Why You Must Know The Lifetime Value Of Your Average Customer To Become As Successful As Possible
If your restaurant isn't as successful as it could be, one of the primary reasons is you don't know how much profit you can make from your average customer or client over the course of his or her patronage.
Read this article to discover how to determine this crucial figure and how to use it to take your business to the next level.
Please answer this question...
What’s The Primary Purpose Of Your Business?
If you’re like most restaurateurs, you probably reply, “To make a profit,” right?
If so, you’re partially correct. You do need to earn a profit to stay in business, at least for the long term, anyway.
Although generating a profit is one of the chief objectives of every enterprise, including yours and ours, it shouldn’t be the primary goal.
The Main Purpose Of Your Business Is To Obtain And Retain Clients!
If you know how to find and keep plenty of clients and compel them to patronize your restaurant for years and give you lots of referrals, your business will produce more profits than your wildest dreams.
(You'll learn later the difference between a customer and a client and which one you should be using to impact your business more positively.)
On the other hand, if you don’t have enough clients buying from you regularly, your company will go belly up faster than you can imagine, let alone make a profit.
Successful restaurateurs treat their clients like royalty, making them feel incredibly special and glad they have visited your place or ordered from you online or by phone.
The success of your business will depend on how well you serve your clients.
Have you been treating them outstandingly?
If you’re like most restaurant owners, you probably aren’t taking care of your clients at the highest level possible.
To ask you another way: Have you been treating them as though they’re guests at your home?
If you have, and you offer great food at competitive prices and great service, your business would be massively successful right now. So you wouldn’t even bother reading this article.
The Biggest Mistake Most Restaurateurs Make
After investing a large amount of money, time, and effort getting prospects to do business with them, many restaurant owners (and managers) don’t take care of their new customers well enough to keep their patronage for the long term.
Reasons People Stop Visiting A Restaurant:
Check out these statistics:
Are you surprised almost seven out of ten clients stopped doing business with the restaurant because the owner or employees didn’t make them feel special or appreciated?
What about you?
Reading this article indicates you haven’t treated your clients as well as you could have, showing them you really value their business.
If so, keep in mind this important fact:
Your clients are your business and your restaurant (cafe or bar) exists for them. Without clients, you’ll have no income, no nice home or cars, no college education for your children, no vacations, and, of course, no business. Nothing! Nada! Zilch!
To put it another way:
Clients Are The Lifeblood Of Your Business!
While these seven words sum up the key to your long-term success, many restaurateurs don’t understand it.
When asked, “What’s the most valuable asset of your business?” they usually reply:
“The cash in our bank accounts.” Or...
“The real estate we own.” Or...
“Our brand.” Or...
“Our employees.”
Though these assets are extremely important to your enterprise, they aren’t the most precious. Without your clients, the money in your bank accounts will be used up soon, forcing you to sell the real estate, the trademarks, or the brand to generate cash to pay your staff and other expenses.
The majority of restaurant owners don’t realize their clients are their most valuable business asset, so they don’t take care of them well enough to gain their long-term support.
That’s why they don’t make the kind of income they want, no matter how hard or long they work.
Think about your own experience.
How many companies have you stopped patronizing because they didn’t treat you well enough to keep your business for life?
How many times have you left an establishment feeling they didn’t care whether you’d buy from them again?
This situation has happened to you countless times, right?
In our case, we’ve stopped purchasing from dozen companies because the owners or the employees, or both, didn’t make us feel special. Some of them didn’t even greet us when we came into their stores and some didn’t say “thank you” after receiving our money.
Since there are many companies selling the same or similar products or services, we can choose to give our hard-earned money to the ones that really appreciate our business.
The same is true with your prospects and clients. Regardless of the type of food you serve, chances are good that they can enjoy similar (or even better) food from other restaurants located within a few miles of yours.
Consumers can choose to do business with any restaurant they want. So if they select yours, be grateful and treat them like they’re guests in your home to earn their business for the long term.
Why Aren’t You Treating Your Clients Great?
One of the main reasons you don’t go the extra mile to take care of your clients is you don’t realize they’re the most valuable asset of your business.
Have you calculated the amount of money you could make from each of your clients over a period of 10, 15, or 20 years?
Is it $1,000, $5,000, $10,000, $20,000 or more?
Let us show you how a restaurant having an average meal of $25 could generate tens of thousands of dollars from each of their clients over the lifetime of his or her patronage.
Let’s say you own The Perfect Restaurant offering fine Italian cuisine, and a couple, John and Linda Campbell, dines out three times a week, once at your establishment and twice at two others. Their average meal is $50, so your restaurant earns $2,600 a year or $26,000 in 10 years from them. In addition, they tell three other couples about your place because you treat them like royalty.
If one of these couples, let’s say their names are Cathy and Bill Clarke, spends $50 at your restaurant once a week, you’ll make $2,600 a year or $26,000 in 10 years from them as well. This means your restaurant will have earned $52,000 from the Andersons and Clarks in a decade.
