How to Measure the ROI of Discount Coupons?
Was the coupon promotion a success? This is a single most difficult question any marketer has to answer. As brands are searching for a reliable way to measure their campaigns' success, marketers are looking for tested frameworks and tools that help them track and attribute sales to specific marketing campaigns.
In this guide, you will learn:
- How to calculate return on investment (ROI) from coupons?
- Which metrics are important to measure in discount marketing?
- How to efficiently test different discount variations?
- How to build coupon ROI measuring infrastructure?
- How coupon software helps you deal with those tasks?
Key metrics – break-even, ROI and redemption rates
Before we talk about measuring effectiveness, we should stop at some basic measurement criteria. Let's start with refreshing the definition of some metrics that are important calculating the effectiveness of coupon promotions.
What is a break-even point?
The break-even point (BEP) is a situation in which the project does not generate profit or cause losses. At this point, the revenues are equal to the total costs, and the financial result is zero. In other words, all you have spent to produce or deliver the service is covered by the money you made on it, including all the discounts you gave with coupons.
The following formula is used to calculate the profitability of a promotional campaign:
Total costs / Product margin
What is redemption rate?
In the context of promo campaigns, redemption is the act of exchanging an incentive (promo code, gift card, referral code, loyalty points) for a discount or a product.
Redemption rate, as you may expect, is a ratio of people that actually used the promo code. You can calculate it with this simple formula:
Number of redeemed coupons / Number of published coupons x 100.
What is ROI?
Having covered the initial two metrics, we've reached a crucial point in coupon processing – calculating the return on investment (ROI) of your coupon campaigns. It is one of the most frequently used profitability metrics. It shows you the effectiveness of your marketing campaign.
In general, ROI calculation allows brands to calculate the overall cost and profit of a given marketing campaign. Most brands calculate the ROI of promo codes by using the following formula:
Total revenue attributes to the coupon campaign - Total costs / All costs related to running the campaign
Let's face it, you can't build advanced coupon campaigns without measuring the contribution that a given promotion has on your revenue and profits. Why? Because not all deals will work for your business.
The challenge of coupon ROI calculation
It's no small task to compare the myriad of different coupon types and features. If you want to scale your coupon offerings, you have to make sure your marketers put more time and resources into what's working and improve the tactics that aren't delivering real value.
The good news is that coupon performance can be quantified provided that you employ the right infrastructure. Voucherify is a coupon infrastructure delivered through API that provides a quicker way to generate promo codes, distribute them via 3rd-party tools, and track their success rate. All that with a user-friendly interface for creating and managing coupon campaigns.
How to measure coupon redemptions?
Let's start off with an easy one. You want to push out a public, fixed-code code to promote your brand. Something that can be shared on Groupon or ad banners. With Voucherify, you can build the following coupon types:
- Amount (e.g. $10 off)
- Percentage (e.g. 20% off)
- Unit (e.g. 2 free piano classes)
- Free shipping
- Fixed amount
- Dynamic discounts
Once the digital coupon code is created, the tracking is super simple. In this case, you just monitor the number of redemptions. A good coupon software should not only track successful redemptions, but also monitor any failures or fraud attempts so that you can quickly respond and fix issues.
So, now there's nothing blocking you from launching the next campaigns with different discounts to see how they convert. If you've achieved your goal or you noticed that the code is being misused, you can disable it with a single click and any further redemption attempts will fail.
And that's how you can perform your first coupon A/B tests while keeping campaigns under control. All of this is at your fingertips in a simple user interface and no developer has to be involved.
How to test discount limits?
Now that we have a basic coupon campaign designed, let's start testing various promotion scenarios. Supposing your campaign isn't performing well, what can we do to increase the coupon redemption rates and as result boost the campaign return on investment?
One of the most common tricks to push customers to quicker redemptions is to put a limit on your coupon code. With Voucherify, you can achieve this in several ways:
- Limiting the number of redemptions.
- Setting the expiry date.
- Defining recurring time periods when codes are active.
- Making coupons active only on particular days of the week.
- Devaluing coupon codes as time passes.
The campaign manager gives you an easy way to set a timeframe for when the digital coupon is valid. You can also limit the maximum number of redemptions to help create a sense of urgency. This also comes in handy when you want to set the maximum number of redemptions, so your business is safe when a campaign becomes unexpectedly popular.
Now, you can seamlessly introduce another factor to your coupon experiments and incentivize customers with promotions like “Promo today only!” or “Get one before September ends”.
Learn more: What are the best discount limits to use?
Where to monitor the coupon campaign ROI?
To calculate the effectiveness of each campaign you need to be equipped with respective stats and metrics. Different expiration dates or discount types may distinguish promotions that work and don't. In the Voucherify dashboard, you can see each campaign with its details and current metrics updated in real-time.
Moreover, a general campaigns view enables you to calculate and compare which campaign performs better in terms of redemption rates and overall ROI.
What are the best marketing channels for coupons?
Alright, so now we've built a fairly complex engine to monitor coupon campaigns. But here comes another nice thing about it; with no extra effort, you can prove that all of your marketing channels deliver a return on investment. The idea is straightforward: assign different coupons to separate channels. Voucherify will help you organize coupon codes into categories so you can filter them quickly.
Do you want to explore coupon revenue attribution in-depth? That's possible too; just let your software developers know what data you want to collect and they can feed Voucherify with details when the redemption is made. With our rich software libraries, it's a 15-minute job and, in the end, you'll be able to see the information right in the platform.
So far, you've hopefully learned how to run digital coupon campaigns with a data-driven approach in mind. In an ideal world, this should be enough to calculate the ROI of coupons and to figure out what discount types yield the best results.
Unfortunately, it's often the case that some redemptions are fraudulent or can simply be made by mistake. This will distort your numbers and can ultimately lead to inaccurate conclusions.
To overcome this, Voucherify comes with rollback functionality, allowing you to revert any redemption. You can also easily integrate it with your e-commerce system so, whenever an order is canceled the coupon rollback happens automatically.
Coupon campaigns can be a great booster for your sales, customer acquisition, and user engagement as long as they bring a profit. Conversion rate calculation is an important thing, but a very challenging one, especially if you don't have accurate data.
Redemption tracking and measuring coupon ROI would be a real headache without the right infrastructure in place. Voucherify helps you build an infrastructure much faster than if your developers had to do it from scratch. This means you can launch coupon campaigns and verify their effectiveness in no time at all.
Coupon system is a great tool that supports you with all the phases related to launching a campaign, but also in collecting the data and building insightful reports. As your business continues to grow, you will soon be faced with a far-reaching choice – should I build or buy a coupon system? Finding the right answer to this dilemma can effectively make or break your company's growth.
Increase your coupon campaign ROI with Voucherify