In another help article we looked at the maths of whether, if you have taken a deposit from a customer or if you have taken a credit card number from a customer who then becomes a noshow it makes sense to "enforce" it.
We said that that question could be answered objectively by looking at the lifetime value of the customer.
Bluntly, if it was small then the logical thing to do was to enforce the deposit. That customer was unlikely to return anyway.
Here I want to look at the difference in consumer expectations around deposits and "held credit cards", the legal and technical differences and the PR consequences.
The obvious difference with a deposit is that you actually have the cash.
If the customer want it back they are going to have to sue you.
Whereas a held credit card involves you taking the money in a separate step.
If you have written your terms and conditions correctly (simpleERB gives you a template) and the customer was advised of them, say in an email confirmation via simpleERB, then legally, the no show customer does not have a leg to stand on in any legal jurisdiction (country/state) that we know of.
However, what the customer can do, is contact their credit card company and claim that you took the money illegally. Credit card companies tend to take the customers side and withhold the payment. This is called a "chargeback". There is paperwork to be done.
What you need to do is to show the email confirmation to the credit card company and your terms and conditions. Eventually you will get your money.
You might argue that it isn't worth fighting over these, but if you add up all those "not worth fighting for" occasions it might come to a large sum at the end of the year. It is a bit like giving in to the school bully.
What restaurants often forget in all the negative stuff about charge backs is that: "Banks file fewer chargebacks against merchants who regularly dispute chargeback claims".
It is indisputable that if you have taken a deposit you are in a much much better place when a customer "no shows" that you are if all you have done is take a credit card number.
Customers can also report the card lost or stolen to prevent you from getting money from it. Or they can give you a debit card with no money in its associated bank account.
Restaurants often take credit card numbers rather than deposits because they think it is "easier". What a surprising number of restaurants don't know is that taking a credit card number and writing it down in a the reservations book is against the law in most countries. It is called a breach of "PCI compliance" and restaurants who do this are leaving themselves open to fraud by staff and possible law suits by customers and hefty fines if caught.
simpleERB allows restaurants to hold credit card numbers securely via Stripe.
However simpleERB also makes it easy to get deposits from customers and this is what we recommend if you are going to actually "hold noshowing customers to account".
See our quick overview video here.
BUT, you say, both deposits and credit cards will dissuade customers from booking.
The answer is yes , they probably dissuade some customers. The question you need to ask is what kind of customers? They won't dissuade the customer who has no intention of being a noshow.
Again, let's "do the math" to illuminate the problem.
First of all, what is your current noshow rate?
A Wharton University study showed a rate of 20% in big cities. 10% is common.
We are predicting that 10% - 20% of bookings will be no shows.
Anybody who is thinking about being a noshow is just not going to book with you. But you don't make any profit from them anyway. You lose money.
So in order for "insisting on deposits" to actually cost you money you have to assume that 10-20% of the people who are not thinking of being a noshow are going to be dissuaded from booking with you by your insistence on deposits. Do you think that is true?
What to do.
Firstly, not all bookings are the same. A booking for 8pm on Saturday is not the same as a booking for 6pm on a Monday. Booking for 25 is not the same as a booking for 3.
simpleERB allows you to treat them differently. See the screengrab below.
Secondly, run an experiment. Nothing says that you have to continue with a policy if it is not working.
Thirdly, make sure your terms and conditions are crystal clear. simpleERB makes this easy. Also, have them on your website and social media, upfront. Explain the precarious economics of running a restaurant and how a now show can devastate your profits. Ask them if they want to see your children starve....
Fourthly, remind your customers. Again simpleERB makes this easy with automatic email and sms reminders. See below:
Fifthly, mark anyone who does n show as an offender, again easy in simpleERB
Sixthly, you can always, if you want, convert a deposit into a offer that can be used in the next 14 days. simpleERB allows you to create a "private offer" that only the recipient of the email can see.
You can’t say fairer than that, fairer then this, Feuhrer than thheeth…. that’s right you can’t say fairer than that…
Seventhly, allow customers to
cancel easily. simpleERB makes this easy for them. And simpleERB automatically flags up cancellations in its Managers Day Book.
Eighthly, keep a long term waitlist of people who are looking for last minute availability. simpleERB keeps these in the same Managers Day Book, so you can immediately match up a cancellation with a waitlist request.
Ninthly, talk to your local fellow restaurateurs. If you all implement the same policy, it will get the message across.
But social media I hear your cry! The noshowers will take to social media!
Ask yourself if you have done all that we have suggested above, how stupid are they going to look?
Charge back info here , courtesy of The Chargeback Company.