More or less, as a restaurant owner, you’ve already been familiar with the basic restaurant terms and metrics. It is probably not the most exciting part of your business management to compute those. What if there was some tool you could use to help you with that? You could try a restaurant ROI calculator for instance.
Return on investment or also known as ROI can be considered as one of the most important restaurant metrics. It helps you determine the status of your profitability. Applying it to different aspects of your business can be extremely beneficial.
When it comes to marketing, you may wonder how your ROI can affect your restaurant’s marketing initiatives. However, if you look closely, you will find that calculating ROI in marketing is advantageous for your present and future marketing initiatives.
Although you may have other priorities, you should begin now. Developing a successful marketing strategy does not happen overnight. If you want to stay ahead of the fierce competition in the industry, you must start now.
It will be the focus of this article to discuss ROI in marketing. Your marketing is integral to your restaurant’s success. Especially now that everyone is slowly opening their doors and beginning to welcome guests.
ROI in Marketing – Explained
Before rolling out another marketing campaign, you must assess the performance of the ones you launched. You should know how much profit and impact it made to your target audience, or did it even reach your target market.
Why is it important to assess performance? Of course, you want to make sure that every investment you make for your restaurant will be beneficial. You shouldn’t put your money into a campaign that will not yield any results.
Informed business decisions can be made with ROI-calculated marketing. It helps you design more data-driven marketing campaigns.
In essence, your marketing team uses this metric to rationalize restaurant investment and budget allocation for ongoing and future marketing campaigns. It is the process of calculating the income or benefits obtained from carrying out a marketing campaign.
It is a method of determining the extent to which marketing efforts contribute to revenue growth. You can measure ROI in marketing by tracking the results of marketing campaigns holistically, or by tracking individual campaigns.
What is an ideal marketing ROI?
It is not always easy to determine if your marketing campaigns are profitable. Various factors such as your marketing platform, target audience, launching season, and the like can make or break your campaign.
In restaurants, where margins are typically extremely thin and hard to manage, your lowest ROI should equal 200% or at least reach the breakeven point. Remember, you’re not just trying to survive competitors, you’re doing everything you can to succeed.
Even though you do your best to make things work, the truth is that sometimes they won’t. There are moments when foot traffic peaks, and other times when customers seem less interested.
As a restaurant owner, you should be flexible and always ready to adapt. To help you prepare for such circumstances, here are the most common cases you can see yourself in. Keep in mind that the situations that will be mentioned below are not fixed. There will be changes since restaurants have different factors to deal with.
Your ROI on some investments is calculated, but you do not measure it consistently. You have a general notion of how your investments are performing, but you can’t discern precisely what yield they are providing. And in tough times, your budget is slashed.
It is challenging for you and your marketing team to know what works and what doesn’t. You don’t have time to evaluate the effectiveness of your marketing. Marketing is perceived as a cost rather than an investment.
You assess the ROI of your marketing investments and optimize them to accomplish the highest possible return. Your crew acknowledges the judgments you make because solid data backs them up. You can also steadily strengthen your campaigns utilizing those data.
Importance of Calculating Your Marketing ROI
Here are some of the main reasons why it is important to calculate your ROI in marketing.
- An assessment of your ROI can help you enhance your marketing endeavors in the future. Social media can also be used to evaluate your marketing performance in comparison to that of your competitors and compare your growth with that of them.
- It is essential to rationalize your marketing budget using ROI. It is important that you can justify your initiatives, especially with your investors.
- By analyzing this marketing data, you can see what marketing tactics work and which ones aren’t effective.
This metric plays an essential part in the success of your marketing programs. If it’s still a pain for your calculating one, you can rely on tools such as a restaurant profit calculator to support you with this task.
ROI in Marketing – Formula
This restaurant metric is the measurement of revenue earned from your marketing investment. The most simple formula to get this is:
Profit – Investment
In a Marketing light, it can be more intricate because there are different components from the investment and income side you have to consider. While a calculator is a useful tool for accurate results, it is still imperative that you comprehend the basic formula for your marketing ROI.
