Creating a Restaurant Marketing Budget (Part 1)

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.

  1. 3% to 6%: Size of Budget
  2. Timely Marketing: When Should You Spend It
  3. Breaking It Down: Directional Versus Incentive Marketing
  4. What’s The Right Mix

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 the 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 has 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 as to assess if they are over-investing and getting diminished 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 the busy times. You cannot transform winter into summer without having a genius marketing idea (which you’ll have to come up with every year). 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 company 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 a over-generalization, the more steep the discount (not only pricewise however) will create a higher the 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 the your normal pricing. Many times you cannot get people to pay full price, so your business like your customers become 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.