Are Discounts Bad for Your Restaurant Business?

Are discounts and special offers good or bad for your restaurant?

Well that depends...

If your discount offer results in diners sitting at your tables eating for less at the expense of other customers who would have paid full price, then the answer is Yes they are bad for your business!

In ideal world you want your restaurant to be filled with customers all paying full price, but in reality most restaurants can't achieve this 5 or 7 nights a week.

So if you have quieter days of the week when empty table are the norm, then discounts can be very effective because they can be a great way of attracting new customers and expanding your audience, plus they put money in your till to help pay for your overheads.

Let's focus on the latter point for a moment, your overheads...

Consider a wet Tuesday night in February, you have only a handful of tables booked.  Your lights are on; you're burning gas; business rates need paying, building rent is due and you have your staff in ready for your customers arriving.

In other words you are incurring a fixed cost for opening your restaurant.

If you were to run a discount promotion that night to bring a few more customers in, then what level of discount could you afford to give?

Well as you already have everything in place to serve them, as long as you charge more than the cost of the food ingredients, then in theory it will be worthwhile as you are earning additional cash to pay your overhead costs...

So in other words if you're average customer spend is £40 and the ingredients are £8, then a 25% discount of £10 off would leave you with £22 towards the costs of opening that you would have incurred anyway...

Considerations to bear in mind?

If you offer too big a discount then you could be devaluing your business and also attracting discount hunters who will add little to your long term profitability.

Some of your regular customers may get hold of the discount vouchers and use them when otherwise they would have paid full price effectively reducing your margins.

The best strategy is to place conditions on your promotions so that they can only be used during your quiet service times.  But you need to track the effect on covers during your busier times.  For example if you find that Thursday nights are suddenly full on Thursdays but you're not full on Saturdays as a result, then you need to calculate whether the additional contribution on the Thursday is greater than the lost contribution on a Saturday night, if it isn't then you need to reduce your discount to make it less attractive to traditional Saturday diners.

In general terms though, if you have empty tables during the week, you need to be promoting competitions, special events and discount promotions to fill them and at the same time build your audience and customer base.

As your audience and customer base grow, then you can reduce the level of discounts you're offering and rely more on special events and promotional evenings instead.

Essentially it's a case of balancing the supply and demand equation.

In a future post we'll look at different types of discounts and the effect they have on your profits.

If you're a restaurant owner who'd like more customers during the week contributing to your bottom line, then grab a copy of our FREE Restaurant Marketing Blueprint and learn how you can boost your audience, enhance your reputation and grow your profits month after month...

About the Author

Richard is a Marketing Consultant and Partner with Taylor Cook Restaurant Consultancy...

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