For the next part in the series I’m going to focus on another data from the Rice University Study by Utpal M. Dholakia. Titled “How Businesses Fare With Daily Deals: A Multi-Site Analysis of Groupon, LivingSocial, OpenTable, Travelzoo, and BuyWithMe Promotions” the study focus’ on the viability of the Daily Deal business model. That’s not super useful for business owners to know, as I’m sure they’re worried about their business’ viability! However, burried inside that study was a wealth of great data for someone wanting to know more about running a deal of their own. Part 2 then will focus on redemption.
So you’ve run your deal, and are wondering what’s going to happen now. According to the study 80% of the people on their way to you will be new to your business. The study confirmed what most of the business’ I work with see, and that’s what I tell them to expect. It said that around 1/5th of those who come to your business will become return customers. Average breakage (vouchers never redeemed) was reported as 22%. With an average spend of $64 I’m going to do a little math:
Daily deal blast email to 80k people
You sell 500 deals
Was a $50 for $25 offer
You pay 50% commission
Check = $6,250
Average spend was $64-$50 vouchers = $14 spent over and above the voucher
78% of people redeem for a total of = 390
Cash on first visit: 390*14 = $5,460
20% return (I assume spend the same): 390*.2 = 78 ppl return
78*64 = $4,992
Total revenue generated = $4,992 + $5,460 + $6,250 = $16,702
So for reaching 80,000 people your business is up almost $17,000. Now to send 30,000 direct mail peices might COST you $5k-$15k.
So +$17k vs -$5 to 15k. And that’s if you reach less than half as many people in less effective medium.
I think that this is a pretty compelling reason to suggest that daily deals are a significantly better value to a business that wants to promote themselves. Now from that $17k you will have costs. But only marginal costs, not total costs. The normal opperation of your business should not be interupted if you’ve read my post “How to run a deal and not to get screwed over.”
Most people right now only compare the daily deal vouchers to customers coming in on their own, and can’t stop thinking that they are loosing money. But the proper comparison should be with other forms of marketing. Don’t fall in the sales comparison trap!