Creating a Restaurant Marketing Budget

Marketing, like all other parts of your restaurant, takes money.

However, unlike most other investments in your restaurant, restaurant marketing can go in many different directions. The abundance of choices presents added difficulties when creating your restaurant marketing budget as restaurants must find effective strategies and avoid wasteful mistakes.

Nonetheless, it would be foolish to not test the marketing waters as you will be missing opportunities for your restaurant to grow. For this first part, I break down marketing expenses to prepare you for spending your money wisely. In the next part, I will give marketing priorities, an overview of risk-taking and essential tools.

3% to 6%: Size of Budget

A general rule is that your marketing budget should be 3% to 6% of sales. Some mention those figures as gospel. I see them as guidelines. However, if you are outside the 3% to 6% range, you’d better have a good reason. For example, your marketing budget may jump slightly over 6% for a short period because of a public relations campaign. But if this is a long-term strategy, the amount of extra business from the PR (which is hopefully successful) should push it back under 6%.

Frequently, successful and struggling restaurants that spend under 3% of sales justify this underinvestment with their financial circumstances. The struggling restaurant defends this with the weak financial position of restaurant. If it is really that dire, a restaurant owner must compensate with creative guerrilla marketing strategies. Since you don’t have money, expect to put in much more time and effort on cheap, shoestring marketing.  The restaurant owner who is flush with cash often attributes his/her disinterest in marketing by pointing to the success of the restaurant. In fact, success in business makes marketing success all the easier.

Those putting in over 6% have to worry if they are being desperate or putting all their eggs in one basket. Sometimes, restaurants have several proven marketing techniques that have paid off year after year, and it seems like more investment means more business. This may be the case, but there have to be several because putting more than 6% into any one method ignores the possibility that the well suddenly dries up. It happens all the time. Restaurants that top 6% also must have clear ways to track the results of their marketing to assess if they are over-investing and getting diminishing returns. Still, the 3% to 6% applies should be followed by most restaurants (80%).

Timely Marketing: Seasonal and Week-Based

Your marketing should not try to compensate for general customer behavior. Therefore, you should spend less on marketing in the offseason and more during busy times. You cannot transform winter into summer without having marketing ideas.

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Yes, you may want to anticipate the busier periods but don’t throw away money when everyone is out of town or at the beach. You only have so much influence on customer habits.

Week-based marketing (such as Wing Night, Margarita Night) is one of the most difficult decisions and is more complicated than owners normally appreciate. After a day or night is designated for a promotion, it is hard to go back. So moving over to these promotions slowly is the best approach. Start off with one or two day(s) a month and promote it like hell for several months (6 months is desirable). The trick is not to only measure that day, but the weekly take (as compared to the year before). Frequently, customers opt to go on that day rather than another day. Because of the promotion, your margin may be the same for 2 visits on a promotional day as one visit without the promotion.

Incentive Versus Directional Marketing

It is a little too naive for me to look at marketing as either appealing to return or new customers. That simplifies a process that is more complex, as there is normally a lot of overlap. [Just a reminder: marketing to returning customers gets a much higher ROI.]

If we forget about the engagement part of marketing (which is normally only expensive in time) and free Internet offerings, we see two models for marketing. They play off each other of course, but they also have different effects and expenses.

Directional Marketing (Paid to Third-Parties)

Think about this type of marketing as flow. You are directing customers to your restaurant. 

1. Ads (online or off), branding, website design and interesting web content (like an email newsletter) are normally purer forms of this.
2. A sign points out an event.
3. A Google or Yelp or Facebook Ad (steer clear of mass media ads) takes a customer to your website.
4. A strong brand stays in your customers’ memory or appeals to their values/identity, influencing their behavior.
5. A great website lets your customers get information quickly, gives them a powerful message about your restaurant and allows them to make a reservation or online order.
6. Interesting web content funnels customers over to your website through search engines. There are more.

This kind of marketing means you still have to close the deal after you get them to the destination where they make their decision. Often they decide while on your website, so it goes without saying that this is key to directional marketing (along with signage).

In directional marketing, you are almost always you are paying a third party (a restaurant marketing agency for advertising, a designer for branding, a web designer for a top notch website or a blog writer). Pure directional marketing is hard to track.

Sure, you can see how many clicks for an ad, but what percentage of those actually visit your restaurant. Is a sign only informing the customer or is it actually selling to the customer? It isn’t simple arithmetic because you cannot track decisions. More tech-savvy marketers have techniques to gauge the effect of this kind of online marketing and vigilant owners pass out surveys.

The point is you have to know what you are doing, because directional marketing, although it can be quite powerful, is difficult to track for someone unfamiliar with marketing.

But you run into another issue too. Pure directional marketing has less of a word-of-mouth effect. No one wants to go out on a limb for a restaurant or event after they have only seen an ad. So rather than the chance of winning over 4 customers at once, you are more likely to get 2 and have them tell their friends if they are satisfied.

Incentive Marketing (Financial Offer to Customers)

In essence, you are taking a hit directly with incentive marketing. You are offering a discount or freebie or special, and this is meant to drive business. This includes loyalty programs. This includes coupons. This includes lunch prices.

