Your restaurant may serve fabulous food at unbeatable prices, but it’s all for naught if no one knows about it. That’s why restaurant owners need to create a marketing plan and give it a budget big enough to be effective while not so big as to squander your money.
The rule of thumb for restaurant marketing is 3% to 6% of sales. These are really guidelines rather than rules, but if you are outside the range, you should have a good explanation. If your restaurant is struggling, it’s all too easy to shortchange the marketing budget. Many good things can be done on a shoestring marketing budget, but don’t expect it to match the results of a well-funded campaign.
Throwing too much money into marketing is not only wasteful, it’s wrongheaded. The reason your restaurant is successful is because it’s a good business, and all that marketing does is make that success easier. You should be able to get your marketing message out on a 6% budget, although you might temporarily spend more for a short-term public relation campaign.
In all cases, it’s vital to measure your marketing return on investment (ROI), that is, the profit contribution of your marketing budget divided by marketing spending. The formula for marketing ROI is:
Marketing ROI = [Incremental Revenue Attributable to Marketing * Contribution Margin – Marketing Spending] / Marketing Spending
For example, suppose your restaurant undertakes an advertising campaign with a budget of $10,000 and shortly thereafter notices an increase in revenue of $50,000. This creates an ROI factor of 5.0. Now suppose the contribution margin (i.e. the price of meal minus all associated variable costs for the meal) is 60% — that’s the incremental profit earned by each meal served, on average. Given the 60% incremental contribution and the $50,000 increment of increased revenue, we figure the margin ROI to be 0.60 x $50,000, or $30,000. Now subtract the marketing spending of $10,000 and divide the result by the same $10,000:
Marketing ROI = [$50,000 * 60% – $10,000] / $10,000 = 2,
This shows that every dollar spent on the advertising campaign generates $2 to net profits. In other words, it’s a good deal. If you spent appreciably more the $10,000 on marketing, your ROI would decline, making the investment less efficient.
Perhaps this sounds a little fancy for your restaurant, but it’s a good way to make sure you aren’t wasting your budget on inefficient marketing.
Other factors to consider when budgeting your marketing efforts include:
- Spending less during the offseason and more during the busy season. There is no use investing heavily in marketing during months when all your customers are at the beach or the ski slopes.
- Thinking imaginatively about promoting your restaurant through ads, websites, emails, signage, social media, brand awareness, and interesting web content.
- Don’t let a sudden cash crunch stifle your marketing budget. Remember, IOU Financial is all about shoring up your working capital quickly and affordably. You can apply a loan from us to keep your marketing program chugging along on all cylinders as you work through your cash problems. Remember, those problems will only get worse if your customer volume dries up.
By committing to your marketing budget and continually measuring its effectiveness, you can ensure that you spend the optimal amount promoting your great restaurant. Bon appétit!