These are the terms applied in the formulas that must be familiarized before you proceed.
- Gross Profit – is the difference between revenue and the cost of goods to deliver the product or service. Many marketers just subtract the percentage of Cost Of Goods Sold from total revenue.
- Net Profit – the result when expenses are deducted from the gross profit.
- Total Income – the overall sales generated during a marketing campaign.
- Customer Lifetime Value – also known as CLV or LCV, represents the worth of your customers to your restaurant business over some time. The lifetime value of your clients allows you to design an effective marketing plan within a realistic budget.
- Overhead Allocation – this method apportions indirect costs to goods produced. It is required under different accounting frameworks.
- Incremental Cost – it is the amount an enterprise would have to spend to make one additional unit of product. It is determined by considering the extra means that are required to make one additional unit of production.
The most basic and common restaurant revenue calculators have mostly automated spreadsheets that are utilizing different formulas and algorithms for marketing ROI. To help you familiarize yourself with the formulas, see the below for your reference.
A formula that uses gross profit for products and services sold and marketing budget in the ongoing marketing initiative and campaigns is considered the most basic one.
Gross Revenue – Marketing Budget
If you want to use your Customer Lifetime Value in exchange for your gross revenue as a metric, then you may use the formula below.
CLV – Marketing Budget
*The CLV here stands for the calculation of the revenue produced by a single consumer or set of guests over their lifetime to your restaurant.
Lastly, if you prefer to use your costs as part of your formula, you can use the one below.
Revenue – Marketing Budget – Overhead Allocation – Incremental Expenses
As ROI is often represented as a percentage, just multiply the results by 100 and you’ll get the percentage of your marketing ROI.
As mentioned before, calculating the ROI for your marketing is a bit complicated. Every factor and element should be accounted for before you start the calculation. Listed below are the other costs that are relevant for your marketing initiatives and their ROI.
- Technical (Coding, Programming)
- Time management
ROI calculations can differ from enterprise to organization, but you can focus on the campaigns that deliver the best findings by utilizing reliable ROI calculations.
Marketing Return On Investment – Calculator
The elements on each calculator differ. As shown by the formulas above, it depends on what section of your marketing campaigns you want to focus on. These calculators are tools that are backed up by different formulas and algorithms to meet your needs.
It makes calculating whether you will regain back your marketing investment with the earnings generated from your campaigns easier.
It is helpful if you’ll work closely with your Finance Department with this tool. The ability to handle finances is not a prerequisite, but it is a huge plus for both you and your restaurant.
Steps on How To Use A ROI Calculator
With the help of your calculator, you just need to input the data (numbers) that it needs. Don’t prolong your agony by doing long and complicated calculations, a simple one will also deliver good results.
Here are the key steps you need to determine your restaurant’s marketing ROI.
Identify your formula
Since there are several formulas available for you to use, you start by determining which formula is best suited for your needs. What type of formula will deliver the results that you want to see? What formula will target your ongoing marketing campaigns’ features?
Once you choose the formula that you want to use, you now need to supply the needed information and data. Which leads to the second step.
Gather the needed figures
After choosing a formula, it’s now time to calculate and collate the needed figures to complete it. Here are some of the most common figures that every formula asks.
- Investment – Costs for materials and personnel involved in creating a product or service are not included in investments. Therefore, only include the initial purchase costs of the product or service and not the ongoing maintenance costs.
Remember to factor in the costs associated with the new product or service costs such as development costs, knowledge acquisition costs, and the like when developing a new product or service.
- Products and Service Sold – The expense to manufacture the product or service.
- Price – It is handy to note the value of your products or services on the restaurant investment calculator, to help you to estimate whether or not you will increase it or decrease it over time. If you aren’t sure of whether it will change, then take the average price for that year.
