Tag Archives: Marketing

Marketing Metrics – Restaurant Industry

13 Dec

I have been working in the restaurant industry for four years now, so for my Marketing Information Management class, I decided to share an example of how to ensure marketing investments in your restaurant are worth the effort. Determining your return on investment is imperative to make sure that your investments are actually helping your company earn profits.

To demonstrate some marketing metrics, I am using a local restaurant and pub in the Lower Mainland which will remain nameless. This restaurant specializes in serving fresh, local ingredients by making contemporary twists to traditional home-cooked meals. The restaurant supports local wineries and food suppliers, and ensures high quality food by making all dishes from scratch every day. The company strives for excellent customer service, food and beverage quality and an up-beat atmosphere.

The restaurant and lounge capacity is 300 seats – 200 in the dining area, 100 in the pub area. Currently, the restaurant hires different bands to play from 9:00PM-12:00AM in their lounge on Friday and Saturday nights. The restaurant pays each band $400 to perform for three hours, regardless of the size of the audience.

Recently, this restaurant has been experiencing a loss in profits, and has six months to determine whether to continue operation or close down for good. Management has questioned if certain costs within the restaurant are necessary, and is particularly curious to find out whether the band investment is worth their time and money.

According to upper management, sales have increased by an average of $1000 on Friday and Saturday nights for the entire restaurant, but the company does not track day sales and night sales as separate entities. Instead, the restaurant relies on tracking sales for the entire day, and does not track sales or seats by the hour or section of the restaurant. For this reason, the restaurant is unable to determine whether the increase in sales occurs in the evening or the day time. There is a good chance that the restaurant is just seeing an increase in sales because it is a weekend.

One manager believes that hiring a band to play on Friday and Saturday nights is not worth a $400 investment, which is equivalent to $3200 per month, $38,400 annually. Due to the fact that sales have only increased by $1000 on each day for the restaurant as a whole, the band does not seem to be a main reason for people coming into the restaurant. In fact, if the band did not play, sales would most likely stay very constant.

Assuming the average selling price (ASP) or revenue per customer is $20, and the average variable cost (AVC) per customer is approximately $12.40, the contribution per customer is $7.60.

Contribution per Unit ($) = ASP ($) – AVC ($)
= $20 – $12.40
= $7.60

Taking this figure into account, we can determine the contribution margin with the formula below:

Contribution Margin (%) = Contribution per unit ($)/Selling price per unit ($)
CM (%) = $7.60/$20
CM (%) = 38%

In order to determine whether the band investment is generating a large enough return, the restaurant needs to calculate their Return on Marketing Investment (ROMI). ROMI can be determined by the following formula:

ROMI (%) = [Incremental Revenue Attributable to Marketing ($) x
Contribution Margin (%) – Marketing Spending ($)]/Marketing Spending ($)

ROMI (%) = [$1000 x 38% – $400]/$400

ROMI (%) = -5%

Based on this negative ROMI figure, it is recommended that the restaurant uses other metrics to support the fact that this marketing effort is not worth their time or money. According to Marketing Metrics, estimating incremental sales of a particular marketing effort is almost always used as a justification for marketing spending on that program. Incremental sales for this restaurant are estimated to be $8000 per month ($1000 x 8 band days). In order to calculate the sales lift from hiring bands every weekend, baseline sales are needed, which are equivalent to the expected sales without any marketing efforts. The estimated baseline sales for this restaurant are $220,000 per month.

Lift (%) = Incremental sales / Baseline sales
= $8000/$220,000
Lift (%) = 3.63%

Cost of incremental sales ($) = Marketing Spending ($) / Incremental sales ($)
= $3200/$8000
Cost of incremental sales ($) = $0.40

The calculations above determine that the restaurant is currently spending $0.40 per incremental sale, and experience 3.63% sales lift from hiring the bands to perform eight times a month. Due to the low sales lift and negative ROMI, it can be concluded that this marketing effort is unprofitable and should be discontinued immediately, especially if the restaurant is experiencing a loss in profits and is considering shutting down all operations.

Keep in mind that these metrics are only some of the many you can use to determine whether your marketing efforts are making a big enough impact on your restaurant sales.

For another blog post on restaurants, check out my post onΒ Earls vs. Cactus Club!

– Linnea


Social Storytelling

3 Mar

Lisa Geddes, former VP of Marketing for the Rick Hansen Foundation, spoke and inspired my communications class about corporate and effective storytelling. She pointed out that storytelling has been the main communication channel since the beginning of time, referring to tribes, William Shakespeare, movies and music. Storytelling is truly the basis of everything we do. She feels that storytelling is “how we’re built to communicate,” which is why it is so effective in the corporate world. However, companies are having trouble communicating stories about their history to consumers, and are still focusing on quantitative values rather than personal values.

Lisa emphasized the fact that stories should always have a protagonist to introduce the story, a crisis or event in the middle of the story, and a moral to conclude the meaning of the story. Generic, inhumane company background stories do not capture the attention or interest of consumers. According to Lisa, good stories must be in alignment with your company, and must be authentic. They should avoid emotional dissonance by starting fresh from where the company last left off. Stories should always explain “why” and have a good reason for telling the story in the first place. The audience is only going to be engaged if they can relate to the story, so companies should know their audience’s interests and lifestyles in and out. Good stories should be emotive, informative and entertaining, and must contain a central message, while providing context.

Companies are still failing to produce authentic, engaging stories about their background and values because they feel that consumers are already doing so by using social media. Little do they know, if they have a presence online and engage consumers with their own story, consumer input may change for the better, and more positive stories could be generated by consumers on a daily basis.

Lisa then went on to explain that in order to “change your culture, change your story.” She also mentioned the theory of opening a story or message with the line “let me tell you a story.” According to Lisa, it is proven that when this phrase is mentioned before telling the story, a part of the brain opens up and prepares itself to listen carefully. Lisa’s presentation was very inspirational and highlighted the power of storytelling, especially in the corporate world.

Social Media Marketing Unplugged

30 Jan

Yesterday, I attended Social Media Marketing Unplugged, a truly inspirational seminar about social media and the tactics used to go about handling this phenomenon. The speakers that stood out the most for me were the ones who told their story, shared their knowledge (and humour) and related it to all businesses in general.

An ongoing theme that resided with me throughout the seminar is that consumers want to feel something whenever they interact on the web. They may not even know they are looking to feel anything. The truth is, social media users get a sense of pride when they have a new follower, or a mention on Twitter. They are comforted with honest reviews from users just like them on sites such as Yelp, and feel intelligent by purchasing products and services at discounted prices from online coupon sites such as Ethical Deal. Users may not understand how much emotion is involved in their decision-making process online, but if your company creates an emotional hook that somehow reels them in, your business will definitely be talked about.

New connections are made everyday, and these connections are facilitated so easily with all of the tools provided on the internet. In my eyes, the most useful tool to organize all of these valuable connections is Hootsuite, which was praised about by the beloved speaker, Dave Olson. (Gotta love the owl!)

If I were to remember one thing of value from the seminar, it is that social media alone will not provide your business with success. It is to be used as a supporting role to your ultimate business strategy. As Marty Yaskowich mentioned, “You do not need a social media strategy. Use traditional media first to start and/or supercharge your business, then turn to social media.”

Overall, wonderful experience and well worth my time! Big thanks to all of the seminar’s wonderful speakers!