An Overview of Customer Acquisition Cost for Restaurants
What is Customer Acquisition Cost?
With over a million restaurants in the United States, acquiring new customers is more challenging than ever before. Customer acquisition cost is a metric that measures estimated cost per customer that is commonly abbreviated as CAC. Ultimately, increased or decreased total sales are attributed to either fewer customers acquired or lowered customer loyalty.
There are various techniques utilized to measure customer acquisition cost that all business professionals should be aware of. Some businesses evaluate CAC ratio by asking customers directly if they are new customers. Other businesses use loyalty programs to differentiate between new customers and returning customers.
Many businesses evaluate the lifetime value and customer acquisition cost ratio together. The lifetime value estimates the average total sales per customer throughout their lifetime and is commonly abbreviated as LTV. A LTV and CAC ratio supplies insight on everything from a sales cycle to conversion rate specifics.
Understanding the difference between customer acquisition cost and cost per customer is also important. Additionally, it is important that customer retention marketing efforts are not included in customer acquisition cost figures. However, if a customer retention marketing effort brought in new customers it would be considered. Without a customer database, it is difficult, if not impossible, to discern between a new customer and an existing customer.
Why is Customer Acquisition Cost Important for Restaurants?
Acquiring new customers is crucial for both new and existing restaurants. With the marketing spend insight that a CAC formula can supply, acquisition efforts can be improved. A CAC formula helps to make sure that CAC payback is worth marketing spend efforts. When the lifetime value is incorporated into customer acquisition cost conversations, even more insights are available.
Let's say a restaurant decides to invest in paid social media advertisements for the first time. Understanding how those marketing expenses related to customers acquired would justify marketing spend and strategy. The CAC ratio helps businesses establish a baseline to accomplish customer success optimally.
Monitoring and controlling customer acquisition costs are essential to optimizing customer success. A powerful aspect of customer acquisition costs is that they can prove marketing initiative effectiveness. As such, customer acquisition costs are commonly discussed everywhere from business model to marketing spend conversations.
How to Calculate Customer Acquisition Cost
In order to calculate customer acquisition costs, several figures must be considered. A restaurant's total customer acquisition cost includes all funds targeted towards new customers in the marketing budget. Due to many different variables at play potentially, there is not a CAC formula that is universally utilized. Various strategies to calculate customer acquisition costs include-
1. Asking Directly
Asking customers directly if they are new customers is a solid strategy. Even when restaurants are executing individual marketing activities, new customers may come from other sources. For example, a word of mouth recommendation could result in a new customer visiting a restaurant.
Directly asking customers where they heard about a business will help businesses make sure marketing spend is accurately considered. Of course, it may not be possible to ask every customer directly. Staff may forget to ask or a customer may not remember where they heard about a business. A good customer acquisition strategy milestone for asking customers directly is around 40%.
2. Customer Reviews
Analyzing new customer reviews is a part of many customer acquisition cost calculation strategies. Undoubtedly, businesses are acknowledging this as they are increasingly incentivizing staff to encourage guests to leave reviews. Additionally, new customers that leave reviews are a form of free marketing! However, if customer reviews are utilized for customer acquisition strategies then it is essential that review pages are properly monitored.
3. Google Analytics
Both conversion rate and customer acquisition rates are easier to understand through Google Analytics. Google Analytics allows businesses to see where website traffic originates. The conversion rate demonstrates how many customers made reservations online or through the phone. Restaurants can even further improve the conversion rate through split testing.
Customer Acquisition Cost Examples
Both existing and new businesses can learn a lot from customer acquisition cost examples. Customer acquisition rate for existing restaurants is most easily calculated through individual campaigns, ads, or promotions. A new restaurant will have customer acquisition costs that include all opening marketing initiatives.
Let's say an existing restaurant owner supplies a 10% discount code for new customers via social media paid ads. The paid ads cost $1,000 and the restaurant acquired 20 new customers that used the code. If restaurant sales took a hit of $40 due to the discount, the total cost would be $1,040. Dividing $1,040 by the 20 new customers would calculate customer acquisition rates. In this situation, the customer acquisition rate would be $52.
Let's say, a new restaurant looking for new customers invests in a mailing list. Then, using the mailing list, the restaurant owner sends out a 25% discount code. The mailing list could cost $400, the printed material $100, and an additional $500 spent in mailing costs. The business owner could also launch a social media page, investing $2,000 in paid ads.
