Tips and Service Charges: Build Trust with Your Customers

As restaurant owner, you are undoubtedly passionate about providing an exceptional dining experience for your customers. This passion is evident in the quality of your food, the atmosphere you create, and the service you and your staff provide. To show appreciation for this service, it is not unreasonable to give your customers opportunities to show appreciation in the form of tips. And there are times when an additional service charge is also required. With both instances, transparency is key. Being upfront with your customers about these charges and explaining what they’re for, including who benefits from them, ensures trust and a more positive outcome for everyone.

First, let’s clarify the difference between tipping and service charges:

• Tipping: Tipping is a voluntary, direct payment made by customers to your staff for their service. Tips are typically left in cash or added to the bill and are at the discretion of the customer.
• Service Charges: Service charges are mandatory fees added to the bill which may or may not be distributed to your staff. These charges can be used to cover administrative costs, improve employee benefits, or given to your staff as wages or bonuses.

The Importance of Transparency

There are many reasons to be proactively transparent regarding tipping and service fees.

1. Customer Trust: When your customers understand where their money is going, they are more likely to feel confident about eating at your restaurant and coming back in the future.
2. Managing Expectations: 61% of patrons say they would try another restaurant if dining somewhere they felt had unacceptable fees.¹ When your customers know what to expect in terms of charges, they won’t be caught off guard when the bill arrives.
3. Fair Compensation: Transparency is also important for helping to fairly compensate your staff for their hard work and dedication to your customers. If you are giving service charges to your employees or use them for employee benefits, let your customers know.

How to Be Transparent

Your customers want to know your tipping and service charge policies, but what is the best way to share this information? Here are some suggestions:

• Display it on your menu. Include a section on your menu or website that explains your tipping policy and service charge details. If you redistribute service charges or use them for specific purposes, outline this for your customers.
• Train your staff. Make sure your staff is well-informed about your tipping and service charge policies so they are prepared to answer customer questions. 72% of Americans surveyed said the quality of the service they receive is what affects their decision to tip the most, so make sure your staff is also trained to provide great service.²
• Provide details on the bill: When presenting the bill, itemize the charges and clearly state what each one covers. If your service charge goes toward employee benefits, the itemized description could read “Service charge (10%): Supports employee benefits and fair wages.”
• Encourage customer feedback. Make it easy for your customers to share their thoughts and concerns about your tipping and service charge policies. Listen to their feedback and consider adjusting if necessary.

Being transparent about tipping and service charges provides the opportunity to build trust with your customers and create a fair, supportive environment for your staff. By clearly explaining the purpose of these charges and where the money goes, your customers will see your restaurant as a place that values honesty, fairness, and exceptional dining experiences, leading to a positive reputation and increased customer loyalty.

1Grande Consumer Omnibus Study, July 2022
2Forbes, October 2023