The #1 thing restaurants can do to get a 10x return on acquisition marketing

Here's a question I hear a lot from restaurants: why do so many consumers try our food and never return?

Anna Tauzin recently posed this question looking for data for converting consumers beyond 1 purchase so I shared some data on the benchmarks we have for this metric:

Across the spectrum of restaurants – pizza, burger, fine dining, noodles, salad, coffee, and more –?high performing restaurants convert about 30% of "try your food" consumers into "I go there" customers.

Lots of brands I talk to are puzzled by this stat –?why so low? Our food is great, our service is friendly, our stores are clean. I don't get it.

The answer: It's supposed to be hard.

When you create a new habitual customer you are unseating that consumer's go-to spot.

Think about it for a second. When you want pizza, where do you order? You have a pizza place right? That restaurant means pizza to you. And you have a burger place, too. And a noodle place. If you order bowls from sweetgreen , and you feel like eating a bowl of fresh greens for lunch, they are synonymous in your mind – almost Pavlovian. You think "healthy lunch" and "grain bowl" and "Sweetgreen" in one, single, blurred thought.

So if along comes another salad place that opens close to your house, or maybe they target you with an ad offering a discount to entice you to try the food, maybe you give em a shot. But the bar isn't "is this good salad?" It's "is this good enough to unseat the champion?" And the thing is, the new salad place has tons of disadvantages.

1. You have an intimate knowledge of your current favorite place – you know the menu, the service, the quality, and so on.
2. You have something every marketer works hard to instill in you: brand loyalty. You identify with that place you go to all the time. That's my salad spot.
3. If that business is smart, they have other hooks in you – stored value / gift cards you need to use, loyalty points you need to redeem, app already installed, prior orders ready to re-order in a single click, credit card on file, and so on.

The new salad place has to overcome all of that and they get precisely one shot at it.

Ask yourself when the last time you went to any restaurant you'd never been to before (of any cuisine or type) – have you been back? Do you plan to? Seriously, take a moment and do this exercise. Unpack it.

Moving the needle just a little can make you a lot of money

Consider this basic math. On the left, a business who convinces 20% of consumers to get to 3 visits, and on the right a customer who gets 30%.

Assumptions:

• Both have an average check of $30. A 1x customer is worth $30. A 2x customer is worth $60.
• Each brand gets 1,000 new consumers to try their food for the first time each month
• The average LTV of a customer who makes 3 purchases (e.g. establishes a habit) is 10x a customer who visits one time (this is the behavior we see at Thanx analyzing millions of consumers). Three purchases is when you start to truly win over a customer.

This is what played out in the Pincho case study. Solving order accuracy issues identified in their data increased Activation rate 50% and had a massive impact on sales.

Creating a new habit requires excellence

When inflation spikes and consumers have to make deliberate, careful choices about their dining budget it can create a zero-sum game between restaurants. This competition is good for everyone though. Restaurants who want to succeed must bring their A game, and consumers, in turn, get better experiences at the restaurants they frequent.

This excellence has two key ingredients:

That which is measured is managed –?You need the data showing your current conversion rate of 1st time buyers at your fingertips. Not just for the marketing team – the ops team, the finance team, the chef. Everyone needs to know this metric and strive to improve it.

Experimentation and iteration –?You simply cannot bring an A game on gut. Make a hypothesis, try it out, measure the impact. I talk to a lot of restaurants who say "We have to do it this way" or "That's the way we've always done it." The only way to unlock the level above the one you're on is to try things you aren't doing and compare the results.

Customer acquisition is a curve not a cliff

As noted above: customers who make 3 purchases turn out to be worth 7x to 10x a first-time guest. They aren't just 3 times as valuable, they keep coming back with much less effort.

As I said at the top, most of the restaurant marketers I talk to are focused on the top of the funnel and they treat getting the first purchase from a consumer as a finish line. Yet when they log into Thanx and see that so many of those consumers fail to establish a habit they are at a loss –?"Why is our conversion rate so bad?"

The problem is that the business isn't sprinting through the actual finish line. Think of this as acquisition cost. The yield is 10x if you get a customer from 1 visit to 3 visits. Here's a rough breakdown by category:

Lifetime value of customers with 3 or more purchases compared to customers with only 1:

• Fast Casual: 944%
• Coffee: 1,792%
• Full service: 1,107%
• QSR: 846%

Getting a customer to their 3rd purchase is worth so much more than getting the first one. The conversion rate from 1-2 averages out around 40%, and then from 2-3 at 75%. That momentum continues. The conversion rate from 20 to 21 purchases is 98%.

So the payback for getting a customer to purchase #3 is crazy good, yet many brands act as if they should call it a day when they get a consumer through the door. I once had this conversation with a CMO of a brand:

Me: These lifecycle conversion rates are really troubling. You are converting so few first time guests it's a major problem.

CMO: Aaron, this is interesting, but my plate is full. I have 40 different ad campaigns on Facebook and Instagram to manage right now and this is just going to have to wait.

Me: ??

This is backwards. Brands who understand that driving these 2nd and 3rd purchase rates are critical create engines that scale. Get good at turning consumers into customers, THEN start adding more gas.

Excellence is cross-functional

Getting good at it probably means more than just one ingredient –?it's a complete breakfast:

• Operations: The case study with PINCHO showed how improving order accuracy drove a 14% positive swing in same-store sales. The imperative to just "be good at operations" is far less compelling than having a goal to increase return rates from trial customers that the ops team can see and measure.
• Marketing: Create marketing automations that bring customers on the right journey. Remind them of how good the food was and ramp up incentives if you don't get a quick return. Build campaigns that target customers who abandon carts to make sure convert that trial moment. Exclude these customers from other marketing broadcasts so you don't muddy the message.
• Finance: Do the math on your CAC payback. The best way to turn advertising spend into positive ROI is to increase the value you get from the customers you buy. Encourage your marketing team to nurture consumers, including with incentives from which you slowly ween the new customer. Be prepared for that first purchase to lose money, the second to break even, and then capitalize on momentum that gets you 10x returns.
• CEOs: Demand this data in your executive syncs and in your board materials. Converting customers and retaining them are massive business drivers, and if your executives aren't paying attention to them and holding themselves accountable to you and your consumers you're missing an extraordinary opportunity.

Retention is easier, but often neglected

One final thought: This whole post is about how it's supposed to be hard to steal your competitors customers, yet try you must. The thing is, they should be doing the same to you. Those disadvantages listed above are the advantages you have with your own customers, and you should leverage the hell out of them.

Most restaurants I talk to?who haven't been using Thanx?do not work on this part of the equation enough (if at all). They have a loyalty program, they have an automated email when customers don't show up for a while, and that's it. If you are paying attention to that metric and striving to improve it you can actually find more traction growing your business by simply getting better at retaining the customers who presently have a habit. When's the last time you asked a customer who stopped coming in why they stopped? If you knew the answer, what improvements could you make to your offering that might prevent the next loss?

The reason this isn't as attractive a place to focus is because it's hard to prove a negative, that they would have left if you hadn't acted. Only by establishing a baseline of performance and then iterating to improve it can you demonstrate the value to your business.

Having all of this data easily at hand is the first step. Restaurant marketers next task is to use it to hold the entire business accountable to a standard of excellence that can win in a competitive market.