How to Build a Successful Restaurant Loyalty Program
October 18, 2023
Create a better experience for your top customers while also driving retention and revenue.
As the hospitality industry moves into the digital world, there’s a stronger focus on leaning more heavily on technology to build a modern guest experience. Loyalty programs are one area where that shift is happening. They’ve come a long way from the days of punch cards and are now filled with all sorts of powerful data that can greatly benefit restaurants.
Using loyalty programs built with robust diner profiles and segmentation helps restaurants deliver “surprise and delight” hospitality moments — unexpected yet memorable touchpoints for their customers. Through a combination of personalization and targeted marketing campaigns, restaurants can send customized messaging and offers to former patrons. This not only keeps diners happy but also drives repeat orders, leading to more revenue for restaurants.
These types of retention programs keep customers coming back and strengthen engagement. And they’re pretty popular. In fact, 51% of diners use a restaurant loyalty program. But how do you put one into place? What types of incentives should you offer to get traction? And, ultimately, how do you measure the ROI on your tactics? This guide will help you find those answers.
What are Restaurant Loyalty Programs?
Loyalty programs are a way to recognize and reward your most loyal customers. More importantly, they’re a great way to generate more revenue by driving repeat visitors. The best loyalty programs create an almost game-like experience in which rewards are earned for certain achievements like spending a set amount of money or visiting a specific number of times. For restaurants, loyalty programs can be their secret sauce. They are efficient and affordable to implement, plus they give detailed insight into guests’ preferences and behavior.
3 Benefits of Loyalty Programs for Restaurants
The primary goal of a loyalty program is to retain existing customers as repeat customers tend to spend more over time. They're also more likely to try higher-margin items, which can boost a restaurant's overall revenue. Beyond that, there are many advantages like more valuable data and a strong emotional connection to the restaurant. Here are the top three benefits of loyalty programs for restaurants:
1. Repeat business
Constantly trying to appeal to new diners is really hard. You know what’s easier? Creating repeat business from existing customers. Loyalty programs drive repeat orders from the faces you’ve seen before.
2. Diner data
Gaining visibility into how many orders a diner has placed with your restaurant, the number of reservations they’ve made, overall dollars spent, and types of dishes they enjoy is like striking gold. There’s no better way to understand preferences (and successfully target messaging) than through access to comprehensive customer data.
3. Brand affinity
Loyalty programs are a win-win. Not only are they good for restaurants, but they’re also good for customers. Diners earn deals and discounts, which creates a positive association with the restaurant and keeps engagement high.
How to Implement Loyalty Programs
Anytime you’re transacting — even outside of the dining room — it’s an opportunity to leverage a loyalty program. Whether you’re taking online orders through your website or selling tickets for an upcoming event, these are six revenue channels to start with.
Reports show that 70% of consumers would rather order directly from a restaurant than through a third-party platform, and a loyalty program that integrates with your online ordering system is yet another reason for them to do so. Many online ordering platforms give diners the option to enroll in a loyalty program during checkout. Often, all that’s needed is an email address — no username or password — which keeps the opt-in process simple.
Because the cost per order is much higher with catering compared to online ordering or in person dining, investing in retaining frequent catering customers is a good business decision. Those who lean on restaurants to cater their large family gatherings or office managers who bulk order weekly company lunches tend to revisit the same restaurant, especially when they’ve had a great experience and start to develop a personal relationship. Loyalty programs can aid in this relationship building and keep bringing catering customers back.
Merchandise & Gift Cards
People don’t even need to set foot in your restaurant to become loyal customers. You can incentivize your website visitors to return with a loyalty program that integrates into your e-commerce offerings like your online merchandise store and gift cards. Building a devoted fanbase that returns to buy is especially helpful If you have a limited collection of a merchandise line or seasonal drops.
Have a customer that takes a cooking class at your restaurant every month? Is there a couple that comes to your weekly trivia night? A pair of friends who never miss your wine dinners? Reward these regulars with a perk that shows you value their business. For example, you could offer 15% off your fifth cooking class or wine dinner attended, or give a free appetizer for every $200 spent during trivia nights.
Many restaurants use a points system for managing loyalty programs through reservations. This can work two ways: diners can earn points for making (and keeping) reservations or diners can earn points for dollars spent through a booked reservation. For example, you can offer 1 point for every $1 spent on in-person dining that was made through a reservation and give a $5 discount for every 50 points earned.
Types of Incentives to Offer
The effectiveness of different incentives will vary based on your customers and overall restaurant goals, so it’s important to monitor how successful each perk is and refine your approach over time. To get you started, here are six of the most popular rewards. You can set up these discounts to apply after customers place a certain amount of orders or spend a certain amount of money.
Dollar Amount Discount
Provide a specific dollar amount discount on the total order value. This often encourages higher spending and increases the check size. Consider using this incentive for online ordering and catering customers.
Offer a percentage-based discount on the total order value. A common value is 10% or 15% off. Like the dollar amount discount, this is typically used for online ordering or catering orders.
For online orders and catering orders, supply free delivery as a bonus for reaching the loyalty program goal. This perk may be one the most enticing ones of all since it saves the customer money as well as time spent on transportation.
This is an ideal option for restaurants running online merchandise stores. If you’re shipping out merch like t-shirts, mugs, and cookbooks, think about offering free shipping after a certain number of orders are placed with you or a set amount of money is spent through your shop.
Free Menu Item
A complimentary menu item like a free appetizer or drink is a great way to invite another visit. Any signature dishes that your restaurant is known for might also work well as the free menu item.
During the opt-in process for the loyalty program, you can capture customers’ birthdays. Alternatively, if you’re looking for a more streamlined sign up, you can ask for just an email address and follow up with an email campaign to source additional information like first name, last name, and birthday.
Ways to Measure Performance
Ultimately, you want to keep a loyalty program easy to understand — complicated rules or requirements can deter participation. Asking your customers for feedback is one piece of anecdotal data you can collect to assess how things are going. A program that evolves with customer needs is more likely to remain effective. You can also regularly track the performance of your loyalty program using some of the metrics below.
Diners in the Program
The total number of customers enrolled in the loyalty program can provide insight into the program's popularity and its ability to attract and retain customers. If the enrollment numbers are lower than you’d like, look into how you’re communicating about the program. Is there in-person signage that’s visible? Are you utilizing digital channels like social media and your website to spread the word? Make sure your staff is trained correctly on how to talk about the program, too.
Unlocked Rewards vs. Redeemed Rewards
How effective is the loyalty program in engaging customers and encouraging them to take advantage of the benefits? That’s what unlocked vs. redeemed rewards can tell you. A high number of unlocked rewards that haven’t been redeemed may indicate that the incentive you’re offering isn’t appealing enough to take action on.
This is likely one of the top metrics that you’re interested in: the total sales attributed to the loyalty program. Compare this number to your total revenue to understand how powerful your loyalty program is. Understanding how much revenue is driven by loyalty program members vs non members can give you insight into the growth opportunities of the loyalty program.
Lifetime Spend per Diner
Look at the average amount of money a diner enrolled in your loyalty programs spends over the entire lifespan as a customer. This benchmark can help you identify high-value customers who contribute significantly to the restaurant's revenue over time — people who you may want to label as VIP in your reservation or POS systems. Additionally, you can compare the average lifetime spend of diners enrolled in the loyalty program to the average lifetime spend of diners not enrolled in the loyalty program to understand if the program is truly driving higher spending.
Track how many automated reward emails with the chosen incentive are sent along with the open rate and click rate of those emails. If you have welcome emails set up for customers when they first enroll in the program, keep an eye on how those emails are performing as well.
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