Coupon advertising isn’t just a way to appease the deal hunters in your life. It’s an essential way to draw in new customers. In this guide, we’re going to explain everything you need to know to start distributing coupons, including:
- Setting your Goal
- Choosing your Coupon Value
- Writing Your Coupon
- Distributing Your Coupon
- Estimating Costs & Results
Throughout this article, two coupon experts will be providing insight: Jeremy Levi, who has launched many successful coupon campaigns at MarsMedSupply.com and Mike Catania, who has overseen thousands of coupons posted on PromotionCode.org.
Before we dive into the details on this topic, we suggest you check out Square, a free POS system that can manage inventory, process credit cards, and track sales by item. Visit Square to learn more.
What is Your Goal?
If you want to advertise your business with coupons, the first step is to think about your goal. Are you trying to attract new customers, or retain existing customers? Unlike a sale, where products are marked down for everyone, coupons allow you to be more specific. You can target specific customers, products, events, competitors, and so on.
Here’s some of the most common goals of coupon advertising:
- To acquire more customers – Use an attractive offer to get new customers through your door, or to your website. This is one of the biggest reasons businesses use coupons, although it requires the most caution. As we’ll explain more below, you risk attracting deal seekers with no intention of becoming regular customers AND you risk losing money from existing customers.
- To get existing customers to buy more – Offering occasional discounts can encourage your existing customers to keep coming back. One benefit is that existing customers can often be motivated by smaller discounts than a brand new customer.
- Target specific customers – To boost sales, you might target a specific customer, product or event. Examples include hairstyling coupons for prom night or entertainment centers for the Super Bowl.
- To stay competitive – Sometimes coupon advertising is simply obligatory. ECommerce businesses may need coupons to stay competitive with Amazon. For businesses like pizza shops, customers may simply expect to find coupons in the local paper or deal booklet.
When it comes to setting their goal, many businesses have more than one motivation. In fact, it’s ill-advised to pick the first goal (acquire new customers) without applying the 2nd one as well (get existing customers to buy more).
This is because coupons tend to attract “deal seekers” who just want a one-time discount. To convert them into loyal customers, you need offer follow up discounts: Big enough to encourage retention, as our coupon experts advised, but small enough so you’re not losing out on subsequent orders.
How To Set a Coupon Value
“A 10% discount gets looked at, 15% sounds good, 20% and up will get people to stop what they’re doing and open your email.”
This advice comes from Jeremy Levi – a marketing expert who’s run many successful coupon campaigns with MarsMedSupply.com.
While 20% is a good starting point, the ideal coupon discount for your business will depend on a few factors. In particular, what is your typical profit margin? And what are your competitors offering? With this information, you can find a balance between attractiveness and profitability – an offer that motivates customers, but won’t put you too far in the red.
To get an idea what competitors are offering, we recommend using LocalSaver’s free industry comparison tool. When you sign up for a free account and enter your business category, LocalSaver will immediately recommend 3 coupon offers. These deals based on what’s popular among similar businesses in their network.
First-Time vs. Loyalty Coupons
Third and Subsequent Coupons
Break even on purchase
Earn a small profit on purchase
Earn a decent profit on purchases
Another factor to consider is whether you’re targeting new or existing customers. To attract new customers, you typically need a larger discount. As a simple rule of thumb, Mike Catania recommends breaking even. In other words, if you buy the product for $30 and sell it for $40, offer a $10 discount.
If a customer uses your coupon to make a purchase, you should follow it up shortly after with another deal. Either hand them a 2nd coupon in the store, or email it to them a few days after their purchase. As Jeremy Levi explained, the 2nd deal is incredibly important, arguably more than the first. The 2nd purchase can cement their loyalty, or, if they skip, pass them off as another one-time buyer.
If there’s one key danger to coupon marketing, it’s that customers can grow dependent on deals. If their first two purchases involved coupons, they may expect discounts on all future purchases they make. If you’re an eCommerce store, for example, customers will likely be searching “coupon codes” when they reach the checkout page.