There’s more...
Because you and your staff also treats the Clarks exceptionally well, they likely will tell three other couples about your restaurant. This wonderful cycle repeats itself over and over. So in just 10 years, your business will have made several hundred thousand dollars in gross income from the Andersons, directly and indirectly.
As the owner of The Perfect Restaurant, knowing you could generate this much money just from the Andersons, wouldn’t you delight them every time they come to your place?
Absolutely, right?
While every restaurateur would reply the same, unfortunately, in the real business world, the opposite is usually true.
Since most restaurant owners don’t realize each of their clients could be worth tens to hundreds of thousands of dollars over a period of 10-20 years, they don’t treat them well enough to motivate them to do business for the long term.
The first step to turning this situation around is realizing these two important figures:
1. The average number of years a client does business with you.
2. The amount of money you can make from him or her during this period.
Although you may know #1, you’re probably clueless about #2.
If so, we have bad news for you. By not understanding the lifetime value of your average client:
You’re Losing Out On Hundreds Of Thousands Or Even Millions Of Dollars Over The Next 10-20 Years!
Imagine how much money you’ll make if each of your clients is worth $20,000 in gross income in a decade.
If you have 1,000, you’ll produce $20,000,000 during this period or $2,000,000 per year.
Making this kind of money would allow you and your family to enjoy a magnificent lifestyle, wouldn’t it?
Let’s say you have only 500 clients from whom you can earn $10,000 each over the next 10 years. You still will make $500,000 annually.
Even if your food, labor (not including your and your spouse’s salaries), and other expenses are 70%, you still generate a net income of $150,000, which would allow you and your family to enjoy a nice or even fantastic lifestyle, right?
Let us prove to you why your clients are your greatest business asset and why it’s realistic for you to make $10,000 or more from each person over the next 10 years.
A. Average value per order: Add up the total dollar sales for a year and divide it by the total number of transactions.
B. Number of orders per client annually: Take the total number of transactions for a year and divide it by the total number of clients.
C. Number of years the client does business with you: People usually move within a 20-mile (or 32-km) radius from their current home every five to seven years. So use a number between 5 and 10.
D. Number of referrals from client: This is the number of people each delighted client tells about your business.
E. Percentage of referrals that do business with you: The percentage of people that your clients recommended who visit your restaurant or order from you online or by phone.
To help you figure out the lifetime value of your average client, we’ll use The Perfect Restaurant as an example. Please follow along with the exercise and fill in the blanks under the column marked “Your Restaurant.”
If you’re reading this on your computer, we suggest you print out the page. If on a mobile device and you don’t have access to a printer now, re-read this section when you get home or office.
Remember to use an estimated average because some clients dine at or order from your restaurant only once while others may do it several times per month.
Enter the numbers into the formula:
What’s the lifetime value of your typical client (see line J)?
Is it more or less than the $4,800 for the sample restaurant?
Whatever your amount is, it’s probably a lot more than you originally thought each of your clients was worth, right?
In the case of The Perfect Restaurant, are you surprised a $10 sale could amount to $4,800 (or more) in 10 years?
You may be saying:
“I realize each of my happy clients could be worth tens of thousands of dollars to my business over a period of 10-20 years. Unfortunately, after they leave my restaurant, I don’t have a way to contact them. So most of them do business with me only once or twice a year.”
If you said that or something similar, welcome to the club! Most restaurateurs are in the same situation.
The wonderful news for you is, in future articles, you’ll learn how to collect the names, email and mailing addresses, phone numbers, and the birth and anniversary dates of your clients.
If you’ve calculated the lifetime value of your average client, we applaud you!
Please pat yourself on the back and then record the figure below:
Again, if you’ve figured out the lifetime value of your delighted client, be proud for having done something that most restaurateurs haven’t.
If you haven’t because you’re reading this article on your phone or another valid reason, promise yourself to do this extremely important exercise within the next several days.
Print and hang your lifetime value where you and your staff can see it often. This way, the next time you communicate with a client, you’ll remember to treat him or her like royalty.
Why Is It So Important To Know The Lifetime Value Of Your Delighted Client?
For two reasons:
First, until you realize how much each elated client is worth over the course of his or her patronage, you won’t treat this person at the highest level possible.
Second, you can figure out the right amount of money, time, and effort to invest in getting a prospect to become your client.
For example, if you think each one is worth say, $100, because that person may do business with you only a few times, you may be willing to spend $10 to convert a prospect into a client. On the contrary, when you realize each client could be worth $10,000 or more over a 10-20 year period, you should be willing to invest $50 or more to acquire a new one.
Remember this crucial fact:
It Costs Six Times More Money To Obtain A New Client Than It Does To Resell To An Existing One!
