“I Finally Have The Proof. The Results Are Eye-Opening.”

One of our most important jobs as operators is to get our existing customers to become better customers. Why? It’s SO MUCH EASIER to get those existing customers to return one more time a month than it is to seek out and entice a NEW customer to visit. Afterall, that’s why we use Royalty Rewards®.

For years, I’ve had a lingering, sneaking suspicion that I could INFLUENCE customers who are lower on my profit pyramid (ie. my smallest spenders) to become better customers. So, I tested it. And now I have the answer. I finally have the proof. The results are eye-opening.

Every business’s BEST customers are at the top of our profit pyramid. They are our most profitable. The customers at the bottom of the pyramid are important – but they can’t hold a candle to the ones at the top. For me, and this may blow you away, my top 184 customers account for 30% of my total sales.

Yes! 3.9% of my customers account for 30% of my total sales. Another perspective? The top 18% of my customers account for 63% of my sales. (And I can tell you with 100% certainty that my staff know all these customers by name, contact them regularly and will personally reach out when they miss their regular visits.)

The Profit Pyramid

Every business has a Profit Pyramid. Our most valuable customers, our biggest spenders are at the top. Our ‘Platinum’ Segment. And our lowest spenders are at the bottom - our ‘Bronze’ and ‘Seldom’ segments.

So I’ve always wondered, “How I can get MORE of these dedicated, super valuable customers?” Who are they and why do they love my business so much? Luck? A certain type of personality? My food? My staff? I’ve even gone so far as to ask them (not a scientific survey, but anecdotally). The answers were all over the board and there wasn’t a common theme or answer that I could replicate.

So I tried to figure it out on my own. I created an entry-level priced annual membership and offered it to a very specific segment of my customers. 

My goal?
To see if I could influence them to move UP the profit pyramid, to make them BETTER customers.

The membership cost $100 (and gives mountains of perceived value) and is structured to influence customers to come at least one or more times per month over the year.

I’m 18 months into the test and the results are compelling. And over this time, I’ve noticed other businesses starting to implement the same concept. National chains like Burger King, Panera and PF Chang’s are testing subscription models JUST LIKE MINE. Some offer unlimited drinks, others free delivery, or free appetizers on every visit. One San Francisco Bar (El Lopo) offers an $89 monthly membership for $100 of credits or $200 in credits for $175.

This is a legitimate trend among consumers. They are becoming more comfortable with subscriptions and memberships in general. Americans averaged 6.7 subscriptions in 2022 (up from 4.2 in 2019.) And it’s not just reserved for the food service industry – movie theaters and other business types are also in on this trend. For example, for a monthly fee (the cost of about 2 movies) members can enjoy UNLIMTED movies.

But this is not something to just jump into and start. The membership needs to have a good design. On The Border Mexican Grill & Cantina (large chain) started a $1 queso club that featured their Queso Appetizer for free for a year.

150,000 people joined (wow!) and they stopped taking subscribers and needed to restructure the program after losing money.

There are so many ways to approach membership programs. Royalty Rewards® gives us the power to implement a program like this thoughtfully and to the right customers. Wait…WHAT?!? To the right customers? Yes. This is NOT a program for your top customers. They already visit frequently. Programs like these are designed to make your less frequent customers better – not to work a discount program for your existing best customers.

Be aware!! A poorly executed membership program can be a money loser if your top customers (who are already giving you tons of money) are targeted for membership. I imagine that is what happened with the On The Border Mexican Grill & Cantina membership fiasco. I’m guessing that their existing, top customers joined and suddenly got a free queso appetizer that they were willing to pay full price for and had already been paying full price for years.

That’s where the power of Royalty Rewards® can be flexed. Your database will show you exactly which customers to target – which customers are ripe to climb your profit pyramid.

My results? At the 18-month mark, the target customers have consistently become better customers, spending $3.49 MORE per transaction, their visits have increased 55%, and their sales have increased 60%. WOW.

Has this group replaced my top customers that I rely on? Not at all. But this group of customers has become more engaged with my restaurant. And shifts valuable power into my hands.

For me, the proof is in the pudding. As an operator and with the power of my Royalty Rewards® database, I CAN influence specific customers to become better, to become more profitable and to become more engaged with my restaurant.

Where do I go from here? If I can, as the data from the test shows, take existing customers and make them BETTER, I plan to leverage this. I’ll start by offering this membership AUTOMATICALLY to new Rewards Members. By becoming a member of Royalty Rewards®, they have already shown they value membership programs and have essentially pre-qualified themselves. I’ll keep you updated.

Bent Hansen, Owner of Los Gringos Locos. Longtime Newsletter Contributor and Royalty Rewards® Merchant since 2008.