Additional service fees risk turning off customers, and employees

Technomic's Take: Operators have been adding new fees to bills to offset various costs. But there are risks in doing so.
restaurant service fees
Operators run the risk of losing both customers and employees by adding new fees. / Photograph: Shutterstock.

Technomic's Take

“Is this a tip? Are we supposed to tip on top of this?”  I overheard this familiar refrain coming from the table next to me as the couple tried to figure out how much, if anything, to write on the gratuity line.

With a 20% “service fee” automatically added to the bill, the confusion was easily understandable. Just seconds earlier I was having the same conversation at my table and decided to wait and see what the couple next to me did before I made a move. They ultimately concluded that the service fee was indeed a tip, jotted down a $0 and quickly left before the server returned, probably feeling a bit uneasy about going against the social norms of tipping.

Was this “service fee” actually a tip? Was the uncomfortable mixture of guilt and embarrassment I was feeling unnecessary? It was hard to know because the description of the fee on the menu was intentionally vague. What I do know is that I complained about this experience on my entire thirty-minute walk home (and am now writing about it eight months later), and I imagine many other guests did the same. This is not the lasting impression a restaurant wants to leave on their guests.

However, as operators are looking for creative ways to absorb increased costs including for labor, some have understandably turned to add fees to the bill. Small fees of around 3% may be palatable to some consumers if it’s clear what the fee is used towards, for others it can leave a negative impression.

 According to a recent Technomic survey, consumers are most willing to pay a 3% fee when labeled as a service fee or a credit card adjustment fee. However, 34% of consumers say they’d tip less if a 3% service fee was added to the bill, which means that an operator risks losing customers by adding a fee and front-of-house employees as well. Transparency is key when it comes to adding fees. Customers need to know what they’re paying for, and employees need to understand the fee structure for themselves and be empowered to explain the fees to guests.

Upping the service fee to 20% is a risky endeavor from both a customer and labor angle. Technomic asked consumers how they’d feel about a 20% service fee being added to their bill at a full-service restaurant. Half of consumers said they would be less likely to return to the restaurant, and 41% say they’d be less likely to recommend it to family and friends.

Did I tip that night I was faced with the 20% service fee? Like the 40% of consumers in our survey, I did not. Nor have I returned to the restaurant. The food was great, or was it? I only remember the bill.

For more information, please reach out to Technomic at info@technomic.com or technomic.com. Technomic is a sister company of Restaurant Business. 

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