Social Coupon Calculator
About Dr. V. Kumar
Dr. V Kumar, or VK as he is more popularly known in the academic and professional circles, is the Richard and Susan Lenny Distinguished Chair Professor in Marketing, the Executive Director of the Center for Excellence in Brand and Customer Management...
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Revenue earned by the business per customer
This amount refers to the average check/order amount paid by each customer during their visit to the store. This information can be obtained from internal records of the business.
Margin earned by the business, after accounting for the costs
This refers to the profit the store makes on every customer, after accounting for all the variable costs. This information can be obtained from internal records of the business.
Total number of customers visiting the business per month
This refers to the number of customer visits that the business receives every month (before launching the social coupon). This information can be obtained from internal records of the business.
Percentage of existing customers that have received and used the coupon
It is possible that the social coupon about to be launched will also be used by the existing customers of the business. This variable refers to the percentage of existing customer that is likely to use the social coupon. This is an assessment/estimate made by the business.
Number of new customers visiting the business due to the coupon launch
This refers to the number of new customers that is likely to visit the business because of the coupon launch. These customers have not visited the store before and are here only because of the coupon. This is an assessment/estimate made by the business.
Share of revenue received by the website running the coupon
This refers to the share/percentage of revenue that the business has to give to the social coupon service provider in return for displaying the coupon in its website. This share is mutually agreed by the business & the social coupon service provider. Typically, the market rate is around 50%.
Rate of discount offered through coupon
This refers to the discount received by the customer on the regular customer fare, as advertised on the coupon. This information is usually decided by the business.
Retention rate of the new customers for the first three months
This refers to the rate/proportion of new customers that the business expects to retain in the months following the coupon launch. This information is an assessment/estimate made by the business. Please note that from the fifth month onward, the retention rate will be the 100% of the fourth month or the same number of customers as of month four.
About the Calculator
Social coupons are becoming increasingly popular among consumers with many businesses from various industries launching social coupon campaigns to ensure increased customer visits. But do the popularity and the subsequent increased customer visits always transpire into profits for the businesses? The answer to this critical question would help managers decide if they should issue social coupons or not. In our efforts to answer this question, we have developed this calculator so that managers can benefit from it. Before launching a social coupon campaign managers can use this calculator to determine whether the campaign is going to result in a profit/loss and in the case of a loss, how soon can they recuperate the loss.
How Does it Work?
This calculator is based on an analytical model on social coupons we developed for our research paper titled "Social Coupons as a Marketing Strategy: A Multifaceted Perspective" that was published in the Journal of the Academy of Marketing Sciences. The logic behind the model and this calculator is as follows:
- Step I - Compute the monthly net profit of the business before the coupon launch.
- Step II - Compute the net profit earned by the business the month after the coupon launch. This will include (a) net profit from new customers that used the coupons, (b) net profit from existing customers that used the coupon, (c) net profit from existing customers that did not use the coupon, and (d) share of revenue to be given to the social coupon website. In most cases, this will be a net loss given the steep discounts and the revenue share to be given to the social coupon service provider.
- Step III - Compute the difference between Step I and Step II. If Step II results in a net loss, this amount would denote the shortfall in profits between the two months. In other words, this is the net profit that the business has fallen short of (compared to a normal month) as a result of the coupon launch. Consequently, this is also the amount that the business would expect to recuperate. Ideally, businesses would want to recover this amount from the business generated by the new customers alone, and not the existing customers also. This is because, the coupon was launched to bring in new customers in the first place and would only be right for the business to make up for the loss incurred in bringing the new customers aboard.
What Do the Results Indicate?
The calculator gives three pieces of results. They are:
- The shortfall in profits due to the coupon launch. For the purposes of calculating the Return on Investment (ROI) of the social coupon campaign, this amount can also be considered as an "initial investment" for the campaign.
- The time taken by the business (in months) to recover the shortfall in profits through the business generated only from the new customers who joined because of the coupon launch. The business generated by the new customers also includes their retention rate with the business. This time period can be compared with the initial investment to ascertain the efficacy of the campaign.
- The monthly net profits contributed by the new customers after accounting for their retention rate with the business. Along with this amount, the calculator also gives the percentage of loss recovered in that month when compared to the total profit shortfall soon after the coupon launch.