ENGuest Lifetime Value 101: The Ultimate Guide
Learn the essentials about the GLV metric, its importance, benefits, strategies, and how to calculate it to achieve greater profitability in your restaurant.
Many guests walk through restaurant doors daily; attracting them takes a great effort, but keeping them is an even greater challenge.
However, restaurants have powerful tools like POS systems and Deliverect Restaurants to gather essential data. These tools help identify buying patterns and forecast future economic impacts, which are crucial for enhancing customer experience and promoting loyalty.
Building closer relationships with guests is critical, especially considering that the average customer retention rate in the restaurant industry is 55%, the lowest compared to other sectors; this means about half of the customers won't return after their first visit.
Now, it's worth asking: how much revenue can a specific guest generate throughout their relationship with the restaurant? That's where calculating Guest Lifetime Value (GLV) comes in. Let's look at GLV, how to calculate it, and why it's important for any business. It will also suggest helpful techniques for boosting it.
Understanding Guest Lifetime Value
Definition of GLV
Guest Lifetime Value (GLV) is a metric that indicates how much revenue a restaurant can expect from a guest during their business relationship, considering factors like average spending, visit frequency, and retention rate.
Measuring GLV helps determine the value of each customer, identifying those who bring the most revenue to the restaurant.
Components of GLV
Average Spend per Visit: The amount a customer spends on each visit.
Visit Frequency: How many times a customer visits your restaurant.
Customer Retention Duration: The expected duration for which a customer will continue visiting the restaurant.
Where to Find Data for Each Component to Calculate GLV
Average Spend per Visit and Number of Visits: If you have a customer record, check the ID or identifier. Then, organize this information on an Excel sheet or software to determine the average spend in relation to the number of visits.
Visit Frequency: Review the customer's visit history and calculate the average times they visit per month or year.
Customer Retention Duration: This is an estimated and variable figure for each establishment. As a result, each restaurant can estimate it based on their historical data or industry references.
Calculating GLV
Formula: GLV = (Average Spend × Visit Frequency) × Customer Lifespan
Tip for Calculating GLV: To effectively calculate GLV, use the same time unit. For example, if you use months for visit frequency, also use months for customer retention duration.
Example: A guest spends an average of $40 per visit and visits the restaurant twice a month. According to the restaurant's historical data, the typical business relationship lasts about four years or 48 months.
Average Spend = $40
Visit Frequency = 2 (monthly)
Customer Lifespan = 48 (monthly)
GLV Calculation: GLV = (Average purchase value × Average number of purchases per customer) × Average Customer Lifespan
GLV = $3840. This is the value that an average customer will generate for the restaurant over the 4 years or 48 months of their visits.
(Note: GLV is a restaurant metric; in other industries, it's known as CLV or Customer Lifetime Value. Also, the formula may include additional components depending on the source.)
Why GLV Matters
Today, your clients have many options for dining out or ordering food, and this situation will not change. Therefore, restaurants that know how to leverage data, build a customer base, and use that information to foster long-term relationships will have a better chance of profitability.
Benefits of Measuring and Improving GLV:
Enhances business profitability by identifying areas of opportunity.
Identifies key guests to boost long-term revenue.
Facilitates actions that encourage repeat sales and increase the average ticket spend.
Promotes customer loyalty and improves metrics like NPS.
Enables the creation of customer segments based on psychographics and behavior.
Reduces retention costs by identifying real needs.
Identifies behavior patterns to personalize strategies effectively.
Improves demand anticipation and service optimization.
Facilitates strategic decision-making based on accurate, up-to-date data.
Lessons from Other Industries
Restaurants can learn valuable tips and best practices from other industries, such as entertainment and retail, to elevate their performance.
Let’s take a look at Netflix. Netflix is good at using data to make the user experience unique. This platform customizes the home screen to display shows and movies users will likely enjoy based on their viewing history. Netflix even switches the thumbnails of movies and shows to catch viewers’ eyes and encourage them to watch more.
Retail giants like Target are also driven by data. Based on historical purchase data, they customize promotions or sales offers to motivate customers to buy additional goods.
What do they have in common? Netflix and Target know how to use data to their advantage, and restaurants can do the same.
How GLV Helps in Forecasting Revenue
Revenue Prediction: Estimating GLV will help you forecast future revenue. These projections will be crucial for strategic decision-making, such as pricing adjustments, new menu options, seasonal revenue estimates, and even evaluating if the business can afford new equipment or staff hires.
Seasonal Revenue Projections: By analyzing GLV based on historical buying patterns, you can evaluate and allocate budgets for staff hiring or marketing actions like special promotions to maximize sales.
Adjusting Pricing and Menu Strategies: By identifying the most profitable customers, you can consider adjusting menu prices, ensuring stock levels, or introducing new dishes. This aims to retain these consumers or increase the average spend per visit.
Customer Retention vs. Acquisition Costs:Attracting new customers takes time and can be costly due to investments in advertising or promotions.
In many industries, acquiring a new customer can be five to 25 times more expensive than retaining an existing one. Therefore, paying more attention to our current customers represents an invaluable opportunity, providing useful data and allowing us to persuade them through a sales process, encouraging additional purchases (cross-selling) or more advanced products (up-selling).
