Data IntelligenceTechnology

The Risk of Spending Marketing Dollars Without Measuring the Return on Investment

A restaurant’s marketing budget often falls into the range of 2%-6% of sales. Some come in under this percentage, describing tight margins as the reason for their underinvestment. More important than the percentage of sales, the key metric marketers look at is the return on investment (ROI). If a restaurant’s ROI is positive, you’re headed in the right direction. If it’s negative, you need to reevaluate your marketing strategies.

If you don’t know these metrics—percentage of sales and marketing ROI—you’re flying blind and putting your profit margin at risk.

How to Determine Your ROI

In addition to your long-term marketing ROI, year-over-year, you’ll want to consider the ROI of individual marketing campaigns. While the ROI formula is simple—dividing your earnings by your investment—this metric is anything but easy to measure.

Due to lag time and the difficulty linking marketing campaigns with associated profits, the ROI is difficult, at best, to define.

Despite these challenges, marketers do their best to determine the ROI on every campaign or program. It’s really the only way to establish which strategies carry the highest returns and warrant further spend. The ROI, in large part, influences which messaging to continue and across what platforms.

Let’s say you spent $1,000 on a social media campaign and calculated estimated earnings of $2,000. The ROI calculation looks like this: $2,000 (earned) / $1,000 (invested) x 100 = 200% ROI. Most marketers recommend you aim for at least 500% ROI or better.

A few methods restaurants use to track ROIs are promo codes, coupons, and online orders. Of course, a restaurant’s marketing strategy is diverse, leaving several tactics out of the ROI equation. How can you measure the return from sponsoring community events or the new outdoor sign?

While some subtract the initial value of investment from the final value of an investment and then divide that by the total marketing investment to come up with the general marketing ROI, this approach leads to missed opportunities. There is no way to determine the marketing channels that produce the profit or the lifetime value of a customer.

Target Marketing to Increase ROI

A target market is a group of potential or existing customers that are likely to purchase your product. This group is usually defined by demographics, behavior, and lifestyle choices. Directing your marketing funds and resources toward this group offers the highest ROI as well as brand loyalty.

The good news is that this group has already been defined. It is your VIP guests.

Your VIP customers spend, on average, 5 to 10 times more every year than your infrequent guests. Knowing your VIP customer profiles, including demographics, behavior, and lifestyle choices, enables you to direct your marketing funds to your most profitable target market.

According to Gartner Group, 80% of your future profits will come from 20% of your existing customers. In addition, repeat customers spend 33% more than new customers.

Targeting your VIP customers creates additional revenue in two important ways. First, it increases look-alike first-time VIP guests while encouraging return visits by your VIP and core customers. These customers represent your promotors, those brand-loyal guests that account for over 80% of your referrals.

This type of successful marketing campaign requires you to know your VIP customer. Do you have a profile developed for this extremely important guest? If not, it’s time to get one.

Create your VIP customer profile and increase your ROI using EMERGING’s result-focused data science and Intelligence Briefs.

Once you have these profiles in hand, you can take marketing aim at your VIP and core customers to reach your revenue goals with a direct and sure target.

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