As restaurants optimize their tech stack to meet changing customer needs, brand needs have also changed. Fragmented data silos are no longer considered acceptable, nor is the deprioritization of your digital relationship with customers.
Brands are beginning to recognize that to fully understand their customers and their end-to-end journey – not to mention influence behavior – they need a 360-degree view with unified data from multiple sources (point-of-sale, online ordering, reservations, payment processor, etc.). And it is not enough to be able to access this data; you must also be able to analyze it and act accordingly.
The hard truth about loyalty programs
For years, loyalty programs were the only way for restaurant chains to collect customer data. As such, the industry relies heavily on them.
While they can be a good source of additional revenue, loyalty programs are often considered successful if 15-20% of total customers sign up – and that may not include a brand’s most valuable customers. . What about the remaining 80%? Who are they? How do they interact with the restaurant? And what is their value to the future of the company?
You can’t influence what you can’t measure.
A new measurement of the rising North Star
To identify, understand and know the value of 100% of their customers, restaurant chains such as Starbucks, Sweetgreen and First Watch are favoring a new flagship metric: Customer Lifetime Value (CLV).
CLV measures the total profit generated by a customer from the first visit to the last. Simply put, it shows which customers are most valuable to a brand based on their recency (when they last visited), frequency (time between visits), and spend.
The concept of CLV is not new. For years, industries like retail, e-commerce, and gaming have used this metric to guide business decisions and set strategic priorities that are in the best interest of the most valuable customer segment for their sustained growth.
For restaurant brands to unlock CLV, they need a fully integrated technology stack where all systems communicate with each other so they can collect, analyze, and act on data from all customers, not just loyal members.
As established and emerging enterprise brands seek new ways to improve customer experiences through digital hospitality, drive direct sales, and grow, the demand for CLV data has exploded. And for good reason. According to Olo data from over 18 million customer records, the top 5% of restaurant customers (by CLV) generate approximately 30% of revenue, and the top 20% of restaurant customers generate 60% of revenue.
How restaurants can benefit from CLV
Restaurant brands that know exactly which customers have high CLV and why can optimize every aspect of their business to retain them and acquire more customers who behave like them. With CLV, restaurants can:
1. Better understand and interact with their most valuable customers – and track their behavior over time
In other words, know exactly when high CLV customers order (day and frequency), what they order, how much they spend, preferred communication and sales channels and more, to better serve them.
2. Acquire more customers that reflect high CLV customer habits
As part of their digital marketing strategy, restaurant brands can use CLV data to target lookalike audiences for the top 20% of their social media customers. When brands refine their audience targeting, they tend to spend less on trial and error and ultimately lower their cost of acquiring customers.
3. Make data-driven business decisions across departments
Using CLV data, brands can identify new restaurant locations based on where high-value customers live, work and play; optimize the menu; and more.
4. Determine which customer feedback deserves the most attention
To ensure they are satisfying high-value customers, brands can use CLV data to survey top customers about their dining experience or preferences and identify online reviews that need to be conveyed.
5. Test and learn at scale
CLV also allows restaurant brands to test the effectiveness of new initiatives on a smaller subset of customers before rolling them out across the brand. For example, they can analyze the impact of price changes on the frequency of visits by high CLV customers compared to average customers.
Massive retention opportunity
Now imagine designing a restaurant loyalty program around CLV. Instead of relying on blanket “Buy 10, get 1 free” style discounts, restaurants could promote and encourage behaviors that high-value customers are known to display.
For example, let’s say high CLV customers regularly order online and dine in. A brand could use its loyalty program to motivate customers who only eat in to also order out, and vice versa (e.g. offering a free appetizer to dine-in regulars on their first Friday take-out order evening). After all, when customers interact with the brand in more ways, they become more valuable.
Or maybe a restaurant’s data shows that CLV increases once a customer hits four visits. The brand could focus its retention strategy on getting customers to this point of habituation by using what it knows about the preferences and behavior of high CLV customers.
With this data-driven approach, centered on frequency, loyalty and spend, restaurant brands can make their loyalty program work smarter and harder, guiding average customers on a proven path to High CLV.
Loyalty program or not, restaurant brands are leaving dollars on the table without CLV. This is the key to truly understanding and better serving 100% of customers and unlocking sustainable growth for the business. Ultimately, the brands that know their customers best — and use that information — will win.
Noah Glass is the founder and CEO of Olo, a leading on-demand commerce platform powering the digital transformation of the restaurant industry. He is an industry visionary whose mobile ordering work predates the iPhone, beginning with SMS ordering on feature phones in 2005. Noah currently serves on the board of directors of Share Our Strength, an organization non-profit organization focused on ending child hunger in the United States. and also serves on the board of the Culinary Institute of America, providing guidance and counsel to the world’s premier culinary college. Olo’s customer list includes more than 500 of the most popular company restaurant brands.