After a week, the business owner sees that new customers made 600 purchases at the restaurant. Factoring in the discount, she deducts $400 in revenue. The total marketing expenses figure would be $3,400 with 600 new customers acquired. Diving the total restaurant sales by new customers acquired would calculate customer acquisition rate. In this situation, the customer acquisition rate would be $5.67 per customer.
How to Lower Customer Acquisition Costs
Lowering customer acquisition costs is a common business model objective. Thankfully, there are various strategies to reduce customer acquisition costs. Top strategies to reduce CAC include-
1. Free Exposure
What better way to reduce CAC than through free exposure? Word of mouth marketing is generally the first free exposure that comes to mind. However, restaurants that encourage word of mouth marketing must make sure to supply a good customer experience. Studies show that negative word of mouth is 300% more powerful than positive word of mouth.
A solid social media presence is universally recommended to reduce customer acquisition costs. Social media offers many free exposure opportunities for restaurant business professionals. A simple action like creating a geotag or interacting with customer posts can go a long way. Marketing expenses towards social media are still important as paid social media ads are more effective customer acquisition tools.
Acquiring customers often requires a lot of testing. Experts recommend that restaurants only test one marketing idea at once. Careful monitoring of a marketing idea over a specific time period helps inform marketing strategies to come.
For example, let's say a business decides to launch a social media lead generation and email marketing campaign simultaneously. Obviously, these marketing expenses will likely result in total sales increasing. However, pinpointing which marketing expenses resulted in new customers is difficult if not impossible.
Properly tracking customers supplies businesses with a wealth of information. Tracking customers appropriately is unlikely without great technology. A point of sale system equipped with a customer database is essential to properly track new customers and existing customers.
A point of sale system with a customer database allows businesses to track through loyalty programs or credit card transactions. 90% of customers pay for their restaurant purchase with their credit card. With a client database, businesses can use credit card information to differentiate between new customers and existing customers. A restaurant loyalty program can identify a new customer and increase lifetime value significantly. Additionally, restaurant loyalty members spend 46% more than non loyalty members!
Top Customer Acquisition Strategies for Restaurants
There are many different customer acquisition strategies available. The customer acquisition strategy for one business model may not be the same as another. Top customer acquisition strategies that all business professionals should be aware of include-
Customers acquired online are more prevalent than ever before. From social media to third party reservation platforms, there are virtually endless online marketing sales opportunities available. Experts advise that the bulk of customer acquisition strategy online should focus on the business website.
Time spent acquiring a strong website is time spent well. Businesses should make sure that direct reservations are a high priority. Direct reservations are bookings accomplished outside of third party systems or services. Direct reservations include new customers acquired via phone or business website.
Experts recommend that direct reservation efforts first address real time reservation widgets. Excellent reservation widgets increase lifetime value and reduce customer acquisition costs. Choosing the right reservation widget is not an easy task but there are many best practice tips available. The average customer should be able to easily access and navigate a reservation widget. Automatic customer data imports and real time table availability are additional suggested reservation widget requirements.
2. Time Period
Understanding the difference between customer acquisition time period strategies is important. Unfortunately, many sales team and content marketing professionals are too focused on short term customer acquisition efforts. Common short term customer acquisition examples include discounts and free samples. Short term customer acquisition efforts often increase the cost per customer acquired and reduce customer retention.
Long term customer acquisition is both sustainable and successful. Long term customer acquisition includes an established social media following and customer database. SEO investments and Google reservations are also commonlt utilized long term customer acquisition strategies.
A customer acquisition strategy that only focuses on new customers is not likely to succeed. While acquiring a new customer may boost the conversion rate short term, retention justifies marketing spend long term. Customer retention strategies should include CRM technology and technology programs. An official loyalty program is a good customer acquisition investment choice. CRM technology increases customer success and conversion rate figures. CRM technology is customizable, allowing businesses to send emails over a certain time period and even acknowledge customer birthdays!
Conclusion for Restaurant Customer Acquisition Cost
- The customer acquisition cost, conversion rate, and lifetime value are all important figures.
- Due to differences in businesses, no one CAC formula is universal.
- There are various ways for restaurants to lower their customer acquisition costs.