Groupon, Google Offers, Living Social, My Daily Deals, Moolala and a host of other social discount sites are taking the web and lives by storm. As a consumer, I love get 50% off my deals, hate the constant emails and really hate when I can’t redeem a coupon. However, as a marketer and a ROI champion – I have to dig in and evaluate each couponing scenario separately for every client and offer.
The question on if a client should do a Groupon or a Google Offer (or any of the others) is not easily answered without first doing some quick math. Take for example a restaurant that wants to offer a $50 dinner for 2 for $25.
Offer: 50% off Dinner for 2 ($50 value)
Scenario 1 – 50/50 Split
- Client: Revenue per coupon= $12.50 (the other $12.50 goes to the coupon provider)
- Assuming 10,000 coupons, that’s $125,000 and if the cost per sale is $25 – they lose $125,000 just on cost of supplies/dinners alone.
- This scenario assumes a 50% margin on the sale
Scenario 2 – 40/60 Split
- Client: Revenue per coupon= $15.00
- Assuming 10,000 coupons, that’s $150,000 and if the cost per sale is $25 – they lose $100,000 just on cost of supplies/dinners alone.
Scenario 3 – 30/70 Split
- Client: Revenue per coupon= $17.50
- Assuming 10,000 coupons, that’s $175,000 and if the cost per sale is $25 – they lose $75,000 just on cost of supplies/dinners alone.
With pure numbers – the offer doesn’t look great. Most restaurants are hoping to get the consumer to repeat their visit or up-sell with additional meals/drinks. And there is additional value to having a packed house (unless the staff is so over worked that complaints/service issues ensue). Bottom line – using this coupon method – you have to be sure that your revenue per sale is greater then a 75% margin. Why 75%? – well, first off – to get into one of these you have to offer 50% off your product. Then – the coupon providers may take up to 50% of the coupon sale as a percentage. Leaving you with 25% of the original value.
The longer formula for getting to this conclusion is as follows (and this can be used for online coupons through CouponsInc as well):
Net Coupon Profit/Cost=((((coupon value*(# of prints * redemption rate))*margin)-((hard costs+((# of prints * cost per print)*print rate))+((# of prints * redemption rate) * redemption costs))
- Prints = Actual number of coupons issued from offer
- Cost Per Print = any print fees (typical with online coupons)
- Print rate = % of coupons expected to be printed/issued
- Redemption cost = Your cost per sale
- Redemption Rate = % of coupons redeemed or expected to be redeemed
- Coupon Value = Your share of the coupon sale
Other items to consider:
66% of Groupon deals are profitable for the seller, and 40% of businesses would not use Groupon again, according to a Rice University study. Restaurants tend to do the worst and spas tend to do the best.
Note also that the Groupon Promise lets any consumer get a refund, no questions asked. Source: Groupon Blog
And to dispel the other number pulled out of thin air, Groupon’s self-reported rate of repeat business after the voucher is 22%. Source: WSJ
Coupons are great – but they need to be great for your business – otherwise they can turn out to be nothing but a headache and you will become one of the 40% of businesses that don’t use coupons/social offers again.