For every $1 you spend persuading a loyal client to do business with you again, you have to expend $6 or more to convert a prospect into a client. Since prospects don’t know you, you‘ll have to invest a lot more money, time, and effort to convince them to visit your restaurant or order from you online or by phone for the first time.
Sadly, most restaurateurs don’t understand this fact, so they focus the bulk of their resources on obtaining new customers.
For those who do understand, they don’t have a way to contact their clients after they leave.
Even though some of these owners advertise online or in print publications and send flyers to the businesses or households close to their establishments, many restaurateurs don’t do any marketing at all. Instead, they simply hope or pray people will come, call, or order online.
Some of them say:
“I don’t understand it. I offer fabulous food, excellent service, and competitive prices. Most of the clients who dine at my restaurant for the first time say they will return and tell their friends about my place, but only a few of them actually do.”
Have you ever said the same thing?
If so, here’s the reason: While your clients told you the truth, after leaving your restaurant, they get busy with their work and personal lives and forget to visit you again. Unless you offer unique food, service, or prices that they can’t obtain from another restaurant, they won’t spend the extra time and effort going to your place or order from you online or by phone.
This is why it’s crucial for you to collect their contact information, so you can invite them back by giving them special offers. In some cases, simply telling them you appreciate their business and miss them is enough to motivate some of them to return.
Imagine having a database of 500 or more delighted clients whom you can send a text message to quickly and effortlessly.
Let’s say it’s 4:00 pm on Tuesday, many of your clients are about to leave work, and a lot of them haven't decided where or what to eat for dinner. They receive a text from you offering a free appetizer with any entree between 5 and 6 today.
Guess how many of them will take advantage of your offer?
At least a few dozen, right?
Let’s say the average meal, including drinks, is $20. If 50 clients come to your restaurant because of your text promotion, you’ll make $1,000 in gross income, which is money you otherwise wouldn’t have made without your text marketing.
Do you see the enormous benefit of having a client database that you can contact at the same time at the push or tap of a button on your computer, tablet or mobile phone?
In our example, how much money did it cost to send a text to 500 clients?
Let’s say you pay five cents per text, for a total of $25. Since your sales from this promotion were $1,000, this means the return on your marketing investment was a whopping 4,000%.
How much effort did it take you or your staff to write and text the message to 500 clients?
Less than two minutes.
Doing just one promotion a week will generate an extra $4,000 in sales monthly, and two will produce $8,000!
If your average order is greater than $20, you’ll make even more profit.
(In case you’re thinking you’re spamming your clients with texts, you aren’t because they’ve chosen to receive text promotions from you. In future articles, you’ll discover why text marketing is probably the most powerful tool for taking your business to new heights quickly and inexpensively.)
Do you see why your clients are the greatest asset of your business?
When you have several hundred happy clients that you can contact so easily and effortlessly whenever you want, you’ll keep your restaurant full throughout the day, everyday (or get lots of orders if you don’t offer seating). You and your staff will make more money and your clients will be thrilled to receive your specials and be treated like kings and queens.
The Difference Between A Customer And A Client
A customer is someone who does business with you only one time. Most restaurants have customers. The relationship between you and your customers is casual in most cases.
A client has done business with you two or more times and your relationship with them is closer than with customers. You should strive to have lots of delighted clients who will do business with you for 10 or more years and brag about your business to the people they know.
Although you may feel a bit strange referring to the individuals who do business with you as clients instead of customers, we urge you to do it. This way, you’ll be compelled to treat your clients like royalty.
If you’re like some restaurateurs, you may consider the people who dine at your establishment as “guests.” If you feel more comfortable with “guest” than “client,” you can continue using it.
The reason we prefer “client” over “guest” is clients pay for your products and services and guests (at your home) don’t.
Sam Walton, the founder of Walmart and was one of the richest people in the world, referred to the folks who did business with his company as clients. He said:
“There is only one boss. The client. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
Jay Abraham, the highest-paid marketing consultant in the world, who charges at least $5,000.00 USD per hour, and has helped thousands of companies produce billions of dollars in sales, always suggests to the organizations that have hired him to refer to the people they do business with as “clients” instead of customers, members, patients, subscribers, viewers, listeners, or readers.
When you have 500 or more elated clients that you can contact by text, email and postal mail regularly, you’ll have an incredibly-successful business, even if your food and service aren’t the best in town.
A delighted client, which is also known as a raving fan, will do business with you for the rest of their lives (unless they move out of your city) AND brag about you to everyone they know.
You'll discover how to get plenty of raving fans in future articles.
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This article was taken from Restaurant Success, which help you double your business within 12 months while working fewer hours.
For a limited time, you can get this book for FREE.
About The Author
Larry Lee is the co-author of Restaurant Success and the director of marketing and operations for Conlee Systems, which operates OrderOrbook.com, providing free websites and many marketing tools to help restaurant owners become more successful.
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