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Calculating Your Digital Coupon ROI

Posted by Origins Ecommerce - September 10, 2015 in , ,

Financial promotions like coupons can be powerful tools to encourage price-sensitive users and leads to purchase or upgrade your product.

In fact, 86% of consumers say that a coupon can affect their decision to choose one brand over another, potentially giving you a critical advantage in the highly competitive digital marketplace. Accordingly, approximately 31 billion coupons are expected to be redeemed by 2019.

But while coupons can help you onboard more users, they are ultimately a cost for ecommerce merchants. So, how do you make sure that a coupon promotion is worth it for your business?

Weighing the Benefits and the Costs

Forrester surveyed more than 500 consumers that used digital coupons over a course of three months. 59% of those surveyed said that digital coupons influence their purchase decisions more than any other digital promotion. 36% of consumers from the study stated that they were likely to switch brands when offered digital coupons. This shows that coupons can be beneficial with attracting or upselling customers.


Calculating Return on Investment

Like regular ROI calculations, you must ensure that you’re making more money using digital coupons than without them. This means that the increase in revenue from new users must outweigh the losses from declines in average order value (AOV) and any other coupon-related cost.

  • ROI = (Gains – Costs)/ Costs

For coupons, gains are calculated as the overall increase in revenue from increased sales from your coupons. This can be tracked as either a comparison to what your sales were before you introduced a coupon promotion or you can perform a split test to see how well your product sells with a coupon and without it.

Subtracted from your revenue gains is the cost of the coupons themselves, including lower order value and any administrative setup costs. This is then divided by costs to give you a percentage return. A positive answer indicates a positive return while a negative number obviously means that you didn’t recover your investment in the coupon promotion.

For subscription merchants, coupons can be especially effective for getting users to try out your service. You then have more of an opportunity to make back your investment over time, as long as you can ensure users see the value that comes with your regular recurring price and they stay subscribed.


Coupons Need to Fit with Your Brand

Before you try boosting sales with coupons, you need to judge if digital coupons are a good fit for your product and brand and, if they are, where they would fit best in your purchase cycle. Coupons can have the unintended consequence of lowering the perceived value of your brand by making new customers accustomed to getting your product at a discount. This can mean you’ll have a harder time charging your regular price going forward if you’re trying to position yourself as a premium provider. In contrast, if you’re positioning yourself as a least-cost provider, coupons will be almost expected. This reiterates the importance of having a strategy that integrates coupons into your overall marketing plan.


Key Takeaway

Coupons can be a powerful tool to broaden your customer base and increase sales. Many customers clearly see them as a deciding factor when shopping online. So, if you can provide the right coupon at the right time to the right customer needing an extra push towards purchasing, you may be able to substantially increase your conversions and win more market share.

About the Author

Origins Ecommerce

We love sharing our expertise in online payments and helping our customers succeed. From the technical team to our customer service team, everyone at Origins Ecommerce is ready to support your success. Our goal is to reduce your expenses and risks while optimizing your revenue, by managing your online payments for you. The Origins Ecommerce payment solution is there to keep your payments in motion, so you don’t have to.
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