How to Calculate ROI in Restaurant Marketing

As of Spring last year, there were more than 660,000 restaurants operating in the United States.

What are you doing to stand out in a crowd of 660,000?

How you answer this question inevitably ties back to one thing: your approach to restaurant marketing.  

Take KFC, for example. In recent years, KFC’s marketing department has introduced the world to “fried chicken art,” sent a chicken sandwich into space, and debuted a limited edition gravy-scented candle. Of course, a global chain with more than 20,000 locations has a marketing budget that would dwarf most quick– and full-service restaurants (space travel ain’t cheap, folks), but the good news is when it comes to marketing, the size of your budget doesn’t matter nearly as much as the performance of your individual restaurant marketing campaigns. 

Creative for creative’s sake doesn’t cut it; you have to prove that your investment of time, money, and energy actually did something positive for the business by calculating marketing campaign performance metrics, like return on investment (ROI).  

 In this post about how restaurants can calculate the ROI in their marketing campaigns, we'll cover:

• How to create a restaurant marketing strategy 
• How to gauge the performance of your restaurant's marketing initiatives
• How to calculate the ROI of your restaurant's marketing initiatives
• Additional tips for mastering the art of restaurant marketing

How to create a restaurant marketing strategy

Too often businesses subscribe to the age-old “throw it all out there and see what sticks” philosophy when it comes to marketing. Doing so undermines two critical elements of a successful strategy: intention and direction. Sure, you might enjoy some wins, but without that all-important restaurant marketing plan outlining what you're doing and when, you’ll have a tough time pinpointing where those wins came from.

Your restaurant marketing strategy is the combination of all the marketing activities you have planned for the year ahead. Learn more about how to create a restaurant marketing plan here.

Each of the marketing campaigns on your calendar should have the following information outlined:

• Customer intel: Who are you targeting with this campaign? What do you know about their behavior and preferences? 
• Intended marketing channel: Where will this campaign be taking place? Will you include channels like email or social media?
• Key marketing messages: Why does this campaign matter to the customers you're targeting? What are you trying to get them to do? 
• Campaign goal: Why are you conducting this campaign? To increase your followers on social? To sell more of a specific menu item? No matter the goal, make sure it's outlined early on. 
• Campaign duration: How long will you be conducting this marketing campaign for?
  
• Marketing campaign performance metrics: Let’s say you’ve just completed a four-week restaurant marketing campaign with a goal of driving sign-ups to your restaurant’s loyalty program (since you know that it can cost up to five times less to retain an existing customer than to acquire a new one). Success, in this case, is a program sign-up, but you’ll also want to track when and whether these new loyalty program participants become paying customers, as well as the menu items they're partial to.

And let’s not forget the elephant in the room: budget. 

How much should you spend on marketing your restaurant?

There's no magic number when it comes to budgeting for restaurant marketing — it's wholly dependent on factors unique to you and your restaurant. You may even find that your approach to budgeting for one restaurant marketing campaign doesn't work for ensuing campaigns you're piloting.

You’ll find plenty of opinions online around how much of your total gross revenue should be earmarked for marketing. It seems like for every person you ask, you get a different answer: WordStream, for example, recommends that new businesses plan for 12-20% and established businesses plan for 6-12%, while Food Newsfeed suggests between 12-35%. Confusing, right?

To pinpoint the correct marketing budget for your restaurant, look at your total revenue, audit your past marketing spends, write a comprehensive list of what you anticipate you’ll need to buy or do, and then arrive at an amount that feels comfortable (or even a bit uncomfortable) to you.

With a spend and a plan now in place, your next task is to monitor marketing campaign performance metrics. In the next section, we'll focus on calculating marketing campaign ROI. 

How to calculate marketing ROI for a restaurant

Here's a hypothetical: After reviewing the sales reporting and analytics from your restaurant POS as well as employee scheduling software reports, you’ve noticed sales are suffering on Wednesday evenings and your restaurant is over-staffed as a result. 

You decide to run a social media marketing campaign promoting a Wednesday wing special for the month of January to get more bodies through the door. 

Come February, it's time to analyze the marketing campaign's performance. Here’s what you’ll need to do:

1. Calculate the total sales of any checks that included your Wednesday wing special.
2. Subtract your cost of goods sold, or COGS, to reveal your gross profit.
3. Deduct your marketing expenses to reveal your net profit.

Use one of the two following formulas to calculate ROI for your restaurant marketing campaigns:

ROI = (Net return on investment) / (Cost of investment) x 100%

or

ROI = (Final value of investment - Initial value of investment) / (Cost of investment) x 100

To calculate marketing ROI percentage, divide your gross profit by your marketing expenses. If, for example, this value works out to 200%, it means that every $1 spent on your Wednesday wing campaign generated $2 in profit. Not bad!

Is there a “sweet spot” when it comes to marketing ROI? Not necessarily, but the goal is to be in the green – meaning your return was greater than your investment –  not the red – where your investment was larger than your net gains. 

Tips to maximize the ROI on your restaurant marketing strategy

If you’ve found you're in the red after completing a marketing campaign, don't worry — it happens to all of us. Here are three things to consider doing (or avoiding) to achieve a healthy return the next time.

1. Keep a watchful eye.
   Regular monitoring is essential to determine when (and where) to switch things up. Ultimately, your goal is to maximize ROI by getting the best bang for your buck. You might find the constant stream of restaurant data analytics overwhelming, but over time, making data-driven decisions — whether directly related to marketing or not — will start to feel second nature.
   
   
2. Beware of vanity metrics.
   Harvard Business Review accurately defines vanity metrics as “numbers which look good on paper but aren’t action oriented.” Careful not to hang your hat on that Instagram post that got 1,000 likes; if customers aren’t coming to give your new superfood smoothie a try, the likes mean very little. Metrics should always be actionable, accessible, and audit-able.
   
   
3. Engage with your audience. 
   Not sure why your website traffic flatlined? Your analytics can point you in the right direction, but the most reliable source is your customers themselves. Marketing research involves more than just the audiences you’re targeting — it also considers the ways you’re targeting them.

Looking for more help creating a winning restaurant marketing plan for 2019? Click below to download Toast's customizable restaurant marketing plan with some additional restaurant marketing resources bundled in.

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