The Bottom Line
When Increasing Customer Spend Isn’t a Good Thing
Revenue per customer is among the top key metrics restaurants use to gauge success. Generally, the more money each customer spends, the more the restaurant will profit. Restaurants employ dozens of techniques to bring up this ‘average check,’ from upsell and cross-sell to menu engineering and creative pricing strategies. Some restaurants choose to increase their revenue streams, such as adding new menu categories or introducing drink pairings.
Regardless of the path you choose to elevate customer spend, it is imperative to know your limits. A fine line exists between increasing your average check and making your customers feel ‘nickel and dimed.’ Naturally, no set boundary exists, but the key is to know your target customer and observe their behavior as you change things around. This game is all about balancing supply and demand, so increased revenue should outweigh any drop-off in volume you might see.
Let’s take a look at some new trends, as well as longstanding debates around restaurant offerings. Think about how your customers would react in these scenarios:
Most nice restaurants will offer valet service, but the question comes with whether to charge for that service in addition to the driver’s expected tip. Some might think that’s a quick $9/customer and as much as a few thousand dollars on a busy night. It’s also easy to assume that if someone’s prepared to spend $400 on a meal that the valet charge is nothing. From a consumer psychology perspective, however, the act [or even the thought] of paying on two separate occasions—once for the bill and once for the valet—can alienate even your most wealthy clientele.
If your average party spends $400, it only takes a half-dozen groups going elsewhere over a rudimentary valet charge to take the idea into the red. If you get enough traffic to fill your restaurant anyway, then so be it, but be sure to monitor your sales to see if charging for valet has any significant effects.
Everything a la Carte
More and more places are treating sides as an additional revenue stream rather than including them with their respective entrees. High-end eateries can get away with this pretty easily, given the large price disparity between entrees [say, a $42 steak] and sides [$9 mashed potatoes]. Casual eateries, on the other hand, will almost always include sides with their entrees. It’s the places in between that have the most trouble deciding.
As a general rule, if your add-ons are more than a third of the a la carte item cost, you’re charging too much. If customers are paying $12 for a burger and another $6 for fries, they’ll likely look at the fries like half an entrée rather than a side. When this is the case, you’ll get a lot of customers who will 1 choose not to order any fries at all, 2 never return to your restaurant, and 3 tell all of their friends about feeling nickel-and-dimed.
If you’re worried about keeping your margins, then take another look at your menu mix. Very few sides should cost that much to produce compared to entrees. If you’re not profiting off an item, change the recipe or take it off the menu.
Cocktail Sizes and Prices
A lot of new restaurants are getting caught up in the drink scene, offering a wide range of craft beers, fine wines and specialty cocktails. As is the case with sides, here it comes back to relativity. Some restaurants go so far as to price cocktails almost on par with their entrees. Keep the one-third rule in mind.
Another trend is serving cocktails in increasingly smaller, yet visually appealing, glasses. You may win the battle by striking conversation among tables in the moment, but you will lose the war when people walk away realizing they paid for three drinks but only got the equivalent of two.
Know Your Customer
As always, it’s about knowing what your target customer wants and what they will ultimately put up with. Increasing average spend is a healthy goal for any restaurant, and expanding revenue streams is a great way to raise the bottom line. Just be sure to observe the effects of both. If drop-off exceeds new profit or if your core demographic begins to shift in a way you don’t like, take corrective action and promote the heck out of it immediately. It’s always better to keep your loyalists happy than to drive them away over a few extra dollars.