March 27, 2018

What You Need To Know About Setting a Restaurant Cancellation Policy

Restaurateurs are familiar with a special kind of anxiety few others experience. Notoriously tight margins mean that even a single empty table could sink an otherwise profitable night. Reservations are supposed to give some semblance of stability and ease. So we are going to talk about a Restaurant Cancellation Policy.

Restaurant Cancellation policy money lost

However, the security of reservations is entirely dependent on the whims of patrons. A booked table isn’t seen as a real obligation, and is easily dismissed. Little do they know that they’re the 5th party to cancel and management’s starting to sweat.

To protect yourself while encouraging the best from customers, it’s important to periodically review your restaurant cancellation policy. Do you start charging fees for missed reservations? Is that even legal? Maybe you should stop taking reservations altogether?

It’s a complicated and sometimes counter-intuitive process, but we’ll help you through it step by step. We’ll discuss all your options and provide you with our version of the ‘ideal’ cancellation policy that you can modify to suit your needs.

Restaurant Cancellation policy for no shows

Should your restaurant issue cancellation fees?

Issuing fees to those who cancel is a popular first thought. It makes sense that charging the problem customers is the quickest, clear cut solution.

Be careful:  You’re entering some very dangerous territory.

Cancellations fees and customer satisfaction.

Firstly there’s what we’ll call the “Customer Factor.” This is how the customer feels about you, their continued loyalty, and the influence they have on their social circle. The Customer Factor can pop-up in surprising ways, so keep a keen eye.

For instance: did you know that patrons will nearly never cancel at a restaurant that is about to charge them? They will almost always simply not show up. Either way they’re charged so it’s all the same to them, but it robs you of the ability to try and fill that seat.

In the world of customer satisfaction “fee” is a dirty word. We have banking fees to blame for that. Fees feel greedy and petty. They feel inhuman, even when they’re arguably justified.

If you didn’t already come out looking like a bad guy, just wait until you inadvertently charge a fee to a patron with a legitimate excuse. The local news is just waiting for a father who was charged while attending his injured daughter’s hospital bed.

Whatever the case, the very existence of fees negatively impacts your Customer Factor. They never had a chance to eat your food, but instead end up with a bad taste in their mouth. Their whole social group now has second-hand negative experience with you.

Are restaurant cancellation fees legal?

What happens if you charge a fee and the customer disagrees with the action? Can they take you to court?

The answer is: maybe.

Unfortunately “maybe” is a common answer when it comes to law. Every case is contextual, and every region has its own variations. As a guideline: you’d have to establish that the customer has knowingly entered into a fair contract, and that both parties explicitly agreed to all parts of it. There are many factors involved, which leads to an important disclaimer: we are not lawyers, and this is not legal advice.

Another burden is proper security. If you’re taking a credit card number when a reservation is made, and you’re storing it until they cancel, you better be storing it somewhere secure.

This doesn’t just means that the technology you’re using should be secure, but also the people interacting with it should have received security awareness training. Major problems arise when your methods aren’t compliant to all your local privacy and security regulations.

Should your restaurant take reservation deposits?

What if instead of charging the customer AFTER a cancellation or no-show, you asked for that money up-front? When you charge to accept reservations (and then discount that price from the bill later) you’re taking a ‘deposit’ on the meal.

Restaurant Cancellation policy deposit

From your perspective this accomplishes exactly the same thing as a fee. The customer is more likely to fulfill the reservations, and if they don’t you’ve recouped some cost. From the customer’s perspective, a reservation deposit is leaps and bounds better than a fee.

Reservation deposits and customer satisfaction.

A deposit doesn’t have the same negative perceptions as a ‘fee’. Deposits are everywhere, and they don’t make you look like a pedantic business greedy for money. If the customer decides to cancel, they feel like it was their decision. They consciously let the money go, rather than it being taken from them later.

The customer also sees their reservation as an investment they bought in to,  making them the group most likely to honor bookings.

On the negative side: requiring a deposit to make a reservation is adding a barrier to entry. Although these folks are less likely to cancel, you’re going to receive less of them overall.

Are reservation deposits legal?

Deposits are less messy than fees. A customer giving you money to reserve a spot is as clear cut as it gets; they undoubtedly agreed to the terms of the deposit.

They won’t cancel their credit cards or dispute charges or force legal action (probably), because they’ve already paid. So long as you’ve clearly communicated that you keep the deposit if they cancel, you’re in the clear. This is a great point to reiterate that we are not lawyers, and this is not legal advice. If you have legal questions, you should ask a lawyer.

If the customer does ask for their deposit back, we recommend refunding it regardless of written policy. Most won’t ask, but the few that do will exclaim about your amazing, hassle-free customer service.

Should your restaurant not accept reservations?

Completely eliminating reservations sounds completely fair, it’s undoubtedly legal, and it’s easy logistically. It also happens to be the worst idea so far.

The first-come-first-serve model comes with unpredictability. Sometimes a customer waits for 30 seconds, and sometimes it’s 30 minutes or more. A single long wait while hungry is excruciating. Don’t be surprised if they write you off as a future option.

The patrons willing to spend the most money are looking for an escape. They’re paying the babysitter by-the-hour. They’re on tight schedules and will do anything to avoid sitting around waiting.

If you’re contemplating this, just take a deposit instead. It’s effectively the same but has none of the drawbacks.

Deposit Cancellation Policy Resevations

Our advice for creating a reservation/cancellation policy.

  1. A “no reservation“ policy leads to bad customer experience.
  2. If you need more seats filled, you’ll want to remove as many barriers as possible. Wait until cancellations become common before you enforce any paid reservation systems.
  3. When cancellations become a bigger problem than reservation shortages, we recommend implementing deposits to ensure customer commitment.
  4. After-the-fact fees bring more negatives than positives. and aren’t worth the headache. If you do charge a cancellation fee, we suggest refunding it upon first request.
  5. We didn’t go over this in detail above, but you should be proactive about contacting your customers!

 Deposit Cancellation Policy example

Example Policy

We’ve created a fill-in-the-blank example of a reservation and cancellation policy. This is only a suggestion, so feel free to modify this as you please to suit your needs.

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Our continued excellence relies on the bookings and reservations of customers like you.

By knowing exactly how many people to expect we can ensure proper staff, space, and accommodations.

To this end: we ask for all reservations to be accompanied by a deposit in the amount of [DEPOSIT AMOUNT] per person.

This deposit will be discounted from your table’s bill at the end of your meal.

If you cancel your reservation with [CANCELLATION TIMEFRAME] notice, you will be refunded in the full amount of your deposit.

However if your party shows up over [LATE TIMEFRAME] late, we can not guarantee your seat or a return of the deposit.

When possible, we will actively confirm your booking within [CANCELLATION TIMEFRAME].

We are sincerely excited to serve you.