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Do Service Charges in Restaurants Make Sense?

There has been a trend of adding service charges in restaurants that directly charge the guest for business operations, such as rising food prices and increasing minimum wage. Should you be using service charges in your restaurant? Watch this video, or continue reading below, to hear my opinion and reasons for that opinion. 

There is a major change in the restaurant industry and it's the appearance of service charges in restaurants. In some cases it's in place of tips. I don't think that's really what's happening, though. In most cases where restaurants are adding services charges, they add the charge and then the customer still adds a tip.

Let's talk about why restaurants are doing this, what are the pros and cons? Why are you seeing service charges in restaurants?

The first reason is health insurance. The government passed legislation that mandated health insurance be provided to anyone who works for you full time, and it's an astronomical cost to business owners.

The second reason restaurant owners are adding service charges to their operations is a rising minimum wage. There is a $15 minimum wage sweeping the nation and if you haven't experienced it, it's not a matter of it but it's a matter of when.

The third reason you're seeing service charges in restaurants is rising food cost. Every time a food delivery comes to your restaurant, costs go up. A lot of restaurant owners are hesitant to raise menu prices so a service charge becomes the quick fix solution.

Especially with the minimum wage increase, I've seen these service charges in restaurants on the coasts, where these big changes have happened first.

The pros to the service charge include setting a kind of guaranteed amount of money for employees, allowing an employer to pay a little less.

The problem with this, or the con, is that employees stop caring. They don't have incentive to work hard and create a great experience for your guests.

When restaurant owners add a service charge, they are trying to shift blame from themselves and pointing people toward the "source" of the service charge, whether it's the local or federal government, the food distributor or some other outside force. Restaurant owners are afraid of raising their menu prices and so many default to this blame-shifting approach.

But is that the perception you want to put out there about your business? I believe in paying a fair wage, charging for your restaurant's value - the service and experience in your restaurant.

It's important to deliver on a great experience and take price out of the equation - exactly how customer service expert John DiJulius teaches (no affiliate benefit)  - so that your customers are paying for the value of the experience in your restaurant not necessarily the meal on the table.

Train your team, put out an incredible product and price it all appropriately. Do these things instead of a service charge.

If you would like to learn more about the importance of systems and how to run a restaurant, read our free special report, Is Your Food Distributor Screwing You? 5 Things You Can Do Now to Lower Food Cost. Download it here. Be sure to visit my YouTube channel for more helpful restaurant management video tips. 

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