertise using dozens of mediums. The expenses that you incur may be vast, or word-of-mouth may be more than enough to keep all of the seats in your restaurant filled.
Statistically, with 2% of all revenue going to marketing, it’s important to understand restaurant ROI and how it should impact a restaurant’s promotional budget.
A few of the many mediums that you may spend money advertising on include:
- Direct mail
- Sales and promotions
- Comps for guests
- Discounted items
- Product testing
- Donations to non-profits
- Online advertising and marketing
And that’s just a few of the ways that you’ll be able to advertise your business. When marketing, the first and most important step is understanding ROI.
What is ROI in Marketing?
ROI is return on investment. You're investing money in your business, but how much value is that investment making? Return on investment is a performance metric and is the profit and revenue attributed to marketing activities.
For example, if you sent out a direct mail campaign and spent $1,000 on it and earned $3,000 in revenue, that’s a 200% ROI.
How is ROI calculated?
- Amount invested
- Amount returned
You would divide the amount returned/amount invested and multiply by 100 to determine the percentage of ROI you received. Of course, you spent $1,000 to earn $3,000, so you really made $2,000 in return or 200%. Calculating marketing ROI is a task that is best performed by your marketing company.
What is a Good Marketing ROI?
Restaurant return on investment varies greatly from one marketing medium to the next. You may be advertising online and earn a 5:1 ROI, but you will not receive the same ratio if you’re sending out direct mail campaigns.
The lowest ROI you should aim for is 200% - or the breakeven point.
Most restaurants will aim for a 500% ROI before accounting for investment costs. In this case, restaurants spending $1,000 on advertising will want to achieve $5,000 in revenue and $4,000 in profit from their marketing campaign. Hyper-relevant marketing campaigns can produce 1000% ROI, but most campaigns will not come close to this figure.
How to Calculate and Track the ROI of a Restaurant Marketing Strategy
It’s difficult to know how to calculate restaurant ROI because you may have multiple marketing avenues running at one time. Tracking where the sales came from can be difficult, but it is possible.
For example, if you send out a direct mail coupon and offer 20% off of pizza if the person uses the promo code 20% off, you can:
- Track all coupon usage
- Tally up total revenue earned on the pizza
So, if 1,000 people ordered a 20% off pizza using the code and each pizza cost $10 after the discount, you would bring in $10,000 in revenue. Of course, there would be additional revenue if consumers purchased breadsticks, soda or other items. But based off of the pizza itself, if you spent $1,000 to send out the coupons, the ROI would be 900% after deducting the original investment.
Another way to perform this calculation is to tally all of the guest checks for the entire month that used the promo code. The checks would include all of the items on the order, which may include:
So, your 1,000 orders may now have a total of $30,000 in sales. Determine the cost of all goods sold and subtract it from the $30,000. In an effort to make the calculations easy, let’s assume that the costs of goods was $13,000, so you would deduct this from $30,000 to come up with $17,000 in gross profit. You'll then deduct the expenses related to the profit. These expenses may be only your marketing expense of $1,000. The marketing campaign would have generated $16,000 in profits – that's amazing.
If you want to refine your tracking ability further, we can determine the campaign profit per cover. This means how much profit is earned each time the coupon was used. If you take the $16,000 in net profit and divide it by 1,000, you would make $16 profit per cover.
Calculating the ROI at this point can be done by taking your gross profit of $16,000 and dividing by your marketing expenses of $1,000. You’ll come up with 16, which will be a 16:1 ROI ratio, or multiply the 16 by 100 to come up with a 1600% ROI.
You're very unlikely to ever hit this level of ROI, so don’t be discouraged if your ROI never hits this amount. We're using easy figures for the sake of making calculations.
In general, you can determine the best way to market a restaurant when you have some way to track a campaign. For example, you may sponsor a local soccer team and people will come to your restaurant because you support the community. The problem is that there’s no way to measure how the sponsorship has increased your image or if the sponsorship has led to any customers making purchases.
You may be able to offer a special coupon to the team to use, but you’ll need to track the usage in the same way that you did above.
There's also the fact that audience members may know that you’re a sponsor and come to your restaurant without the coupon because it’s not available to them.
In general, the easiest marketing avenues for a restaurant to track are:
- Online orders
It's up to you to determine how to do restaurant marketing in your area. I live in a town of retirees that spread the word about their favorite restaurants. Marketing via direct mail is very seldom here, but in the big city where I lived prior, I would receive flyers from every restaurant in town.
There are ways to determine overall ROI by simply taking all monthly sales and reducing your marketing budget from the sales. If you’re generating $100,000 and spending $10,000 on marketing, you can say that your marketing ROI is 900%. The problem is that you’re not able to track the lifetime of a customer or what channels produced the most profit.
Marketing campaigns may also differ based on your goals.
A campaign is often about ROI, but what about a campaign that brought in 2,000 website visitors? The campaign may be a success based on your goals. Social media advertising is the same.
You may run a marketing campaign aimed at increasing follower counts. If you spent $1,000 and gained 1,000 local followers, you may find that promoting via a coupon for 10% for followers was about to generate $2,000 a month or helped you break even.
ROI is tricky because restaurants want to bring in more people, but it’s not the only metric that is impacted in marketing campaigns. Perhaps you had only a 300% ROI on a recent campaign, but you’ve increased your website traffic and social media following drastically.
Over time, you may find that the exposure and ability to attract sales via a website or social media has improved drastically. The long-term value of these visits and followers would need to be considered, too.