How to Calculate the Real Value of Coupon
Deals Hello, it’s Ken Burgin here from Profitable
Hospitality talking about how to calculate the value of coupon deals. So, let’s —– around. A group on a living
social, and lots and lots of others, many companies getting on the bandwagon with this,
and are very popular with customers and these very strong opinions on them by people in
the restaurant hospitality industry. They devalue your brand, or they’re a great way
to kick start a business, a great way to get your customers to discover you. Okay, I’m not going to the argument on one
side or the other on this spreadsheet. I just want to do some calculations. So, what I got
to set up here is figures on the left hand side here to look at the value of the coupon
deal and a comparison on the right hand side for the regular price. So, we’ve got 100 customers set up as a,
presuming that we sell the deal for 100 customers and we compare that with 100 regular customers.
So let’s say a deal was for $60 special menu combination. It seems like the best deal
are one’s with a combination. Maybe a starter, main course, dessert put together. Now your
coupon discount usually for it to really look attractive will often be something like 50%,
and so we put that in. So, that’s taking $30 off giving you a net coupon price to sale
of $30. Now, from that $30, the organizers of the coupon deal are going to be taking
a percentage. In this case, I’ve got that on the left side with 1/3 or 33%. So they’re
gonna be taking $9.90, giving you a net price to you of $20.10. Now what’s it’s cost for you to put on
the plate and in the glass? Let’s say your food and beverage costs 28% now. Just talking
cost of goods here, we’re not talking about liable cost. We’ll discuss label a little
later. So, let’s say it’s 28%, now remember that 28% is based on the normal price $60
of how you would normally serve up that food and beverage. So, 28% of $16.80, so that’s
giving you a gross profit in this case of $3.30. So, $3.30 is your final gross profit,
times 100, that gives you $330. On the right hand side you can see we’ve
done a calculation. Of course there’s none of this discount having to be poured out of
the $60. The original $60 price is also your net price. We apply that food and beverage
cost percentage against at $16.80 and a gross profit $43.20. So 100 of those is $4,300.
Extraordinarily different amount. Almost $4000 more than the coupon deal. Now, before we look at some of the other benefits
from a coupon, let’s just adjust some of these percentages and see what that might
do. Let’s leave the coupon percentage of 50%. But let’s say coupon organizer wants
40%. In that case, that’s gonna cut into gross profit that brings it right down to
$1.20. And sometimes they ask for 50%. Again negotiate here, that, you know, different
groups are open to negotiations. If it was 50% that they will take as a commission, you
can see that you’re actually loosing a small amount of money on each deal. Not very much
overall but that certainly makes a difference. Let’s take that back to 40%. And let’s
look at your food and beverage cost. Now putting it together a deal like this which might be
starter, main course, dessert. Of a certainly lots of opportunities to have a, keep your
low, your cost down there. Let’s say it’s, we’ve said 28% to start with, but what if
it was actually 30% for your food and beverage cost. In that case, you can see we’re wiping
out some of the tiny minor profit that we had there. Maybe your cost a little higher
than that and again there’s a bit of loss happening there. Let’s leave that at 30%,
and you can see those figures apply on the calculation on the right there as well. But
let’s look at the, some of the other considerations that people say, —- the very slim amount
of money you make on the actual coupon. So, one of those considerations is how many
people don’t actually claim it? And figures have been quite a lot since several sources
looking in something in the order of 20%. So, if that’s the case, that 20 people who
aren’t going to be making, turning up to claim their meal and a deal, so 20%, that’s
1/5, that’s 20 people. Remember the net price that we’re getting is $18. So, that
20 times $18, that’s $360. Maybe that’s possible. I don’t think that’s the reason
to go for a deal in itself. Ken, is it possible to upsell these people
to order something more? A lot of the deals look pretty complete to me when I see them
but possibly that’s the case. What if you can upsell and buy 10%? So, remember we’re
saying that the coupon price is $30 so, and we got 100 people, that’s $3,000 of sales
and an upsell of 10% would be $300. It’s a small amount of money. Does it apply in
your situation? You can decide. What about extra staff cost, a lot of coupon
deals, the deals can be reclaimed over a month or two or three or more. So it will probably
not gonna hit you all at one time. When you would need to have extra staff expenses, but
again you can consider that. Now, these figures in blue down the bottom here is often argued
as the real value of the coupon deal. It’s introducing new people to you who have not
discovered your restaurant or your venue before. So, we could say that we don’t really make
any money on their visit but how many of those people again are gonna return? Again a couple
of different studies that I’ve seen suggesting about 1 in 5 or 20% of people actually come
back. So, let’s say 20% of 100 people, that’s 20 people are gonna return. How often and
what are they gonna spend? Well I’ve said here, let’s assume they’re
gonna come back to us, and every spend will of course be that $60 per head, which is that
figure at the top there, where I’m clicking now. So, 20 people are coming back spending
$120 each. There’s a value there of $2,400. Remember that’s the sales figure not the
gross profit figure. The question you got to ask yourself is are you setup and ready
to capture the details and put them into your database or your —– screen, your e-mail
list, whatever it is. And you can decide whether those people are likely to come back once
or twice or three times, or whatever. Ok, so these are some quick calculations to
help you decide on the value coupons. I hear some people who write about them. I hear a
lot of people who are very weary of them. But if you want to download this calculator
and use it for your own, to put your own situation, it’s in the download section of ProfitableHospitable.com. I’m Ken Burgin. Thanks for listening in
and we’ll see you at the next presentation.