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The 8 Essentials of a Profitable Coupon Offer

The 8 Essentials of a Profitable Coupon Offer

By | 11.16.11
The 8 Essentials of a Profitable Coupon Offer

The 8 Essentials of a Profitable Coupon OfferLocal businesses are loco for discount coupons, thanks to a blizzard of  daily deals and other coupon websites.  Unfortunately, many business owners get burned by making ill-conceived offers, targeting the wrong customers or both. As coupon sites soar and thousands of local businesses join in, crafting an offer that makes your business more money in the long run is critical to your success. Some local businesses forget the key question: Will my offer make money or otherwise benefit my business?

In fact, about 1 in 3 business owners who have offered Groupons said they lost money, and 40 percent won’t do it again. Your goal should be to attract new customers who are likely to buy again at full price. When discount offers simply provide a way for existing customers to pay less, the result is reduced profits for your business – now and in the future because customers grow to expect discounts.

In most cases, coupon offers end up doing a little of both. Your task is to shape the offer to maximize profits. It helps to understand how a coupon offer can benefit your business. For one thing, it’s a way to lure the most price-sensitive customers by making different offers to different groups of people on the price-sensitivity scale. In order for your deal to succeed, the people you offer it to must be more price-sensitive than either your existing customers or your target market in general. These are customers who generally place a lower value on your product or service than regular customers do.

But attracting new customers isn’t the only benefit of offering coupons. Placing your offer on a high-profile site such as DexKnows also has promotional perks. Even if people don’t jump in now, they are learning that your business exists and has something they might want in the future. The impact is most pronounced if your business is new, hasn’t done much advertising, or generally has a low local profile. Here are eight profit-boosting tips for crafting an online coupon offer:

1. Know your marginal costs Deep discount offers work best for businesses with low marginal costs, where the price of producing an additional “unit” to sell, over and above fixed costs, is low.

2. Be patient Discount offers can hurt short-term profits but pay off later as new customers return and pay full price.

3. Block multiple purchases Research shows that profitability drops greatly when customers are allowed to purchase multiple coupons.  Disallow multiple purchases if possible (although there’s nothing to stop buyers from setting up multiple accounts to buy your coupons).

4. Gather purchase data If possible, find out whether customers who bought your discount coupons have purchased from you before at full price. You might start by asking them.  Remember that coupons can reactivate former customers who have forgotten about you or moved to a competitor.

5. Consider the pay-to-play fees Stiff pay-to-play fees charged by Groupon and others also curb profitability. Groupon takes up to half of the coupon price, although the fee drops to 10 percent if your offer only appears following user searches and not in Groupon’s daily email. Offer coupons when you don’t have to pay a fee.

6. Ask the customers Capture as much information about coupon customers as possible, including names and email addresses, and follow up with more offers.

7. Cross-sell and upsell Coupon customers might buy other full-price items as well. To facilitate this, be sure to offer them related items.

8. Analyze the results To see how your offer is performing, take advantage of any measuring and tracking services that may be offered.

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