How to Calculate & Increase Restaurant Customer Lifetime Value

July 24, 2024

How to Calculate & Increase Restaurant Customer Lifetime Value

Customer Lifetime Value (CLV) is crucial for restaurants to understand how much a customer spends over time. Here's what you need to know:

CLV formula: Average Monthly Spend / Monthly Customer Churn Rate
Key factors affecting CLV:
1. Average bill size
2. Visit frequency
3. Customer retention
4. Profit margins

Ways to increase CLV:

Offer easy dining options (online ordering, delivery)
Improve customer communication
Create a loyalty program
Maintain high food and service quality
Provide personalized experiences
Use data and CRM systems

Common CLV challenges:

Getting accurate data
Balancing short-term and long-term focus
Applying changes across multiple locations

Useful tools for tracking CLV:

POS systems with CRM features
CLV calculation software
Data analysis tools

CLV Component	Impact	Improvement Strategy
Average spend	Higher spend = Higher CLV	Upsell, offer premium items
Visit frequency	More visits = Higher CLV	Loyalty programs, promotions
Customer retention	Longer retention = Higher CLV	Excellent service, address feedback
Profit margins	Higher margins = Higher CLV	Optimize pricing, reduce waste

By focusing on CLV, restaurants can build strong customer relationships, increase revenue, and outperform competitors.

How to calculate Customer Lifetime Value for restaurants

Customer Lifetime Value

The Customer Lifetime Value formula

The Customer Lifetime Value (CLV) formula helps restaurants understand how much a customer spends over time. It's simple:

CLV = Average Monthly Spend / Monthly Customer Churn Rate

Where:

Average Monthly Spend: How much a customer spends each month
Monthly Customer Churn Rate: Percentage of customers who stop visiting each month

How to find average spend per month

To get this number:

Check your point-of-sale (POS) data
Ask customers through surveys
Look at loyalty program info

The amount can vary based on your restaurant type and location. For example:

Restaurant Type	Average Monthly Spend
Casual Diner	$20
Fine Dining	$100

How to find monthly customer churn rate

To find this rate:

Look at loyalty program data
Read customer feedback
Do customer surveys

Churn rates can differ. For instance:

Churn Rate	Percentage
High	20%
Low	5%

Step-by-step calculation example

Let's say you own a casual diner:

Average spend per month: $25
Monthly customer churn rate: 15%

To get the CLV:

Divide $25 by 0.15
CLV = $25 / 0.15
CLV = $166.67

This means each customer is worth about $166.67 to your restaurant over time. Knowing this helps you plan how to keep customers and get new ones.

What affects Customer Lifetime Value in restaurants

Several things impact how much a customer is worth to a restaurant over time. Knowing these can help you boost your restaurant's income.

Average bill size

How much customers spend per visit matters. Restaurants where people spend more usually have higher CLV. To increase bill size:

Offer fancy menu items
Suggest extras to customers
Promote pricier specials

How often customers visit

The number of times customers come back affects CLV. Restaurants that get people to return often have higher CLV. Ways to encourage repeat visits:

Start a loyalty program
Run promotions
Give great customer service

Customer retention

Keeping customers is key for CLV. Restaurants that hold onto customers tend to make more money. To keep customers:

Provide excellent service
Listen to feedback
Build good relationships

Profit margins

How much profit you make per sale impacts CLV. Higher profits mean higher CLV. To boost profit margins:

Set good menu prices
Cut down on waste
Improve how you buy supplies

Factor	How it affects CLV	Ways to improve
Average bill size	Higher bills = Higher CLV	Offer premium items, upsell
Visit frequency	More visits = Higher CLV	Loyalty programs, promotions
Customer retention	Longer retention = Higher CLV	Great service, respond to feedback
Profit margins	Higher margins = Higher CLV	Optimize pricing, reduce waste

Ways to increase Customer Lifetime Value

Here are some effective ways to boost CLV for restaurants:

Make dining easier for customers

Offer online ordering, curbside pickup, or delivery. This can make customers visit more often and spend more. A mobile app or loyalty program can also help.

Improve customer communication

Talk to your customers well. Answer their feedback quickly. Use emails to tell them about new menu items and special offers.

Create a loyalty program

A good loyalty program can make customers come back more. Give rewards for frequent diners. Make sure it's easy to use.

Keep food and service quality high

Always serve good food and give great service. This can lead to good reviews and more customers.

Offer personalized experiences

Give customers special treatment. This can include custom menu options or special events. It makes them feel important and can increase loyalty.

Use data and CRM systems

CRM

Use customer data to understand their likes and habits. This can help you serve them better and increase CLV.

