What’s the Value of a Trade Exchange Membership to a Restaurant Owner?
New York restaurant consultant Andrew Young stated in a Venture magazine article that it’s absolutely essential for a new business to have aneough cash available to operate in a money-losing situation for at least six months. He added, “under-capitalization is definitely the biggest problem of restaurant operators.”
Failure rates among restaurants are high because they haven’t had an opportunity to build up a following yet. When an ample cash-cushion isn’t in place, a street-wise restaurant owner will necessarily become creative and find ways to bring in new business. One exceptional way it can be accomplished is through membership in a trade exchange.
Suppose for example, through the trade exchange a good “member” dines out once a month with five other people. Their worth to the restaurant is about $2,800 a year. Yet, this is just the “tip-of-the-iceberg”, because a a satisfied customer (six customers really) will also be powerful sales people for the restaurant. Through their “word-of-mouth” advertising, others will frequent the restaurant, both trade and cash customers. In addition, if this satisfied customer “sells” just one colleague on becoming a regular customer, their value to that restaurant could double and that’s not adding any value for the new colleague’s “word-of-mouth” referrals!
As a restaurant owner it makes sense to estimate the value of a long-term customer and make it a goal to secure more of them. Figuring the value of a customer can be done by basing their average yearly transaction(s) multiplied by the number of years you believe they’ll frequent your establishment, and then multiplying that number by two to take into account “word-of-mouth” referrals.
In our example, one year’s worth of new business to the restaurant owner was $2,800 annually. Obviously not every trade exchange member will spend such an amount (per year) at the same establishment. But a “member” restaurant can, by acquiring ten, twenty or more “new” regular trade exchange customers do an aggregate total of $30,000 to $50,000 (or more) extra business per year. Accumulating trade dollars to be used for the purchase of multitudinous needs like: Radio print (magazines and newspapers) and direct mail advertising; security service; appliance service/repair; bakery; bookkeeping services; carpet cleaners and dyers; cash register service; chemicals (for cleaning); cleaning of grease trap and oven vents; contractors, plumbing/heating/electrical; indoor plants and plant care; janitor services;supplies; linen/linen supply service; payroll service; pest control/exterminators; printers (for flyers, menus, ads and signs); restaurant equipment and supplies; upholstery’s repair and cleaners; interior decorating, as well as professional services like dental, medical, attorney’s etc.
Using trade dollars rather than cash for these necessities translates into big dollar savings and provides the restaurateur with staying power. It’s extra working capital (valuable and necessary money), a reserve that’s needed for both the “soft times” as well as the unexpected contingencies — those debilitating drains that always pop up at the most inopportune times! That’s why barter’s use is so necessary and valuable to today’s restaurant owner.
When an ample cash cushion isn’t in place, a street-wise restaurant owner will necessarily become creative and find ways to bring in new business. One exceptional way it can be accomplished is through membership in a trade exchange.