According to Jeremy Levi, this isn’t necessarily a bad problem to have. Coupons act as a continuous marketing stream for existing customers. Even small offers, like 5% off certain items, can motivate them. It helps ensure they keep choosing your business over the competitors.
If you’re a new business, or an existing business that’s sourcing new items, Jeremy recommends building discounts into your pricing structure. Expect a certain percentage of your customers to apply 5 or 10% off discounts. This will allow you to continue offering deals without losing out too much in the long run.
Store-Wide vs. Specific Product
A store-wide coupon will almost always perform better than a discount on a particular item. This is because it’s rare, if not impossible, to find an item that will appeal to every potential shopper.
There are some situations, however, where specific product discounts can be beneficial. Here are some examples:
- Personalized Marketing. Jeremy Levi told us about one particularly succesfull coupon campaign at MarsMedSupply.com: New customers were offered a discount on a belt that treats back pain. If they made the purchase, a follow up email offered coupons for more products that treat back pain.
Because the first product signaled the customers niche, Levi could follow it up with a personalized message about treating back pain. Being highly relevant to the audience, and because additional discounts were offered, this resulted in a high retention rate for MarsMedSupply.
- Clearance Items. Clearing out stock in your backroom? Before you put that item on sale, consider offering the discount as a coupon. A sale will get it off your shelf, but a coupon could potentially bring in new customers.
How to Write a Coupon
Writing the coupon itself is a very simple process. Whether your coupon will be printed, emailed or distributed to online, the coupon should contain 4 parts:
Here’s how you should write each part:
Your title should be short and simple. Mike Catania recommends using two words: “[Your Discount] OFF.” For example, “$10 OFF” or “25% OFF.”
You should use this formula whether your discount is store-wide or for a particular product. The body is the place to explain what exactly the discount is for, as well as other terms and conditions. The title, on the other hand, should be kept as simple.
Why so short? Whether customers find your coupon in the mailbox, email inbox, or on a coupon website, they’re likely shuffling through a lot of other offers. You need to write your coupon in a way that makes it stand out. Titles like “Check out our exclusive offers” or, “Save loads on lawn care” may seem like a good option. But without specific numbers, customers are more likely to gloss over it.
This is where you explain exactly what customers get by redeeming the coupon. Like the title, keep it as simple and straightforward as possible. “Save 20% on all products store-wide.” Or “Save $5 when you spend $50 or more.”
Terms & Conditions
If there’s any exclusions that apply to your coupon, this is the “fine print” where you mention them. Common terms are “Offer valid for US customers only” or “Limit 1 per customer” or “Not valid with any other offers.”
Besides the title, the expiration date may be the most important part of your coupon. Neglecting to include one can get you into a heap of trouble. Likewise, not displaying it clear enough can result in a lot of angry customers.
An average expiration date for print coupons is around 7 weeks, or just under 2 months, according to Coupons In The News. For digital coupons, the deadline may be much shorter: 1 to 2 weeks, or even a couple days.
How to Distribute Your Coupon
The best way to distribute your coupon is going to depend a lot on the type of business you run. An eCommerce store will obviously focus more on online coupons. A brick and mortar business should also consider online coupons, but on more specific local websites like Coupons.com and LocalSaver.
Both types of businesses should consider print coupons sent through the mail, although this will be a bigger priority for brick and mortar businesses. Finally, both businesses should consider distributing coupons through their email marketing campaigns.
Online Coupons: RetailMeNot.com. There’s a lot of different ways to distribute coupons online, and the options vary widely in cost. On one end of the spectrum, there’s free coupon hosting sites like RetailMeNot. You can post your coupons for free, although they’re unlikely to be viewed by anybody who isn’t already an existing customer. Nonetheless, RetailMeNot is a good way to share loyalty coupons, especially for eCommerce businesses (which is their focus).
Online Coupons: LocalSaver. Another option is to distribute coupons to Coupons.com and other local coupon websites. This is a better option for brick and mortar businesses, since searches are narrowed by zip code. Your business can acquire new customers from users who are browsing local deals.
