The Power of Customer Lifetime Value in a Changing Restaurant World

    Guests vote with their wallets and nothing better indicates where and why consumers spend their dollars quite like CLV.

    Mobile phone being held by person.
    Unsplash/Paul Hanaoka
    Data across tens of millions of consumers shows that the top 20 percent of guests account for 55 percent of sales, and the top 5 percent of guests account for 27 percent of sales, according to Wisely data.

    In industries like retail, tech, and e-commerce, it’s common practice for brands to optimize everything around Customer Lifetime Value (CLV), which is the projected cash flow from a guest, based on their recency, frequency, and spend. Companies like Amazon and Disney have perfected this practice with their ability to track customer purchases and market similar offerings to increase the likelihood of a sale and earn preference from the customer. The restaurant industry is behind when it comes to these types of capabilities, but there are solutions available to support the successful implementation of CLV at restaurant brands of all sizes.

    CLV is a measurement of how valuable a customer is to your business based on information across the entire relationship. It helps leaders fine-tune day-to-day operations through revealing insights, such as driving factors for guest loyalty and maximizing it. CLV takes a step beyond traditional loyalty strategy and allows operators to look at different segments based on behaviors versus just demographics, enabling restaurant brands to slice and dice each segment and variability. It is the north-star metric to quantify results of marketing dollars spent, staff training, menu optimization, real estate selection, and much more. After all, guests vote with their wallets and nothing better indicates where and why consumers spend their dollars quite like CLV.

    One brand that has had great success prioritizing CLV is First Watch. The restaurant chain initially wanted to identify the reason behind loyal customers’ frequent visits. Matt Eisenacher, SVP Brand Strategy & Innovation, was particularly curious about whether guests adopted loyal behaviors over time or if it was caused by something specific that First Watch could capitalize on in order to increase CLV across its customer base.

    First Watch was able to discover the answers to all those questions and more by collecting customer data, analyzing behaviors and preferences, and then putting those insights into action for the betterment of the guest experience. By optimizing for CLV, First Watch gained a deeper understanding of its customer base, which now informs many critical strategic decisions, including new store site selection, menu design, off premise efforts, and more.

    Here are three ways other restaurant operators can successfully pivot to a CLV-focused strategy:

    Collect: Simply put, you can’t experiment with business strategy—be it a campaign or new menu offering—unless you have data. While having 15% of your customer base enrolled in a loyalty program is considered “world class,” operators need to unlock access to 100% of their customer base. This can be achieved with support from technology platforms that integrate with every source of guest data, including POS, Online Ordering, Payment Processors, Mobile Apps, Websites, Reservations & Table Management, Guest Wi-Fi, Guest Feedback, etc. to ensure the most robust and wide-reaching collection of data.

    Analyze: Data across tens of millions of consumers shows that the top 20 percent of guests account for 55 percent of sales, and the top 5 percent of guests account for 27 percent of sales, according to Wisely data. After collecting data, operators need to identify several things. First, identify who those top customers are in terms of behavior, followed by why they visit (looking at purchase and daypart patterns,) why they stop visiting, and a potential route for winning them back if needed. A good technology partner should provide restaurant brands with data as comprehensive as an online retailer, which can help establish a “Guest Profile.” This provides ultimate visibility to each guest’s entire purchase history both on- and off-premise at the item level.

    Act: With such data, each department can come together in service of guest relationships, relevance, and loyalty—the effectiveness of which can be measured by customer lifetime value. 

    Operations: Recognizing each guest in real-time, whether that’s at the host stand, at curbside, or at the table. Tailoring interactions and service accordingly to ensure an exceptional guest interaction so that person continues to visit and spreads the word about your restaurant.

    Marketing: Finding and keeping guests by communicating with each guest at the right time, with a relevant message, through the optimal channel. Consumers are bombarded by marketing messages. With the right insights, your brand messages can feel like they came from a trusted friend. 

    Finance: Knowing what investments and business strategies actually drive CLV and which don’t. As it relates to marketing, targeting efforts to acquire new high-value customers and optimizing LTV:CAC is a powerful strategy to make investments much more efficient. 

    Culinary: Identifying which items or combinations of items cause high guest repeat rates and which items are performing poorly or tend to be ordered by guests coming in less often and spending less.

    People: Identifying team members who have the highest guest repeat rates and managing and rewarding them accordingly. The same goes for staff who may need some additional coaching to achieve optimal performance.

    Real Estate: Seeking out and successfully establishing locations where highly prospective customers (e.g. lookalikes of your high-value guests) live, work, and play.

    For public company restaurant brands or private ones raising capital, it’s worth noting that analysts and investors are increasingly considering customer-level economics over same-store sales data. The development and proliferation of tools that make CLV a reality have created the new lens through which Wall Street and others are viewing restaurant business metrics. 

    After such a difficult year, and with the return of customers to restaurants, it’s never been more important for brands to provide an unparalleled experience rooted in customer data. The evolution of restaurants and their guest connections is accelerating, and those who focus on CLV will be the victors.

    Mike Vichich is co-founder and CEO of Wisely (www.getwisely.com), the leading customer intelligence platform for restaurants—empowering brands to say goodbye to transactions and hello to customers. Wisely brings everything you know about each customer to every interaction—from how guests are greeted at the door to how they're personally invited back across marketing channels. Innovative brands of all sizes such as bartaco, California Fish Grill, Chuy’s, First Watch, Global Franchise Group, Lazy Dog, P.F. Chang’s, and thousands more, leverage Wisely to improve guest experience, increase Customer Lifetime Value, and use customer data to inform every business decision.