Lifetime Value of Restaurant Customers and Understanding the “Why”

Have you ever considered the potential value of a customer over the lifetime of their relationship with your restaurant?

Yes, customers are people first, not just dollar signs. But you operate one of the most challenging types of businesses—a restaurant, and every restaurant needs to turn a profit to see long-term success. That’s why knowing the value of your customers can help you develop an informed, strategic plan for the future.

Customer Lifetime Value 101

Customer lifetime value (CLV), or sometimes simply lifetime value (LTV), is perhaps self-explanatory. It gives you an estimate of how much financial benefit your dining business gains from your patrons. That potent insight helps you decide how much to spend on operations and customer acquisition efforts, such as marketing and discounts programs.

“The point is that you’ll never know how to develop an optimal marketing budget unless you know what the return on your investment needs to be,” writes author and business coach Brad Sugars for  Entrepreneur.com . He continues regarding discounts, “You will find innovative ways to build value upfront and create offers that drive enough volume to support and eventually increase your overall lifetime value number.”

Do the Math

A variety of complex methods for calculating CLV exist. Kissmetrics provides an example of how  Starbucks averaged out their numbers . And Canopy Labs offers a simple equation.

It can be expressed in this way:

(Amount of Average Sale) x (Number of Sales) x (Average Retention Time, Months or Years) = CLV

Say the average customer visits your restaurant twice a month, spends $25 per visit, and has been a return customer for five years:

$25 x 2 Visits x 12 months = $600

You know that your average diner is worth $600. Spending more than that per customer on, for example, efforts to gain diners is not sustainable.

Where Do You Begin? 

You can “do the math,” but how do you uncover your clients’ habits so you can plug in accurate figures?

We believe one of the best ways to do this is with our Real Feedback™  customer survey program. Working with our customer-satisfaction professionals, you can tailor-make survey, as in this case, to learn how much customers spend on what and how often.

Running a food service business is difficult enough—eliminate as much of the guess work as you can. Learn more about Real Feedback and our  mystery shopping programs and let our knowledgeable team help you take greater control of your business’s future.