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In a country with one million restaurants and growing, it's equal parts difficult and expensive to acquire new customers.
That's why smart restaurateurs constantly monitor and control their restaurant customer acquisition cost – or the amount of money it takes to bring in a new customer.
Below, we'll highlight how to calculate your restaurant's customer acquisition cost, why it's so important, and what you can do to make your restaurant marketing efforts count.
How to Calculate Customer Acquisition Cost
Your restaurant's total customer acquisition cost, or CAC, is all the money allotted in your restaurant marketing budget aimed at acquiring new customers.
Say you run an in-store promotion for your customers that focuses on customer retention; the money you spent on that promotion would not impact your customer acquisition cost unless it brought in new customers.
To find out what your customer acquisition cost per customer is, you'll have to add an extra step to your calculations.
Because there are so many variables in the customer acquisition cost, there's no one equation that's always used. The closest way to calculate restaurant customer acquisition cost is with this formula:
CAC = Marketing Expenses / Total New Customers
That may seem simple, but there's a lot to unpack. For example, how do you get granular and differentiate between new and existing customers? Without a customer database, it's not exactly easy to track who's new to your restaurant and who's not.
You also need to look at all of your marketing costs, including some you may not think of at first, like the amount you discount for a promotion.
Let's say you run an online ordering campaign on Facebook, offering 10% off a guest's first online order. You allot $1,000 for the Facebook ads – taken from the budget you created to market your restaurant on third party sites – but you also have to factor in the 10% discount on all the orders for new customers. This amounts to an internal loss on potential revenue in exchange for a new customer.
Example: Calculating CAC For Existing Restaurants
For existing restaurants, CAC is easiest to calculate when you are looking at specific, traceable campaigns, promotions, and ad sets.
The restaurant owner in the situation above spends $1,000 on Facebook ads targeting first-time online ordering customers with a 10% promotion. When looking at her restaurant sales data, this owner discovers her average ticket size for online ordering is $20. After the promotion is finished running, she learns the promotion was used 20 times, meaning she acquired 20 new customers.
Here are her variables:
- Facebook ads: $1,000
- Discounts on online ordering: 10% off of 20 orders of $20 (10% off of $400, or $40).
- Total new customers: 20
To calculate her CAC, we start by adding together the total marketing expenses of the Facebook ads and the cost of the discounts.
Marketing Expenses = $1,000 + $40 = $1,040
We then divide that number by the total new customers earned from this online ordering promotion.
CAC = Marketing Expenses / Total New Customers
CAC = $1,040 / 20 New Customers
CAC = $52 Per Customer
In this example, this restaurant owner spent an average of $52 to acquire each new customer from this campaign.
How To Calculate Restaurant Overhead Rate
Here's how to calculate, and effectively reduce, your restaurant's overhead rate — without compromising your guest experience.
Example: Calculating CAC for New Restaurants
For new restaurants, CAC will encompass all of your opening marketing activities. Let's use another example to illustrate the perspective of a new restaurant.
A new pizzeria owner in a small town wants to make a splash in his community, so he does a few things:
- Buys a mailing list of his town's residences for $400 and mails a menu to all homes for $500. The printed menus cost him $100.
- On the back of the menu, he puts a coupon for 25% off one order for the first week of open only.
- Starts a Facebook page and invests $2,000 on advertisements that will run during their first week open, as well as two weeks before in order to build hype.
After the first week, the owner checks his sales and sees he had 600 orders. Because it's the first week, he assumes all of these are new customers. He also checks his sales reports and discovers he sacrificed $400 in revenue from the 25% off coupons.
It's tough for this owner to differentiate between who came in from the direct mail send, who was incentivized from the coupon, and who saw the Facebook ads. Therefore, he needs to compile his total marketing costs and compare them to his newly-acquired customer base.
Here are his variables.
- Facebook ads: $2,000
- Discounts from the coupon: $400
- Mailing list acquisition and send: $1000 ($400 for the list, $500 for the send, and $100 for the menus)
- Total new customers: 600
Alright – let's do some math!
Marketing Expenses = $2,000 + $400 + $1,000 = $3,400
We then divide that number by the total new customers earned from his opening marketing budget.
CAC = Marketing Expenses / Total New Customers
CAC = $3,400 / 600 New Customers
CAC = $5.67 Per Customer
Restaurant CAC Calculator
Curious to see how your restaurant is performing? Try this free restaurant customer acquisition cost calculator to see which marketing initiatives are working best and find opportunities to cut costs.