- Costs – To get an accurate and realistic result for your return on investment in marketing, don’t forget to include your costs. Both your variable and fixed costs need to be accounted for.
Fixed costs are, for example, rent, gas, water, mortgages, electricity, insurance, or rent charges that do not depend on the number of commodities produced.
While, variable costs are the costs associated with making a product, such as materials, production costs, and labor.
- Taxes – Corporate taxes, or income taxes, are applied to your net profit, so revenue minus your costs. To calculate your return on investment, you must include the right tax percentage for your country, state, city, or region.
Set an ROI goal
It’s easy to calculate how much money you should spend on marketing when you have an ROI goal and profit targets. By solving the ROI formula for the “budget” figure, you’ll have a better idea of what you should spend.
Track and monitor results – make improvements
If you commit to good reporting practices and build solid metrics, you can always use some estimates to measure ROI even when complex marketing campaigns are involved. Improve your campaigns by using your ROI calculations; test new methods to raise your ROI and invest your money in campaigns that produce the best returns for your company.
How To Maximize The Use of ROI in Your Marketing
With the help of your restaurant investment calculator, you now have an idea about the ROI associated with your marketing. If you happen not to be happy with the results, fret not as it is part of the business.
Here some practical tips to help you unleash the potential of your using your ROI in a marketing setup.
Get your target market involved
Data analytics can point you in the right direction, for instance, your webpage traffic plummeted, but have you considered which elements contributed to the halt? Marketing analysis takes into account the audience you are targeting, as well as the methods you are using to reach them.
Stay focused and keep on tracking
If you truly want to achieve high ROI, you need to pay close attention to data analytics to know when to switch your strategies. Initially, you might find the constant movement of details on restaurant data overwhelming, but in time, the decision-making procedure will feel second nature.
Keep an eye on vanity metrics
Vanity metrics are those metrics that look good on paper but are not actionable. Avoid relying on an objective and auditable metric such as Facebook likes. Metrics should always be actionable, transparent, and accessible.
Challenges of Calculating Your Marketing ROI
Here are the challenges that you may also face when you start calculating the return on investment on your marketing campaigns.
Several factors need to be considered to determine marketing ROI. First, marketers should have a clear, steady sales baseline against which to measure ROI. Additionally, ROI measures must incorporate weather, seasonal trends, events, etc. that may affect a campaign’s success.
While it can be easier to get the results through a calculator, the measurements should remain accurate.
Multichannel marketing campaigns
The marketing mix today consists of multiple touchpoints on online and offline channels, so concentrating on marketing ROI metrics for specific channels would only supply marketers with fragments of the marketing outcome puzzle.
To accurately measure marketing ROI, you need consolidated marketing metrics that can be combined with disparate measures to create coherent, granular insights.
In general, marketers tend to focus on particular metrics to gauge success. Typically your focus on click-through rates, shares, likes, etc. However, campaigns intended to drive long-term initiatives such as brand consciousness or customer relationships often take months or even years to yield an effect.
This is why it is pivotal to align success benchmarks with the general objective and length of a given campaign.
Multiple paths of purchase
A customer normally makes a buying decision after 2.8 touchpoints. To figure out marketing ROI at the granular level, you and your marketing team must understand the influence of both online and offline touchpoints across the selling funnel.
Inefficient attribution platform and model
It is essential to use updated attribution models when measuring the impact of touchpoints and channels, particularly since obsolete attribution models influence ROI measurements. Media mix modeling is not accurate sufficiently to illustrate the effect of offline channels and external variables on marketing ROI. On the other hand, multi-touch attribution models are not precise adequately to supply insights into marketing ROI.
Knowing your restaurant’s marketing ROI guarantees you’re utilizing your marketing budget efficiently and can help you determine which strategies were successful and what should be modified in the future.
Having an interactive tool that enables you to forecast your return on investment will undoubtedly put you and your restaurant at an advantage.