Operations
Restaurant Cancellation Fee Guide: How to Find the Sweet Spot
5 min read
May 15, 2024
5 min read
May 15, 2024
Last-minute cancellations and no-shows are costly problems for restaurants. Guests who ghost — or change their minds on a whim — can greatly affect revenue. This issue is why many restaurants implemented cancellation fees in the wake of the COVID-19 pandemic, and continue to enforce them today.
Now, high-demand venues also have bots to deal with, leading even more restaurants to charge cancellation fees. These pesky software applications make reservations in bulk with the intent to sell them, leaving human guests in search of a seat out of luck.
While cancellation fees solve multiple problems for restaurants, they can also create some.
Over the last year, high cancellation fees have led to controversy for some restaurants, sparking public outrage from guests.
Customer viewpoints aside, heated debates on social media about who was in the right highlight the importance of implementing a cancellation policy with fair, flexible terms. While all guests will never agree on whether cancellation fees are necessary, that doesn’t change the fact that you have a restaurant to protect and operating costs to consider.
That’s why it’s essential to strike the right balance when determining a cancellation fee that mitigates risk without affecting guest satisfaction. Keep reading to learn how to create a fair restaurant cancellation fee policy without upsetting — or losing — diners.
Here’s where things get tricky. You want to charge enough to deter guests from canceling or no-showing but not so much that you turn them off. (Or incite angry tweets.)
So, don’t settle for an arbitrary number. Base the cancellation fee on hard data. Here’s how you can choose a strategic number that works for your restaurant:
Start by analyzing historical data to understand the impact of past cancellations on your restaurant's revenue and operations. Factor in potential revenue loss from unfilled tables and wasted resources, such as staffing, food preparation and table setup.
The following tools can provide you with valuable data:
While you may already have some of the above software, integration is key. Look for an all-in-one CRM and reservation solution that integrates with your POS system to get a comprehensive, aggregated view of cancellation data.
This will help you easily assess the impact of cancellations and measure the success of your policy.
Evaluate the impact of cancellations during peak versus off-peak hours and use this data to inform your cancellation policy. For example, if Tuesdays are notoriously slow but your Sunday brunch is always sold out, skip the blanket cancellation fee.
Instead, implement a fee for peak periods only to cover your busiest times. This way, guests can choose time slots without fees and you still see a reduction in cancellations on your restaurant’s most popular days.
Long Meadow Ranch, which has a portfolio of five properties, implemented SevenRooms online payment tools to collect credit card information from guests — and immediately saw no-shows drop from 15% to 1%.
Determine a cancellation fee that feels reasonable and comfortable based on your typical reservation value. Depending on your restaurant’s popularity and average order value, you might charge 20% to 30% of the typical order amount, making your fee anywhere from $10 to $100+ per person.
For example, if your average weekend reservation for a party of four is $250, consider implementing a $50 per person cancellation fee.
Japanese restaurant and SevenRooms client Katsuya Baha Mar charges $100 per adult and $50 per child for cancellations made after 4 p.m. The cancellation policy is displayed in multiple places throughout the booking process, so guests can’t miss it.
Alternatively, a flat fee, like $50 or $100, simplifies administration but may not accurately reflect the revenue impact of cancellations involving larger groups.
When deciding what to charge guests, using other restaurants as a benchmark can be helpful. However, reservation cancellation fees vary widely based on the type of establishment and location.
According to SevenRooms’ U.S. client data, the average restaurant cancellation fee is $56.
Now, let’s look at how that varies by city, based on SevenRooms’ clients’ Q4 2023 data:
Implementing and enforcing restaurant cancellation fees is a balancing act. But with clear communication and the right tools, you can keep guest satisfaction high and reduce cancellations.
While the goal is to reduce cancellations and no-shows, you also don’t want to risk turning off diners. Give guests a fair grace period where they can cancel without penalty.
For example, large parties can cancel their reservations at The Drake in Toronto, Ontario, up to 48 hours before the reservation. After that, they’ll be charged $50 per person. The restaurant uses SevenRooms’ booking widget to clearly display its policy to guests.
SevenRooms’ reservation software makes it easy for customers to reschedule restaurant reservations without staff intervention. Customers can update reservation details like time, date, party size and special requests using a link sent to their email or phone.
While there will always be guests who claim some sort of dog-ate-my-homework scenario, be prepared to waive fees in genuine emergencies or unforeseen circumstances. And ensure all staff uphold this policy.
A little empathy goes a long way toward maintaining guest loyalty — and keeping online reviews positive.
Encourage guests to call or email if these circumstances occur. This is also when CRM data comes in handy. SevenRooms’ CRM lets you create custom tags so you can mark guests as “frequent no-shows/cancellations.” This enables you to identify repeat offenders quickly.
Pull up guest history when they call. If an “emergency” has happened multiple times before, you might not grant the refund. If it’s their first time, consider letting it slide.
Negative language encourages a negative response. Instead of emphasizing penalties, which can turn off guests, explain how honoring reservations benefits the guest and restaurant.
For example:
The more places you highlight your cancellation policy, the better.
This includes:
Prominently displaying your cancellation policy in multiple spots is just the start. Having guests agree to your policy when booking a table will help protect you in cases where diners claim they didn’t know about the fee.
For example, Italian restaurant Jacuzzi uses SevenRooms’ booking widget to inform guests of its cancellation policy when they make reservations.
While its policy is clearly displayed, the restaurant doesn’t take any chances. Before guests can secure the reservation, they must click a checkbox that confirms they agree to the cancellation policy.
Leisure and retail destination The Island Quarter implemented SevenRooms’ restaurant management software to help reduce no-shows at its restaurants. The venue made $27,000 in prepaid revenue in six months after asking for credit card details for bookings and deposits for large groups.
Don’t let guests forget about their reservation — or your cancellation policy. Use email marketing automation and text reminders to keep these details fresh in guests’ minds.
SevenRooms’ Marketing Automation software lets you automate reminders, making this an effective way to reduce late cancellations without adding more to your team’s day.
Consider sending the following emails:
Cancellation policies can drive immediate results but tracking is vital to ensure you encourage fewer cancellations and no-shows — not fewer reservations.
SevenRooms’ reporting suite can help you determine the right shifts to implement a cancellation fee. Our software provides recommendations based on the days with the highest unmet demand (guests who can’t get reservations) to help you maximize revenue.
Cancellations are inevitable in the restaurant industry, but a fair policy can minimize them. Use restaurant reservation software to determine the right cancellation fee for your restaurant, automate email reminders and collect payment details.
Most importantly, track your policy’s performance to keep your restaurant bustling and your guests coming back for more.
Learn how SevenRooms’ integrated CRM, reservation software and marketing automation can help you create, enforce and analyze cancellation fees while maintaining a positive guest experience. Book a free demo today.
