Thanks God It's Friday!
And this is a new post from lazygourmet...

When restaurateurs like you appoint me for a first consultation (which is always free!), at that initial meeting I ask the following question:

What's your biggest challenge as a restaurant owner/manager?

And this is the number one answer from a significant number of restaurateurs every month:

"To bring new customers to my restaurant."

It looks like a logical answer, doesn't? Who doesn't want to have lots of new people walking through your door? However, if I continued to my manage my restaurant - and after everything that I know now about marketing - my wish/challenge would be different. It would be something like:

I want my existing clients to come back to my restaurant over and over.

Does that mean I don't want new customers? Of course I do, new customers are new opportunities to convert into repeated clients, but targeting your marketing efforts towards getting new clients shouldn't make up the bulk of your expenses or efforts. So what do you need to do?

I will explain to you by presenting a hypothetical exercise:

Let's imagine that we have two restaurants with similar capacity. We will call them Restaurant A and Restaurant B.

For the sake of simplicity we use $ and assume the following parameters are common to both restaurants:

· The average price per meal is $25
· The profit margin per meal is $10
· The marketing investment for both is $5,000

Now the differences are:

Restaurant A invests all the $5,000 in bringing in new customers.They invest the money in a very successful campaign and produce coupons, direct mailing, etc. When the $5,000 marketing dollars are over, they brought to their restaurant 1,000 new customers. Pretty good, eh? Five dollars per customers is an extremely small investment towards bringing in new clients.

Restaurant B does things differently. They spend the same amount of money ($5,000) but instead of expending the entire amount focusing on bringing new clients via advertising, they decide to invest all the money in their existing clients to bring them back over and over. They will also give them incentives for their friends and family members so that they can also come in and try their restaurant.

Who do you think will do better? Let's do some numbers.

Restaurant A invested $5,000 and brought 1,000 people who will give a profit of $10 each so they made a total of $10,000 profit or a 50% return of investment. Not bad.

Restaurant B focused instead on bringing back their existing customers via a formalized referral system. They gave 100 of their best clients four gift certificates: one for them to come back again and three others to give to their friends and family members so that they can try your restaurant for themselves. These gift certificates give them 50% off of their entire meal.

Now, remember, an average meal only cost Restaurant B $15 since the other $10 is profit as we mentioned before. When you offer a 50% discount, in reality it will cost you $7.50 per meal.

Also, when you give somebody a gift certificate, chances are that they won't come to your place alone. Most likely they will bring some company to enjoy their meals with. Let's assume that for each $12.50 (50% of the price of the average meal) that you give away, you bring back two people. Now, your cost is $3.75 for each. Wow! It's even better than the initial investment. But that's not all, three things are also happening here:

If the people don't use the gift certificates when they dine, you're not losing any money, making this investment a sure thing (versus spending money on advertising that can't guarantee you any results)
New visitors will come predisposed to like your place; after all, your restaurant has been recommended by a source that they trust more than any other restaurant review - their friends or family members who gave them your gift certificate in the first place. If your restaurant offers great food and service, they'll likely come back again since they felt that not only did they get a good deal because of the discount, but you can also give them a gift certificate for themselves plus three extra for their friends to try your place. This is called viral marketing since they are spreading the word about your place.

Do you see how this goes? You can invest a lot of money to bring new people to your place that may never come back, or you can spend less money to create a referral system that will bring people wanting to eat at your place, and with a solid predisposition to having a great time. These techniques will, if you stick to your system, bring in new repeat clients and also will establish a referral system for you and your place.

In these times of economic crisis, every single marketing dollar that you spend needs to be leveraged to bring you the maximum amount of profit. Be wise and think strategically before spending your hard earned money.

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