A few years ago, I bought my first restaurant. It was a turnkey operation; a charming small and upscale Italian restaurant with loyal clientele in a great location.
The previous owner, an experienced guy who spent all his life in the restaurant business. I still remember what he told us about the restaurant: “It is working fine. Don’t change anything…”
For a while, I complied. I didn’t have really much experience running a restaurant, and as they say: “If it ain’t broke, don’t fix it” right? So we kept on running the business as he was doing, including repeating his marketing investments and advertising expenses.
Well, after a few months I realized that we were spending a large amount of money (several thousand dollars each month) in marketing. Now, I am fine with spending marketing dollars if I can see the results of my marketing expenses, which, in the case of a restaurant, appears as people walking through the door and having a meal at your place.
You as a restaurateur have a really big advantage over many other businesses: when a person walks in your door and sits at your table, you’ve pretty much have made the sale (unless your service is so slow or your staff screws up so badly that your customers leave your place without paying!).
Very few other industries can claim this advantage. Many businesses spend thousands of dollars in marketing campaigns just to bring people to their stores or websites without any guarantee that these people will spend any money on their goods or services.
So – going back to my experience – after seeing that my marketing budget wasn’t producing enough, I started questioning all these expenses. (I used my business experience at a a large Information Technology company as a reference). I asked myself: Why wasn’t my marketing working? How can I measure if a marketing campaign is working? What kind of advertising brings in clients? Was I throwing money in the garbage?
The first steps were to collect and analyze all the marketing expenses. I realized that I was spending money in the following marketing initiatives:
1. Pocket cards distributed in hotels, some businesses, etc. (Very expensive!)
2. Ads in a weekly local Seattle magazine
3. Big and very expensive ad (1/4 of a page) in one of the Yellow Pages Book
4. Premium positioning in a well-known online city directory.
5. Passport Card program
6. Direct mail coupons
All together, these marketing efforts represented a considerable amount of cash. But how many of these were really working for me?
To make an objective decision, first I looked at which of these campaigns could be measured.
To my dismay, I realized that only half of them (numbers 1, 5 and 6) could actually be measured. The pocket cards have a free dessert as an incentive so we could know how many people actually came to the restaurant with them. Same with the direct mail discount coupons and passport cards, since people needed to present them to get a discount (coupons) or free entrée (Passport card).
The ads in the local magazine and Yellow Pages were a total mystery. I assumed that they brought customers. But how many? No idea.
The CitySearch was an interesting one. I could get specific analytics about how many people clicked in the ad to access our web site (the previous owner only had a very basic and amateurish website so I hired a company to create a new one), but this didn’t tell me how many people actually came to the restaurant because of our web presence.
So with this data in hand, I started by looking at the campaigns that I could measure. Were they effective?
The pocket cards (I won’t mention the name but I’m sure that many of you will recognize them) were extremely expensive, so I asked my servers to collect them and keep them in a special box that I bought for that purpose. After three months, I counted the cards: we had only received around 20 cards and the funny part was that most of the customers were usually single diners.
Of course, this made sense since the main distribution center for these cards were hotels and the audience business travelers. This was double bad news:
1. These were seldom repeat clients (since they didn’t live in the area). If I was lucky they would come once every few months – if they travelled frequently to Seattle.
2. They came alone, so their average ticket was small.
So with these pocket cards, I was losing an incredible amount of money. I could just give away free food to these people and it would’ve been cheaper for me than subsidize the very expensive pocket card. Obviously these cards were gone from my marketing list really fast.
The direct discount coupon fared better, but I realized that it brought very cheap customers who just came to my restaurant looking for a bargain. I looked at the package that included our coupon and realized that ours was the only fancy restaurant in the list. Most of the others were pizza places and fast food chains. Not a good place to be. Again, after compiling coupons for several months, I realized that it wasn’t worth it to keep bringing bargain hunters, so I also discontinued this marketing strategy.
Next was the Passport card. I had mixed feelings – and results – with this one. On the one hand, it brought us many new customers that only go to participating restaurants in the Passport card program. On the other hand, it also brought “the abusers”: parties of two eating just a salad each, nothing to drink (but free water) and three hours of conversation. Total spent: $12 + free water + free bread + service. And they tipped poorly as well (tipping after the discount – even if the rules of the Passport program explained that members should tip before the discount). I decided to keep it for a while, since I wasn’t brave enough to cut all the marketing from the previous owner.
So this left us with the non-measurable marketing: Yellow Pages ad, weekly magazine ads and CitySearch premium positioning.
Before dropping these strategies, I decided to test them. To do this is simple: I just needed to place an attractive discount coupon in the ad and see how many people presented them.
So I did that. We placed a 15% discount coupon in the weekly magazine and same in the Yellow Pages. To get the discount, the customers needed to either bring the original coupon (from the weekly magazine) or a unique code (printed in the Yellow Pages book). I then asked our servers to keep all the coupons and code discounts (and store them in our special marketing box). After a few months, we counted them.
Total disaster! We only got a few coupons a month from both ads. In order to break even, we needed to bring at least 100 or more customers from these ads. We weren’t even close to that number, so I had to cut losses – and discontinue these marketing systems as well.
This left me with the online directory for local establishments. I asked myself: Was it worth it to pay extra to have a big heading in an effort to get more people looking at our restaurant review and web site? Well, the answer wasn’t simple.