Calculating Return Customer Rate And Their Value

Why Return Customers Matter

Customers are the lifeblood of any restaurant; the problem is that restaurant owners often feel like they're constantly bleeding out. Too often, you feel like customers come and eat once before leaving, never to be seen again. 

Quick-service and fast-casual restaurants have one significant advantage over full-service restaurants— it is much easier for QSRs and fast casual to become part of their customers' daily or weekly habits. Someone might only go to their favorite restaurant on their birthday or anniversary, but their favorite lunch place? They might visit several times a month to get their food fix. Winning the repeated business of customers is integral to quick-service and fast-casual restaurants' profitability and long-term health. 

Return Customer Spending Habits

In a recent study covering millions of transactions in the food industry, researchers found that as customers move through your guest journey, their spending habits grow exponentially and not linearly. 

For example, consider Sasha. Sasha has visited your restaurant once and spent $16 on a burger, fries, and coke. Typically, this is where the journey ends for 75% of your customer base. But let's say you engage with Sasha, and she returns, downloads your app, and starts progressing through the loyalty program. Each of these actions she takes draws Sasha in and can result in multiplicative revenue growth. Loyalists are usually the largest part of a restaurant's recurring revenue, accounting for 10-20%. 

Beyond increasing your customers' spending, it's also significantly healthier and more manageable for a restaurant to retain guests versus acquire new ones. A previous estimate showed that it costs 4x more to acquire a new customer than to retain one close to churning. 

Knowing these breakpoints and knowing how and when to target your customer base is only possible when you have the proper data and tools. Shooting into the dark is precisely as fruitless as it sounds. We'll discuss how to calculate return customer rate, customer lifetime value, and strategies for improving your customers' value. 

How To Calculate Return Customer Rate

Thankfully, the math involved in this is simple. 

Return Customer Rate= Return Customers/Total Customers * 100

Divide the number of return customers by the total number of customers. Multiply by 100 to convert to a percentage, and we have an accurate reading of your return customer rate for a given period. 

Establishing this is important as it will be a baseline for measuring our efforts. This does generally require some form of customer tracking tool. 

How To Calculate Customer Lifetime Value

Calculating customer lifetime value (CLV) is more involved than Return Customer Rate. We'll use the following equation: 

Restaurant CLV = (Average Yearly Spend/Customer) * (Average Customer Lifespan [years]) 

Average Yearly Spend/Customer

Simple, but the data here isn't quite as accessible. You'll need access to data from your POS to determine A) how many tickets you had this year and B) how much revenue was generated by these tickets. 

Average Customer Lifespan

Determining customer lifespan requires insight into your business and industry. Do your customers return often? Are you a niche trend, or do you appeal to a more general crowd? Are you in a walkable community where foot traffic contributes to your customer base? 

Many things can affect customer lifespan— luckily, it's not supposed to be an exact science, just an educated guess to get us on the right path. 

Improving Restaurant CLV

So, if loyalists or repeat customers have such a positive effect on revenue, how do we increase restaurant CLV? While we don't have the advantage of memberships or contracts like gyms or apartments, there are still avenues we can take to keep customers coming back for more. 

Loyalty Programs

Whether you're looking to keep customers from churning or reward your frequent fliers, loyalty programs can have massive implications for your customers' lifespan. Fully customizable loyalty programs keep customers in your sales funnel for longer. More time in the funnel means more exposure to your marketing and a higher chance of creating a habitual relationship with your restaurant. 

Increasing Avg. Ticket Price

"Just increase the price of your goods" isn't necessarily sound business advice, but there are a lot of different ways to increase your takeaway from each ticket. For example, consider your delivery fees. Third-party ordering typically charges between 15-30% while simultaneously charging your customers with extra fees as well. If you shifted half of your third-party orders to first-party orders, it would have a notable impact on your bottom line. 

Make Data-Driven Decisions

Integrating a CRM with your POS can net you critical customer data that can help drive sales. It's the easiest way to match customers to their email, phone number, order history, birthdays, etc..

Focus On Customer Lifetime Value

Improving CLV is a win for both the restaurant and the customer. The customer gets an increased quality of life— offers tailored to them and high engagement from a brand they enjoy. On the food service side, the restaurant gets an easier workload with a higher payout. Take control of the future of your restaurant today.