Mine transactional data to understand customers and make smart decisions
If you are the leader of a smaller, rapidly growing restaurant, you have to make decisions every day that may have a long-term impact on the concept’s success.
Here are just a few examples: How do you grow without sacrificing profitability? How should you balance driving customer volume with building check size? And how will you know if the business is growing too fast?
The good news is that you don’t need to hire a consultant to answer every question. In many cases, following commonsense advice can guide you down the path to successful growth.
If all of this high-stakes decision-making feels overwhelming, take comfort in knowing that smaller operators have a number of advantages over larger ones. You can test menu items more easily. You can change packaging and refurbish restaurants more quickly. And you can run customer tests more easily, which is critical in having the confidence to make important decisions.
As you strive to make sure growth doesn’t come at the expense of your financial success, here are seven tips that can help:
1. As you do customer testing, make sure the sample size is large enough to be valid. But know that you don’t always need the largest sample to get a sufficient answer.
Certainly, a larger test can get you a higher level of precision in the results. But in many cases, you simply want to know if a new item will work for you from a profitability standpoint, or if a price change won’t turn customers off in a big way.
2. You probably already have the data you need to determine how to boost profitability — it’s in your POS system.
Most modern POS systems have quality tools that can be used to extract customer transaction data, so you usually don’t need a third party to get this information. Simply go to the POS system’s portal and see what’s available. If your POS system doesn’t supply an extensive array of data in a user-friendly way, it might be time to consider an upgrade.
3. As you build an analytical framework, create two categories — one for analyzing ways to drive customer traffic, and the other for determining how to build check size.
It’s critical to know which of the two goals you have in mind for a specific initiative. Then, focus on using the right measurements of success and design your testing accordingly. Remember that you will want to impact either traffic or profitability — it isn’t reasonable to expect to do both in one move.
4. Analyzing price changes can be done much more quickly than analyzing tactics designed to drive traffic, so plan accordingly.
If you are looking to grow check size, you can see within a week or two whether a price increase is working. Did customers accept the increase, or did they move to less expensive items? You will know quickly.
But if you are trying a promotion to boost traffic, it will take longer to determine success. In general, you’ll need three purchase cycles to know if this tactic is working. For example, the average purchase cycle for a quick-service restaurant is two weeks, so it will take six weeks to get to an answer.
5. Understand the impact that a price reduction could have on profitability before you decide to use that tactic to drive traffic.
If you are thinking about driving traffic by introducing a less expensive menu item, be careful. First, think about how such a move would impact your revenue, and do a careful analysis.
If 1 percent of your customers traded down to the item, how much new traffic would you need to offset the revenue reduction? If it would take a 5-percent traffic increase, that probably wouldn’t be a reasonable expectation, so it would not be a smart move.
6. As a smaller chain, opening new locations carries a comparatively high risk, so be especially diligent in your planning.
Think about how a new location will impact existing locations. Negotiate a lease that can reasonably be broken if the new location isn’t working. And look to match a new unit with the demographic and economic characteristics of your best-performing locations.
7. Communication with your customers should always be thoughtful and match your brand.
As you create ads, menus and signage, think about the consistency of your brand, and make sure offerings match your value proposition.
For example, restaurants sometimes make the mistake of announcing new menu items in a way that doesn’t match the brand. If the brand is relatively laid-back, for example, you should probably limit bright colors and exclamation points on your materials.
As you think about ways to grow while enhancing profitability, transactional data is the key to understanding customers and making smart decisions. Take the time to develop a deep knowledge of your customers — what they like and what they don’t like. At the end of the day, that is the key to long-term success.
Mark Kuperman, COO of Revenue Management Solutions, manages all client accounts across food and beverage segments globally. Kuperman earned a Bachelor’s degree in economics with a minor in statistics from Northwestern University before attending the California Culinary Academy and completing an apprenticeship in Europe. After several years working as a chef, Kuperman returned to school to earn his master’s degree in hospitality management from Cornell University. After graduation, he followed his entrepreneurial spirit and opened a limited-service restaurant.
Article originally published on July 12, 2017 by Nation’s Restaurant News