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.

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