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.

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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.

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