Way to Increase CLV	How It Helps
Easy dining options	More visits, higher spending
Good communication	Better customer relationships
Loyalty program	More repeat visits
High quality	Good reviews, more customers
Personal experiences	Increased customer loyalty
Use of data	Better service, higher CLV

Common problems with Customer Lifetime Value

Restaurants often face issues when trying to figure out and boost Customer Lifetime Value (CLV). Here are some common problems:

Getting accurate data

It's hard to get good data for CLV. This includes:

Customer spending habits
How often they visit
Average order amounts

Without good data, CLV calculations can be wrong. This can lead to bad business choices.

Short-term vs. long-term focus

Restaurant owners often struggle to balance quick wins with long-term plans. Focusing only on fast profits can hurt customer relationships over time. This affects CLV. It's important to find a balance between:

Short-term focus	Long-term focus
Daily sales	Customer loyalty
Quick promotions	Building relationships
Immediate profits	Investing in retention

Applying changes across multiple locations

For restaurants with many locations, it's tough to make changes that increase CLV everywhere. This requires:

Collecting data the same way at all sites
Talking to customers consistently
Running loyalty programs that work everywhere

If not done well, this can lead to:

Different experiences for customers at different locations
Slower growth in CLV

Challenge	Impact on CLV
Inconsistent data collection	Inaccurate calculations
Mixed customer communication	Confused customers, less loyalty
Uneven loyalty programs	Reduced repeat visits

Customer Lifetime Value and other restaurant metrics

Customer Lifetime Value (CLV) is a key number for restaurants. It shows how much a customer spends over time. But CLV isn't the only important number. Let's look at how CLV connects to other key restaurant numbers.

Customer Lifetime Value vs. average check size

Average check size is how much a customer spends in one visit. CLV is different. It looks at:

How often customers come back
How much they spend over time
If they tell friends about your restaurant

A big check doesn't always mean a high CLV. If customers don't come back, their CLV stays low.

Customer Lifetime Value vs. customer acquisition cost

Customer acquisition cost (CAC) is how much you spend to get a new customer. CLV and CAC work together:

CLV	CAC	What it means
High	High	Okay to spend more on marketing
Low	High	Need to cut marketing costs
High	Low	Great! Keep doing what you're doing
Low	Low	Look for ways to make customers spend more

Using Customer Lifetime Value in business choices

CLV helps restaurants make smart choices:

Area	How CLV helps
Marketing	Spend money where it works best
Prices	Set prices that keep customers coming back
Loyalty programs	Give rewards that make high-value customers happy
Menu	Choose dishes that make people spend more

Tools for tracking Customer Lifetime Value

Restaurants need good tools to track Customer Lifetime Value (CLV). These tools help collect and study customer data. Here are some key tools for tracking CLV:

POS systems with CRM features

POS

A Point-of-Sale (POS) system with Customer Relationship Management (CRM) features helps track CLV. These systems:

Collect customer data
Track purchase history
Store customer info

With this data, restaurants can:

Find their best customers
See how much people spend
Make plans to keep customers coming back

Customer Lifetime Value calculation software

Special software can help figure out CLV quickly. This software:

Works with POS systems
Uses customer data
Gives fast results

Using this software saves time and helps restaurants understand their customers better.

Data analysis tools for restaurants

These tools help restaurants learn more about their customers. They show:

What the tool shows	Why it's useful
Customer groups	Target marketing
Spending patterns	Improve menu
Loyalty trends	Make better loyalty programs

By using these tools, restaurants can:

Track CLV accurately
Find ways to improve
Keep customers coming back
Make more money

Wrap-up

Knowing how much a customer is worth over time (CLV) helps restaurants do better. This article showed how to figure out CLV, what affects it, and how to make it bigger.

Here's a quick look at ways to boost CLV:

Method	How it helps
Easy ordering	Customers buy more often
Good talking with customers	Builds trust
Rewards for regulars	People come back more
Great food and service	Keeps customers happy
Using customer info	Makes better choices

CLV isn't just a number. It's a way to make your restaurant do well for a long time. By focusing on CLV, you can:

Build strong ties with customers
Make more money
Do better than other restaurants

Now you know about CLV, it's time to use it. Start keeping track of your CLV today. Watch your restaurant grow!

FAQs

How to calculate customer lifetime value for restaurant?

To find out how much a customer is worth to your restaurant over time, use this simple math:

Restaurant CLV = Average Monthly Spend / Monthly Customer Loss Rate

Here's what you need:

Average Monthly Spend: How much a customer typically spends each month
Monthly Customer Loss Rate: The percentage of customers who stop coming each month

Let's look at some examples:

Average Monthly Spend	Monthly Customer Loss Rate	Customer Lifetime Value
$10	20%	$50
$20	10%	$200
$30	15%	$200
$50	20%	$250

To use this formula:

Find your average monthly spend
Find your monthly customer loss rate
Divide the spend by the loss rate

For instance, if customers spend $30 per month on average, and you lose 15% of customers each month, your CLV is $200.

Why is this number important? It helps you:

Know how much to spend on getting new customers
See which customers are worth keeping
Make smart choices about your restaurant's future

Blog