Taking care of our guests is very personal. How personal? Think about this: when is the last time you went to a retail store and the manager said, "It's great to see you again, let me buy you your next pair of jeans to say thank you?" When was the last time you waited 20 minutes to get someone to help you at a home improvement store in appliances and the manager said, "I'm so sorry we kept you waiting, let me buy you that stove?"
Well, in the hospitality industry, this happens on a routine basis. We see a regular at our bar and sometimes just buy them a drink to thank them for making our bar their home away from home. We might meet a table of diners that are having a great time in our restaurant, find out it's their first visit and drop off a card with a free appetizer on the back they can use on their next visit. We find there are times we fail to deliver on our promises and have to approach a table to apologize and offer to pay for their meal. And the list goes on and on and on. Heck, we give our employees a free meal or let them eat at a 50 percent discount. Do you know any other business that does anything like what we do with freebies? I don't.
The challenge is, while we love to use this very personal tool called a "comp," the reality is it is sometimes misused. Let me be perfectly clear. While comps can turn a bad dining experience into a good one, make a regular customer a raving fan, allow our staff to dine with us without breaking the bank, and so on, do know that a comp is real money! When you comp a $50 ticket because you blew it, understand that is $50 you are not putting into the bank. It means you don't have that $50 for payroll, to pay bills or to keep as profit. It reduces your cash flow and cash is what we use to pay our bills. While comping is normal practice in our industry, you have to do it correctly and have a budget or you can give away the house.
Where should you set your budget? We recommend that you don't allow more than 3-4 percent discounting (comping) each month. This would include taking care of a regular customer, fixing a kitchen or service screw up, employee and manager meal discounting, and some small amount of discount marketing.
You can also look at your marketing budget and move some percentage points over to discounting if you use discount promotions as a major component to your marketing plan. For example, we recommend that you have a marketing budget of 2-4 percent per month. If you wanted to use all of that for discounting, you would have a target comping budget percentage as high as 8 percent each month to build business, take care of your guests and still make money. But all too often, without a budget set and managers trained on what they can and should do, comping leads to money lost.
Here are a few comping practices that can kill your cash flow and ultimately your business if you don't set a budget and train your managers:
1) Free Meals
When a guest does not like his or her food, instead of immediately jumping to buy the meal, consider whether a replacement item and a comped dessert might do the job. Failing to assess the situation and ask the guest leading questions can often lead to giving away the shop. This is where it becomes important to discuss with your management team each comp so that you can give them guidance on how you want that similar situation handled in the future if they didn't handle it the way you would have wanted them to.
2) Discount Promotions
Running Groupon promotions and other marketing centered on discounting. Keep in mind, I am not against discount promotions. I am against the misuse of them. For example, if you run a Groupon at a 50 percent value, you are actually selling that certificate at a 78 percent discount. And if you're operating at a 65 percent or higher prime cost, this could spell disaster. Make sure if you are using discounting for marketing, that you are driving NEW customers in and are requiring they sign up for your loyalty or VIP programs. This means you will make a little money on a new guest and can now market to them to bring them back. You are basically buying the lead. It's important not to use discounting in a fashion that cheapens your brand or makes it so that your customers wait for the coupon before they come through your door.
3) Buying Drinks!
If you have a bar, you already know that you get hit up for free drinks from your regular customers. You know that you probably have to give your bartenders the ability to give away a couple drinks each shift or they will take them and more without your permission. Both of these can rob you of your cash. When it comes to regulars, you might decide that you as the owner don't drink for free in your bar. You can then let the customer know you don't even drink for free. Then if you buy the customer a drink, pull cash out of your pocket to pay. When it comes to bartenders, giving them freedom within some rules - say two comped drinks per shift - allows them to build business without breaking the bank. And then if they have given away their two and someone has a bad experience, all they have to do is ask the manager on duty if they can buy them a drink over their quota.
While comping is normal in our business and is one of the things that sets us apart from all other customer service experiences, misusing this tool can kill your bank account. To avoid this, make sure you set a comping budget, monitor your actual comping percentage on a daily and monthly basis, train managers on best practices by routinely reviewing comps and the reason behind them, and most importantly, remember when you comp you are giving away YOUR money. With all of these things in mind your comping can be used to deliver a great dining experience, bond with your guests and employees, and better yet, still be on a path to make money.