Although the hit for a discount is not always predictable, you can track incentive marketing’s effect more easily. The math is in front of you and that is comforting to restaurant owners.

The tendency is to think your tracking ability is very precise, but remember you normally are attracting satisfied return customers too and the change in behavior isn’t easy to anticipate, especially for long-term promotions. By throwing this carrot in front of customers, you may also experience silent effects. The two primary ones are devaluing your brand and causing marketing complacency.

First, customer psychology is distorted by discounts. To make an over-generalization, the steeper the discount (not only price-wise however) will create a higher distortion (if all other things are equal). Groupon-like discounts are the ultimate distortion as there is always a mist of desperation in these deals. Not only do customers become very price-conscious (rather than experience-conscious), they become skeptical about your normal pricing. Many times you cannot get people to pay full price, so your business like your customers becomes addicted to discounting.

Second, restaurant owners forget that reliance on discounts suggests that their directional marketing or the dining experience isn’t selling itself. Something is missing. Besides, at the end of the day, word-of-mouth marketing is what pulls people in and if you can’t earn that for free, don’t expect the restaurant business to be kind to you. .

However, you think that you just need to get a little larger group through the door to get the engine started the word-of-mouth capabilities of incentive marketing are greater. A person feels a little more confident about inviting someone along to try something new when it is discounted. For return customers, the prospect of a discount can be a tool to show that you want to provide value to your customers, especially with loyalty programs and social media. They may never even take advantage of it (I have lost so many loyalty cards over the years).

For return customers, the prospect of a discount can be a tool to show that you want to provide value to your customers, especially with loyalty programs and social media. They may never even take advantage of it (I have lost many loyalty cards over the years).

The Combination of the Two and Free Online Resources

This is perhaps the most potent but the hardest to assess as two factors are driving customers. For example, a good flow of online visitors can be enticed by a discount. You can put a small discount in a Google Ad and customers will come to your site with a little less hesitancy. But how much is the ad and how much is the discount?

Here too there are tricks to measuring what is driving customer decisions, but they are the most complex as you have to isolate the directional from the incentive (which could be more expensive as you have to experiment).

But if you put a discount before many eyes, it can be minor to get a similar boost in business. And you will get the right boost in business because a small discount (glass of wine, side of whatever with an entree) really isn’t sexy to obsessive bargain hunters.

The directional part is shifting online and becoming less expensive – sometimes free. There are free tools to provide discounts, such as using social media or your website/blog. A deft and interesting use of Foursquare, Facebook and Twitter can keep customers engaged with your brand.

The trick is providing value consistent with your brand without going over the top. Even email marketing (which isn’t always free) adds the potential for capturing customers attention. Sometimes, these are much better than online ads. Sometimes, ads are appropriate. With the rise of free online tools, more options are on the table.

What Is The Right Mix?

It does depend on the restaurant. Nevertheless, most of the time, the soundest method is combining marketing that can be tracked. Even better is to build incrementally and see the level of effectiveness, but that takes some knowledge of what you are looking for. Of course, a level of creativity can significantly lower costs and still get similar results, but you have to be committed to finding those ideas and making sure they are doable.

Periodically (every 2 to 3 months), you need to sit down and think it over. Marketing should never be put on auto-pilot. The hope is that you can have a very rough estimate of the value of all your marketing moves (over the long-term), but trust numbers over subjective estimates. A way to see the results makes sure that you get at least your 3% to 6% back.

To make a budget, you must have priorities. Likewise, you also must establish necessities and separate them from riskier opportunities. A restaurant marketing budget should take all this into account, along with determining the level of investment.  To some degree, what priorities a restaurant focuses on depends on that restaurant. This is more true with riskier marketing strategies than the most basic ones, as restaurants share certain marketing elements (signage, website, Facebook Page, etc.). Additionally, costs will alter the balance of the budget as will business objectives and past marketing investments.

The best way to start is going from the inside out. Start inside the restaurant as the customers in your restaurant have already committed to eating at your establishment. As you know, making a customer come the second time is much cheaper than motivating a customer to come the first time.  Even though I am starting inside out, I firmly believe that in-house, local store and online marketing are three pillars that are crucial to having a successful marketing plan. Media is more of crap shoot, however. With even those three, you can go in and try to get a passing grade, or you outclass your competition.

In-House Marketing

It is disconcerting how many restaurant owners who do not market effectively when customers are in their establishment. When they visit your restaurant, you have their attention like no other time.

Here are some things we normally see. The menu is haphazard and doesn’t incorporate a marketing strategy. Signage is missing. Customers aren’t informed of the specials or events.There is no newsletter or anything to occupy customers as they wait for a table. The walls are blank; there is nothing on the table. These give nothing to the wandering eye of customers. Instead, they have inexperienced waiters try to clumsily up-sell to customers.

Your restaurant is not a bulletin board. But information (text with images) should be strategically placed throughout your restaurant. It increases interaction and generates additional curiosity. I am aghast at how many restaurants have street chalkboards with not menus in the window, or menus in the window without a case for events (fitting one event..at most two).

