Marketing is what keeps your restaurant up and running. It’s what helps new customers discover your establishment and spread the word about your excellent menu and atmosphere.
But when experts recommend allocating 3-6% of your budget to marketing, you want to know that you’re getting a good return on your investment. Calculating your restaurant's ROI will help you understand the impact of your marketing dollars and to make changes as necessary to improve performance.
Understanding Restaurant ROI in Marketing in 2023
Every restaurant should understand its overall marketing ROI and the return on investment for each individual marketing channel.
After all, restaurants have several mediums that they put their money into for advertising, including:
- Direct mail
- Advertising
- Signage
- Special sales
- Comps for guests
- Digital marketing
But not all of these mediums will perform equally. It’s important to understand your restaurant’s return on investment to ensure that your marketing budget is having an impact on your sales.
A return on investment, or ROI, is the value that your investment is making.
For example, let’s say that you spent $1,000 on a direct mail campaign, and it generated $3,000 in revenue. That’s a 200% ROI.
ROI is a fundamental metric in measuring your marketing performance. The higher the return, the better. On the other hand, if a marketing channel has a low ROI, you might consider ditching it entirely.
Every restaurant owner should calculate their marketing ROI for a number of reasons.
- Your marketing ROI will help justify your marketing budget
- Analyzing your ROI will help you optimize your marketing campaigns
- Your ROI can help you determine which marketing strategies are most effective and which ones aren’t driving results
When you understand your return on investment, you can make data-backed decisions on where to funnel your marketing dollars.
Expected Return on Investment in the Restaurant Industry
In the restaurant industry, a good return on investment for marketing is a 5:1 ratio or 500%. If your marketing ROI is somewhere around this number, this is a good indication that your campaigns are performing well.
If your ROI is somewhere around the 200% mark, you may want to reconsider your strategy. An ROI of 100% simply means that you broke even, and your campaign was not profitable.
A marketing campaign can benefit your restaurant in other ways, and this ROI is more difficult to track.
For example:
- Social media marketing may grow your following and brand, which can drive more traffic to your doorstep.
- Online advertising and search engine optimization can also drive traffic to your website and customers to your restaurant.
- A special promotion may encourage one-time customers to become repeat, loyal customers.
Each of these examples will benefit your business by attracting new customers, but there’s no reliable way to calculate the ROI in any of these situations.
Calculating Your Restaurant ROI
Marketing channels can make calculating your ROI complex because you may decide to offer coupons or loyalty programs, which will reduce your ROI. For example, let’s assume that you run a pizzeria and want to attract new customers.
Your specialty pizza costs $20 with a $10 cost to you. In this case, your pizza has a 50% profit margin.
However, as a part of your marketing budget, you decide to offer:
- 20% coupon on your pizza, resulting in the price dropping to $16
- Profit margins for the pizza falls to 30% (due to the coupon code)
- You spend $1 per sale
If you spend $1 for $6 per pizza in profits, that’s a good return. Businesses would love to earn $6 per $1 spent on marketing.
Of course, your profits will fall to $5 per pizza sale because you have to deduct the marketing expense, too.
However, customers are also likely to purchase:
- Sodas
- Side salads
- Breadsticks
Calculating these added profits will require you to tally all of the receipts that are used in a coupon. You're judging where the sale came from in terms of marketing by using the coupon code that the person provides when making an order.
We'll say that the code is simply: 20OFF.
If you have 100 sales with $4,000 in total revenue from the campaign, you will divide 4000/100 to determine the average order was $40.
Now, you have spent $1,000 on the total marketing campaign.
You would calculate your return on investment using this calculation (gain – cost) / cost, or (4000 – 1000) / 1000 = 3 = (3 * 100) = 300%. Naturally, most ROI will not be this high, but it’s an example of determining your total ROI from a marketing channel.
Tracking your marketing will be the most challenging aspect.
You'll need to work with your marketing team to track where and how sales for each marketing channel are accounted for to run your calculations. Coupon codes, tracking cookies, specific landing pages for each marketing channel and similar options will help you better track sales and which form of advertising is driving them.
Refining Your Restaurant Marketing Budget
Your restaurant marketing budget should be refined based on your ROI calculations. For example, let’s assume that you run your figures through a direct mail ROI calculator and find out you’re barely breaking even with this form of marketing.
Instead of allotting part of your budget to direct mail, you may opt to:
- Eliminate or reduce direct mail’s budget
- Add the savings into other forms of marketing that are working better
Calculating ROI will empower you to make strategic budgeting decisions to continue growing and expanding your restaurant. If you find that the returns from one form of marketing are falling dramatically, you may want to:
- Analyze why costs are increasing
- Decrease ad spending in these areas
- Review overhead costs for running the campaigns
If you haven’t spent time reviewing your current profit margins for menu items, it may be time to do so. Perhaps your marketing conversions have remained the same, but your ingredient costs have risen. In this scenario, your ROI is lower due to other overhead costs, and raising menu item prices would boost your return on investment.