A Breakdown of Restaurant Math You Need to Know
In order to determine the overhead of your social media efforts versus their value, you must first understand the value of an average restaurant guest. This value will come in handy later down the line.
To get the average lifetime value of a restaurant guest, we look at a few common restaurant metrics first.
Don’t worry; this restaurant math, adapted from Loyalty Path, will be painless.
Average value of a sale per restaurant guest
If you want to know the average value of a sale per restaurant guest, divide your total number of sales by your total number of guests.
Example: If you made $50,000 per month and had 1,000 guests that same month, your average value of a sale per guest would be $50 each.
Number of sales per guest annually
Hopefully you’re using some kind of loyalty system, or point of sale system with a loyalty program built in. It should tell you how many times a guest buys from you in a year. You’ll need this number to do a future equation that we’ll get into soon.
Number of years a guest dines with you
If you don’t have specific data on this, seven years is a fair assumption.
Gross annual sales per guest
To find out how much money an average guest spends with you per year, multiply the average value of a sale per guest by the number of sales per guest annually.
Example: Above, we said that the average sale of a guest was $50. If we found that a guest visited us once every other month, or six times per year, then $50 multiplied by 6 would be $300 in gross annual sales per guest.
After getting this restaurant math answered and out of the way, we’ll get to the equation you’ve been waiting for.
Guest lifetime value
To find out how much a guest is worth for the entire time they’re a guest, multiply the number of years a guest dines with you by the gross annual sales per guest.
Example: For the restaurant above, we assume a guest dines with them for seven years, and we’ve determined that an average guest is worth $300 per year. The lifetime value of that guest is $2100.
Knowing these numbers will help determine how much you’re willing to spend to attract a new restaurant guest. But how much are you willing to spend per guest on social media?
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Doing The Restaurant Math
In the above examples, we determined that a guest is worth $50, and over the course of their relationship with the restaurant, they’ll spend approximately $2100.
Here’s how the math looks:
$50 (average value of a sale) X 6 (number of sales per guest annually) = $300.
So on an annual basis, each guest is worth $300. Since we stated the guest has been visiting you for 7 years, we plug that number into our next equation.
$300 (gross annual sales value per guest) X 7 (number of years guest dines with you) = $2100
So in concluding this section of restaurant math, the average guest lifetime value is $2100.
What Can You Afford to Spend on Social Media?
Now that we know what an average guest is worth over a lifetime, we can look at determining your social media budget.
Let’s say you want to commit 20% of your marketing budget to social media. The budget per guest per year is equated like this:
Guest lifetime value (2100) X budget allotment (20% or .20) = $420
So your social media budget per guest is $420 for the duration of 7 years, or $60 per year. To attract 750 loyal guests each year (they can’t all be winners!), then your total annual budget for social media would be $45,000 per year (750 X 60).
In this example, we’ve determined that $45,000 can be spent each year on social media. Now, consider what you can hire a social media practitioner for.
Let’s say there’s a social media expert willing to work for $25 per hour. That equals 1,800 hours per year, 150 per month and 37.5 hours per week.
Of course, your marketing priorities are up to you. Can you save $45,000 per year and do social media yourself? Of course! It’s encouraged! Just do the math to determine how much your time is worth to you, first.
Or, of course, you can hire us for less than half the price and populate your restaurant blog at the same time as winning the social media wars. What do you think?