Feel free to bookmark this page if you're in the middle of some ad tests. Document and compare your numbers each time to see how you're restaurant's CAC is changing and improving.
Why is CAC Important for Restaurants?
CAC is important to track because it proves the effectiveness of specific marketing initiatives. Whether you're opening a brand new restaurant or trying a new marketing idea, it's imperative to understand what's working and what isn't so you can alter your restaurant marketing strategy accordingly.
For instance, if you mostly spend your budget on direct mail ads but then decide to give social media ads a try, wouldn't you want a baseline to compare your sales numbers to?
Keeping track of your customer acquisition cost is also a way to identify which channels give the biggest bang for your buck when it comes to attracting new customers. Maybe your social media ads are a cheaper way of acquiring customers, but if you tap that market quickly and discover search engine ads or ads on Yelp bring in more new guests at a slightly higher cost, you might want to switch your approach.
How to Lower Restaurant Customer Acquisition Cost
If you haven't realized by now, CAC is difficult to control when you don't know exactly which ad drove someone to visit your restaurant. Here are our tips for mastering and understanding restaurant CAC so you can use your dollars wisely.
1) Test, But Test Smartly
With so many avenues for restaurant advertising, you should feel encouraged to try any method you think would appeal to your customers.
However, for the sake of clarity in CAC, we recommend only testing one marketing idea at a time. If you run a Facebook ad campaign, send out a direct mail blast, and release a TV commercial, chances are your sales will go up. But how will you know which initiative brought in which new customer without asking every single one how they found you?
Try a Facebook ad campaign for a few weeks. Wait. See how it goes.
Then stop it.
Then, try a different marketing campaign, and another, and another, and another – but not all at once. When you test each of these ideas one at a time, you can tell what's working and what isn't. Otherwise, you'll continue to spend money on channels that may be less effective.
After you run a few tests, you'll know what the most efficient and cost-effective ways for bringing in new customers are. This will keep your CAC at its most reasonable in the long run.
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2) Track Total New Customers
When you're using pen and paper for your order-taking system, it's not exactly easy to automate this process.
That said, how will you be able to tell your cost of acquiring a new customer if you don't know how many new customers you gain?
There are two solutions to this dilemma, both of which stem from a restaurant point of sale system equipped with a customer database.
- Track by unique credit card transactions. A restaurant POS integrated with credit card processing can safely create a customer database based off of their credit card information, and since 90% of patrons prefer to pay for a restaurant meal with a card, you can gain a relatively accurate list of new customers.
- Track by loyalty program signups. If you have an integrated restaurant loyalty program tied to your POS system, count your number of new signups during each of your campaigns to get a rough estimate of how many new faces came into your restaurant. Spending amounts from restaurant loyalty members are 46% higher than non-loyalty members, so this won't be a waste of your time or your money.
3) Invest in Directly-Traceable Marketing
Monitor your Facebook Ad Manager or Google AdWords page to see how many total clicks you had on your ads. Use a special coupon in each of your direct mail sends to see which sends worked and how long it takes for a customer to use it. Offer a unique promo code for the menus you drop off at college campuses.
Whatever you can do to learn know how you acquired each customer, do it. This gives you first-hand proof of which marketing ideas are effective for acquiring new customers and which aren't.
4) Use Best Practices for Free Exposure
You don't always have to pay for good marketing. We've previously covered a few ways restaurants can bring in new customers without spending a cent. Read more about these ways below.
- Restaurant Google My Business – It costs exactly $0 to claim your business page on Google and fill out all information regarding your hours, location, phone number, and menu. In a world where four out of five consumers have searched for a restaurant on a mobile device, this decision is no longer an option.
- Word of Mouth Marketing – Encouraging your guests to become your advocates for your business puts the marketing in their hands. This strategy requires you to serve up an unbelievable experience for all patrons, as negative word of mouth can be more than 3x more powerful than positive word of mouth.
- Examples of Awesome Restaurant Social Media Marketing – While paid social media ads are more effective at reaching new faces than organic posts, don't underestimate the power of a solid Instagram account or Facebook page.
Want to master all the metrics? Download our Restaurant Numbers Calculator for instant insight into your cost of goods sold, employee turnover rate, and more.
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