Customers should know that you host private events. Customers should know that Thursday is Jazz Night. You don’t have to come on too strong, but you must let them find the information.

The best in-house owners are finding ways to coordinate their online marketing with their in-house marketing. They are finding ways for customers to become Facebook Fans, become email list subscribers or visit their website. This has to be done subtly in most places, but it is doable.

Much of this takes little investment after you get the basics up. Yes, you will need a designer and choose a printer, but making a couple posters won’t set you back too much. Your menus have to be made with care. Your signage has to be visible (and for many restaurants, classy).  With a strong enough brand, you may be selling merchandise, such as T-shirts or throws.

Local Store Marketing: Community

By and large, unless you are a tourist hangout, your restaurant brings in a lot of local customers. Most rely on them. Local marketing is frequently neglected and that is a major mistake. One reason is regulars who make up a disproportionate percentage of the regulars. Your most loyal customers (perhaps 20%) bring in significantly more than 50% of sales and are key to word-of-mouth marketing.

Reaching out into the community is a cost-effective way of bringing the community into your restaurant. It is all about finding the right partnerships. There are numerous ways to do this. You can earn good-will by supporting local charities or popular causes. By donating food to local charitable gatherings, you show off your food while showing your affection for the community. You can reach out to hotel staff to help direct tourists into your restaurant. You can sponsor events or work with other local businesses. Some restaurants can get away with a contest for those who leave their business cards. Remember to send emails to the others, as you can build a relationship. Even welcoming customers when they arrive at your restaurant and introducing yourself will create good will.

People like being treated like people and that means the more you build a personal relationship the more loyal your customers will be to your business. Promotions and loyalty programs will never be as strong as remembering someone’s name and giving them a handshake.

Online Marketing

Of the main three pillars, you have the most flexibility and the most potential creativity online. The internet is a great marketing leveler (especially for restaurants) is one sense as you don’t need tons of resources to reach a lot of customers. But restaurant online marketing can be passive or aggressive.

Before I explain the difference, I want to emphasize that not being online is no longer an option. Often, customers think that you are closed without a website. If you don’t check up, Google Places or Yelp might list you as closed. Just as important is giving customers access to your menus and your brand. If you give a customer no information when they search online, you encourage them to be hesitant and direct them to third-parties like Yelp. You are throwing away business without any online marketing.

A passive approach requires certain things. With this approach, you have a decent website that provides all the information to customers, such as up-to-date menus, directions and anything else customers would normally be looking for. Next, you claim your Facebook Page (or start one) and set up a Twitter account. Although you may start off slow with Twitter, you cannot leave your Facebook Page blank nowadays. Not answering a customer’s question is really bothersome to others who might come to your restaurant. Don’t forget you need to build an email list. Email marketing is highly effective. You will collect emails in-house, on your website and (for the more tech savvy) on your Facebook Page. You need text about your restaurant, but you also need high quality pictures. Professional photos would be best. However, a really talented amateur will normally suffice for most restaurant except fine dining ones.

In essence, you haven’t created any real value with your online presence but you also haven’t created a vacuum. Most of these costs are not month to month but year to year (that is if you can manage updating the website). To give you a rough idea of the ball-park figures. Only a website can range from $500 (which is almost always a uncustomized WordPress template) to $10,000 (capable of numerous functions and fully customized. Hiring someone for a WordPress template is probably a bigger waste of money as you won’t get much more than if you downloaded one yourself. Professional photos can cost anywhere from a couple hundred dollars to several thousand. Email marketing (with more than a few hundred subscribers) normally demands a service. Try out Mail Chimp for free and see if you need to fork over the $25 to 75 a month to get all the features.

An active approach is much more dynamic and creative. The most basic step is tying promotions into your online marketing whether it is on Facebook, Twitter or your website. But it doesn’t stop there. You have an attractive, easy to use website and a customized Facebook Page. You get the most out of Twitter and Foursquare. You also pay attention to your website’s organic search results (for your name and related descriptive terms) on Google as search engines send you new customers. You provide content through many different outlets, such as sharing outside links on Twitter, putting up engaging posts on Facebook or enriching the Internet with original non-promotional material. Your email campaigns are fully fleshed out in HTML and offer all kinds of content to users.  You should be using analytics to track customer response. You can even consider online ads (which are much more effective than cable TV). At this point, it gets very difficult to price each of these parts. Also, the interactions between the different elements is not as straight forward. When done right, this makes back your money, but it involves managing your expenses effectively.

Media Marketing

I am grouping public relations and mass media ads together. Although public relations can be free, it isn’t easy to get press coverage. Sending out a press release that cannot make a compelling story is a waste of time. However, if you put a lot of creativity into your restaurant, public relations might put your restaurant in the spotlight. You should not always aim for the big boys (major newspapers, network TV) as smaller media can be effective and sometimes, can reach the right customers better than big media.

Mass media advertisements are an even bigger long shot. Normally, as they are quite expensive (the slot, the commercial filming and editing) and can cost hundreds to thousands of dollars, an independent restaurant owner is the exception if they make back their money. Normally, pride plays a role in why a restaurant owner makes an ad. Most times, it would be better to develop creative and compelling Youtube videos.