Strategies to Increase GLV
Remember, one of the variables for GLV is visit frequency. So, if you want your guests to stay longer or even spend more, here are some strategies you might follow:
01. Develop Personalized Loyalty Programs:
In a restaurant, it's crucial that guests feel valued and rewarded for their loyalty. That's why loyalty programs are so effective, offering special discounts, birthday promotions, stamp cards, or reward systems with points.
With Deliverect Direct, customers tend to spend up to 24% more when offered promotions or cashback. Regular contact through emails, texts, or notifications can also double retention. The best part is that Deliverect Direct offers marketing and loyalty tools that are ready for restaurants.
02. Technology to Improve Customer Experience:
Make technology your ally to retain customers and enhance their experience.
Sometimes, your guests will reach you through digital channels. Consider highlighting less well-known menu items if you have a website or an app.
Improving the purchase process and offering simplified payment options can enhance the online ordering experience. For customers visiting your establishment, consider implementing mobile terminals to provide faster, more convenient service when they need to pay. These are just a few ideas to keep your customers satisfied and eager to return to your restaurant.
03. Active Feedback and Online Reputation Management:
Nowadays, customers often research before buying a product or visiting a restaurant. Surveys show that 95% of consumers read online reviews before making a purchase. Additionally, 58% would be willing to pay more for highly-rated products. This highlights the importance of maintaining a good online reputation and encouraging guests to share their experiences through online reviews.
Just as time is spent posting on social media or updating menus on delivery apps, it's also crucial to respond to both positive and negative feedback on digital platforms.
04. Service and Atmosphere
The atmosphere of a restaurant is the first dish served. So, just as you care about ingredient quality, you should also pay attention to details like store design, lighting, background music, and aromas, as these influence how customers perceive their dining experience.
Moreover, a friendly, well-trained staff ready to answer questions and meet any needs will leave a lasting impression. Establishing a clear protocol that includes friendly interaction, accurately taking orders, refilling drinks on time, and clearing plates efficiently without constant interruptions significantly contributes to customers returning.
These actions will foster positive word-of-mouth, help increase GLV, and ensure customer loyalty.
05 Upselling and Cross-Selling Strategies for Restaurants
Upselling Strategy
Upselling aims to encourage customers to purchase higher-value or additional products. This strategy boosts a restaurant’s profitability and enhances customer satisfaction by offering more comprehensive options.
Implementing Upselling:
Identify Key Touchpoints: Evaluate the touchpoints in your restaurant, such as waitstaff, the menu, or digital platforms (web or apps) where your business is present.
Staff Training: Train your waitstaff to persuade higher-value products or larger versions to customers naturally.
Menu and Presentation Enhancements: Study your menu to identify items that can be promoted to larger versions or with additional add-ons.
Leverage Digital Platforms: Highlight upgraded product options or combinations on your website or app to encourage upselling.
Cross-Selling Strategy
Cross-selling aims to persuade customers to add related or complementary products to their initial order. This strategy drives revenue and increases the dining experience, promoting customer loyalty and increasing Guest Lifetime Value (GLV).
Actions for Cross-Selling:
Include Cross-Selling Moments in Digital Media: Optimize the checkout process on your website or mobile apps by evaluating and enhancing stages where you can invite customers to add complementary products before purchasing. For instance, you might want to include a section called “Craving Something Extra?” where you recommend other dishes from your menu.
Special Events: Your restaurant can also be a venue for additional income-generating events. Organize themed parties, karaoke, special menus, or wine and beer tastings to enhance the culinary experience.
Combos or Complementary Dishes: To encourage diners to add more products, offer options like fries, salads, drinks, or desserts.
Complementary Products: Consider selling complementary items like homemade sauces, t-shirts, or hats. These items increase the average purchase value, reinforce your brand identity, and improve the customer experience.
Measuring and Tracking GLV
Point of Sale and CRM Systems:
Restaurants must use advanced point-of-sale (POS) systems or tools that facilitate customer data collection to optimize data collection and analysis needed to calculate guest lifetime value (GLV).
Additionally, customer relationship management (CRM) software is essential for accumulating, organizing, and analyzing information about customer interactions and behaviors. By integrating these two tools, which are perfectly compatible with restaurant software environments, you can obtain the necessary data to calculate GLV.
Deliverect Restaurants and Excel Usage:
Tools like Deliverect Restaurants make it easier to integrate platforms like POS, allowing access to the necessary data to calculate GLV. Deliverect Restaurants Order Management feature from multiple channels is centralized, and detailed reports can be exported for deeper analysis. Once you’ve exported your restaurant’s reports from Deliverect Restaurants, you can use Microsoft Excel or your preferred software to input and process this data.
Excel lets you do precise calculations and modify models to forecast GLV based on company trends. This provides a clear picture of the return on investment in sales and marketing plans and guides your strategic plans.
Closing Thoughts
Restaurants do more than just serve tasty food daily; they also make a lot of valuable data. Once businesses estimate Guest Lifetime Value (GLV), they can conduct more in-depth analyses, focusing on guests who generate the most profit, forecasting revenue, reducing acquisition costs, and improving the customer experience.
Getting new customers is pricey, so strategies like upselling, loyalty programs, and other smart moves based on GLV are key to improving customer relationships. Restaurants that get to know their customers and use their data wisely are positioned for a more prosperous and profitable future.