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No-shows are an all-too-familiar problem for restaurants. A 2021 OpenTable study found that 28% of Americans made a reservation and did not honor the booking in 2020. And it’s not just people who place no-show bookings. Bots are often used to secure bookings at highly sought restaurants or tasting events, often for reservation scalping.
Whether it’s humans or bots making bookings, no-shows hurt a restaurant’s bottom line. “Our no-shows are significant,” Alex Kastner, general manager at Cambridge Mill, recently told CBC News. “It’s about 10%, and for a service that sells out every Sunday, that can be a huge revenue loss,” he explained. According to the same OpenTable analysis, it only takes six no-shows to wipe the already super slim profits of a 40-seat restaurant.
To mitigate the problem, many restaurants charge no-show fees. But as Eater reports, those are prone to chargebacks. If diners don’t show up, they are likely to request chargebacks when billed a no-show fee.
Reservation fees or deposits have emerged as a solution. A reservation fee or deposit is a predetermined amount that customers pay in advance to book a table at a restaurant. This financial commitment serves as a way to encourage accountability and reduces the likelihood of patrons failing to honor their reservations.
If you’re considering reservation fees for your restaurant, here’s all you need to know about how they work, the potential benefits, and the key considerations before you implement.
How reservation fees and deposits work
Reservation fees are charged at the point of booking and are usually applied to the final bill if diners show up. Some restaurants fully or partially refund the deposit fee if the reservation is canceled before a specified deadline, say 24 hours before the booked time. The deposit becomes non-refundable if the reservation is canceled later than the agreed deadline. However, some restaurants outrightly mark these fees as non-refundable. Many online reservation platforms and apps like OpenTable, which integrate with Square, allow restaurants to collect reservation fees seamlessly.
Deposit fees may be fixed or variable. If fees are fixed, customers pay a set amount to secure a reservation, irrespective of party size or time. With variable fees, the reservation amount fluctuates based on factors such as the number of guests or the time of the reservation.
Flat fees are often used for high-demand time slots or popular dining hours. For example, New York City sushi restaurant, Kintsugi Omakase, charges a $35 deposit per diner. The restaurant’s general manager, JC Myska, told Business Insider that the fee is crucial for the 10-seat-only eatery.
Variable reservation fees allow restaurants to adjust fees according to peak hours or larger group bookings. This often works best with data-driven tools like Square for Restaurants, which gives restaurants a 360-degree view into their operations, from online ordering and reservations to floor and kitchen management. The customer insights feature, for example, allows you to see how your restaurant is performing in real time so you can make fee adjustments as needed.
Benefits of reservation deposits
When implemented thoughtfully, reservation fees can offer a range of benefits for your restaurant.
Reduction in no-shows
By requiring customers to make a financial commitment up front, reservation deposits act as a deterrent against casual or last-minute cancellations. This, in turn, improves the likelihood of customers honoring their reservations and enhances the predictability of daily operations for your restaurant.
Improved revenue stability
Reservation deposits contribute to a more stable revenue stream by offsetting the potential loss incurred from no-shows. These fees can help your restaurant guard against the financial impact of empty tables during peak hours and allow for better financial planning and resource allocation.
Enhanced overall dining experience
The assurance of a reserved table contributes to a smoother and more enjoyable dining experience for both customers and staff. You can reduce waiting times and improve table turnover, thus enhancing customer satisfaction by minimizing service disruptions.
Key things to consider before implementing reservation fees
While reservation deposits offer compelling advantages, you should carefully consider the potential drawbacks and challenges.
Customer resistance and potential backlash
Some customers may view reservation fees as an inconvenience or an additional expense, as this Reddit thread shows, leading to resistance and potential negative sentiment. Clearly communicating the reason for the reservation fee on your booking page can help manage expectations.
Impact on customer loyalty
The imposition of reservation fees may affect the perceived loyalty and trust between your restaurant and regular customers. Loyal customers who find the fee off-putting may feel alienated, which could cause a decline in repeat business.
One way to prevent this is to implement a loyalty program and waive the reservation deposits for customers who have scored a certain number of loyalty points. With Square Loyalty, you can easily create a loyalty program and reward customers based on specific actions, such as number of visits, total amount spent, or purchased items/categories.
Potential negative reviews
Unhappy customers may express dissatisfaction through online reviews or social media, and negative reviews may deter potential customers. Research by Power Reviews shows that 99.9% of customers will read reviews when shopping online, and 96% will specifically search for negative reviews.
Before implementing reservation deposits, be prepared to actively manage your online reputation. For example, responding promptly to negative reviews related to deposit fees can help prospective customers get a balanced view of events surrounding a transaction.
How to implement reservation fees for your restaurant
1. Decide on the type and amount of the reservation fee.
Consider the nature of your restaurant, peak hours, and customer expectations. Popular restaurants often charge a reservation fee during high-demand hours. You may also ask for a reservation fee when dealing with specific scenarios such as accommodating large parties, hosting special events, or handling private dining reservations. Additionally, establishments commonly implement reservation deposits when organizing highly sought-after menu-tasting events. These situations often involve significant planning and resource allocation, making reservation fees a practical approach to ensure commitment and manage the logistics effectively.
Decide whether a flat or variable fee based on factors like party size or time is more suitable. Additionally, determine the specific amount that strikes a balance between discouraging no-shows and maintaining customer satisfaction. Insights from Square Analytics, for example, can help you understand dining and online ordering patterns so you can make better decisions when setting up your reservation fee.
2. Choose a reservation platform that supports fee collection.
It’s also important to choose a platform that offers some flexibility and allows you to adjust your policies over time. Evaluate the features and compatibility of reservation systems to ensure they align with your restaurant’s needs and preferences.
For example, the Square and OpenTable integration allows for seamless reservation fee collection, providing a comprehensive solution for managing reservations and payments in one centralized system. The integration allows you to connect your Square for Restaurants Plus account with your OpenTable account. Once connected, your floor plan, table, and coursing information is synced between both applications.
3. Communicate your reservation policy to customers.
Transparent communication is key to the successful implementation of reservation deposits. Inform customers about the policy through various channels to manage expectations effectively. Utilize your restaurant’s website, reservation platforms, and social media channels to explain the details of the reservation fee.
For example, you can update your Square Online website with clear information about the reservation fee policy or use Square Marketing to send targeted messages to your customer base, ensuring they are aware of the new policy and its benefits.
4. Collect customer feedback and adjust your policies accordingly.
The implementation process doesn’t end with the introduction of reservation fees. Actively seek feedback from customers through tools like Square Feedback to gauge their sentiments and experiences. Use this feedback to refine and adjust your reservation fee policies.
Overall, reservation fees anddeposits can help you reduce no-shows, enhance revenue stability, and elevate the overall dining experience at your restaurant. However, the decision to adopt reservation fees should be approached with a thorough understanding of your restaurant’s unique dynamics, customer base, and overarching goals. Once you are ready to implement, choose the right tools, such as Square for Restaurants and OpenTable, to simplify implementation and support changes as your strategy evolves.