The number one objection to buying a group deal is the extreme discount: If the merchant discounts by 50%, and then shares half the rest, they only make 25% as much revenue on the sale.
The ROI calculator helps merchants estimate the real value of the deal. Here what one looks like (please scroll down a few inches) with step-by-step instructions to walk the client through the process. A usaable calculator provided by Second Street is in the attachment at the bottom of this page.
Going line by line, fill in each blank by asking the merchant a series of questions:
1. Average spend per visit: What does the average customer spend when they come in your store/restuarant/theater? Include side items.
2.COGS%: How much does does it cost for that sale (without overhead)? For restaurants this is the cost of food, for ticket sales, it may even be zero.
3. Deal price: What is the price of the deal (after discount)?
4. Deal value: What would they have sold that item for with out the deal? 5. Advertiser share: That is the negotiated percentage they keep of teh deal
5.%Unredeemed: This is a guess on how many customers will buy, but not redeam, usually around 10 to 15%, so just fill in a percentage
6. %Customers repeat: What percentage of your customers come back? (The national average is 19% but varies widely by category and business).
7. # repeat visits. How many times does a customer typically come back?
8. Vouchers sold. This is your estimate of how many deals will sell. Be conservative.
So that’s the top part of the ROI Calculator. The bottom part shows the merchants profit and is broken in to three parts:
a Redemption profit - These are the customers who buy and redeem, and is simple the voucher sales plus and upsells (value of the voucher and average spend) from line one.
2. Non-redeemed profit - Since some buyers never redeem, this what the merchant gets from that one time transaction. Notice there are no upsells!
3. Repeat profit - This calculates the profit from customers who buy and come back, ie the average sale times number of returns.
So, the total profit per voucher is 15.69, and for all vouchers is $5491
Last line is also very importnat. That is where you can add-in the “additional promotional value” from the home page exposure, print ads/goggle/facebook/email campaigns.
Close the sale by pointing this out, “Look you are going to make in profit over $5000, plus you are going to get $20,000 in free promotions that you don’t have to spend a dime on."
Many thanks to Second Street Media for this explanation, you can find the calculator attached, or watch a video explanation here under "Making Deals Work for You. These tools are part of their client resource center.