What Is A Guest Worth?

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Should you be concerned about losing a guest? I mean, nobody’s perfect and if we win more than we lose we come out alright . . . don’t we? Today’s consumers are so demanding that they will tell you about every little thing that is wrong… won’t they?

The answers are yes, no and no!

Unless you consistently have more business than you can handle, my suggestion is that you cannot afford to let anyone get away! Even more critical, we cannot count on our guests to tell us when things are not right. You may understand all this on an intellectual level but I think it might be interesting to understand the dynamics of repeat patronage.

As a start, let’s calculate what creating and keeping a moderately enthusiastic, loyal guest is worth to you over five years. (Note: I use five years because I think people have an attention span with restaurants. Some guests are leaving town next week and some will be around twenty years from now. However, if you never changed anything in your place, within five years I think guests will get bored and take their business elsewhere.)

To err on the side of conservatism, we will look at the value of a guest who comes in only twice a year and spends just $25 each time. That is $50 a year in sales. Over five years, this person will spend $250 with you. Acceptable, but not worth getting very excited about, right? Well, the true cost is a little different than the modest $250 figure might suggest.

     THE VALUE OF A HAPPY GUEST

First of all, statistics indicate that a satisfied guest will tell five others what a great place you have and that has a major impact upon the equation.

Here are the assumptions at play: 1) a happy guest (Patron A) spending $50 a year with you tells five others within a year, 2) those five (call them Patron B’s) become patrons who tell five others within a year, 3) the Patron B’s each tell five others (Patron C’s) and so on.

This may sound a little confusing, so the table below shows what this progression looks like.

Patron A Patron B Patron C Patron D Patron E TOTAL
# People 1 5 25 125 625
Year 1 $ 50 $50
Year 2 $50 $250 $300
Year 3 $50 $250 $1,250 $1,550
Year 4 $50 $250 $1,250 $6,250 $7,800
Year 5 $50 $250 $1,250 $6,250 $31,250 $39,050
TOTAL $250 $1,000 $3,750 $12,500 $31,250 $48,750

Now some mathematically-inclined reader will carry this projection out several more years, come up with a gazillion dollars in volume and be tempted to write the entire exercise off as wishful thinking. You never reach the astronomical numbers because the progression never moves ahead forever – guests move or die, they get bored, you lose patrons through inattention or inconsistency, there is more competition and a variety of similar factors.

Still, failure to create and keep a happy guest will cost you not only their future business but the loss of business represented by referrals you never got. This is bad enough but it is not the end of the story.

     THE VALUE OF AN UNHAPPY GUEST

      There is an additional price when you lose a guest. It is easy to think that people would tell you when something is not right but it does not happen that way. You cannot count on your patrons to let you know when there is a problem.

Have you ever visited a business, had less than an exciting time, never said anything to the store personnel and just never returned? It happens all the time . . . and it is happening to you every day.

Statistically speaking, a typical business hears from only 4% of its dissatisfied guests. One in twenty-five will actually tell you when things are not right. The other 96% just quietly go away and 91% will never come back.

As if this was not damage enough, you surely have heard the statistic that typical dissatisfied patrons will tell 8-10 people about their problem. One in five will tell twenty. Ten percent of the people who hear the story secondhand will pass it along to others. In general, the worse we botch it, the better the story is to tell and the more people will learn of it.

All these statistics can get pretty dry so let’s consider what happens if you blow it with our guest who only spends $50 a year. If they become dissatisfied, they probably will not tell you . . . but they will tell their friends. If this disgruntled guest tells another 10 people not to patronize you, they cause you to lose $2500 in future sales (10 people x $50/year x 5 years).

     THE COST OF FAILURE

      When we look at the real cost of losing a moderately enthusiastic, regular guest, the total loss comes in two ways: positive word lost and negative word gained. In this case, the incident really cost you $48,750 in lost sales resulting from lost positive referrals and another $2,500 in lost sales resulting from negative word-of-mouth – a total potential loss of $51,250 just from losing a $50-a-year guest!

If our disgruntled diner was with a party of four, you must take the loss times four. If one person at the table has a bad time, everybody at the table has a bad time! This makes a four-top of $50-a-year guests worth $205,000 . . . and we debate about whether we ought to buy a potentially dissatisfied table a round of drinks! Two hundred thousand bucks!

The problem is that this does not represent money that you lost. If you lost $200,000 you would be excited! This is money that you never got! This is already factored into your volume because not everyone you serve has a good time and most of them won’t volunteer that information to you.

Just as the operator may at first consider the cost of a dissatisfied table as only the loss of their check that night, the server who handled the party may only think that she lost a ten-buck tip! When you take the long view, however, the numbers for the service staff are equally as frightening.

Figuring an average tip of 15%, the loss of $205,000 in sales also means $30,750 that is not on the table anymore . . . and that is from just one table of $50-a-year guests. How many tables in a typical station in your restaurant? How many turns do you do on a busy night? How much do your guests spend annually?

If you typically have five-table stations doing two turns a night (and if your typical guest only spent $50 a year), that means you are sending servers out on the floor with over $2 millions in future sales and nearly $310,000 in future tips riding on how well they take care of their tables tonight!

Is that at all scary? Might there be some implications here with regard to the importance of thorough training before turning a server loose on your patrons? Can you afford to engage in “warm body” hiring when you have that kind of money riding on the outcome?

The good news is that if guests have a bad time it does not necessarily mean that you will never see them again or that they will say terrible things about you. However, you can probably expect that you will see them less frequently and they will be less inclined to recommend you to their friends.

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The bad news is that these figures were based on a guest who comes in twice a year and spends $50 during that time. Most of your guests – certainly your regulars – come in far more frequently and spend more per year.

What this example suggests is that, over five years, your ability to consistently produce and retain happy guests makes every patron you serve today worth 100 times their annual sales volume!

Should you get serious about making sure every guest has a wonderful experience every time they dine with you?

How much business are you prepared to give away?

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