A downside to local coupon websites is that you typically can’t post deals for free. With LocalSaver, however, you can get your coupons on Coupons.com, Yowza, The Yellow Pages App and 10 more websites for just $9.99/month.
Email Marketing. Whether you’re a web-based or brick & mortar business, offering loyalty coupons is an essential way to keep customers coming back. If you already have a mailing list, then congrats – you have perfect medium for sending follow up coupons. Email-based coupons allow you to send more personalized offers based on what other purchases a customer has made. You also get the advantage of privacy, since email-based deals (hopefully) won’t be available to the public at large.
Sending A Postcard. Let’s say you have pet store and want to send a 5,000 local dog owners a coupon for dog food. Using VistaPrint, you can have full-color postcards printed, addressed and mailed for about $2,000. For an additional $300 – $500, you can also “rent” a mailing list. VistaPrint gives you tools to create a mailing list of potential customers in your area. You can narrow down by location, age, and other factors, like dog ownership. For more about this option, check out our guide Best Direct Mail Service: VistaPrint vs. PSPrint vs. EDDM.
Co-Op Advertising. There are less expensive ways to send a coupon in the mail, if you’re willing to have your coupon be sent as part of a package of coupons. For example Valpak, one of the oldest names in co-op advertising will enable you to send your coupon out to around 10,000 homes in a targeted geographic region for approximately $400. In this case both dog owner and non-dog owners will get the coupon and your coupon will not stand out like it would for a postcard, but it is 1/10th the cost for twice the number homes. Here is a good article on small business advertising with Valpak from Liz Magill.
How Much Does Coupon Advertising Cost?
From the examples above, you can see that coupon advertising ranges from free to several thousand dollars (for postcard mailing). This is not the only factor that should be considered, however, when determining how much coupon advertising costs. You also have to add the cost of the discount itself, the revenue you’ll gain from new customers, plus the revenue you’ll lose from existing customers who find the coupon.
The Costs of Generating New Business
The following coupon calculator will help you determine how much it costs to bring in new customers from coupon advertising:
Here’s how the calculator works:
[(A) + ( C) + (D) – (B)] / E = cost of acquiring a new customer using coupons
- (A)$ Cost Of Promotion (not including discount):
- (B) $ Sales From New Customers Resulting From Promotion:
- (C)Cost of Good and Services Provided To New Customers:
- (D)Lost Revenue (discounts) From Existing Customers:
- (E) Number Of New Customers That Return After Promotion:
Store: Jim’s Gyros
Coupon: $10 Gyro Plate (normally $15). The plate costs you $10 to make and serve, so you break even when a coupon is used.
Cost of Promotion: $99. You distribute it for 1 month through LocalSaver + Facebook ads + mobile display ads.
Sales From New Customers: 100 new customers come. Some buy additional items, resulting in $2,000 in sales.
Cost of Goods Sold to New Customers: $1,750. Despite high sales, you net only $250 from new customers because of the discount.
Lost Revenue from Existing Customers: 50 existing customers use coupons, resulting in a loss of $250.
Number of New Customers that Return: Half your new customers (50) return after the promotion.
Now let’s run the math
[($99 + $1,750 + $250) – $2,000] / 50 new customers = $1.98 per customer
In this scenario, it would only cost you $2 for each new customer you attract to your business. This is a small cost that could easily be made up with a subsequent visit – so running this promotion would be a no brainer!
Now let’s make a few quick adjustments
Let’s say only 25 new customers return after the promotion. Also, let’s say 100 existing customers (instead of 50) caught wind of promotion and used a coupon. Now your revenue lost from existing customers would increase to $500.
[($99 + $1,750 + $500) – $2,000] / 25 new customers = $13.96 per customer
This drastically changes the outcome. Now a customer would have to return 2 or 3 more times before you can break even off your coupon.
What’s The Takeaway?
The cost of the discount is hardly the only factor at play. When writing a coupon, it’s equally important to consider how you’ll get new customers to return to your business and how you’ll prevent existing customers from using the coupon in too great of numbers.
A solution to the first problem is follow-up coupons. This may sound paradoxical – fighting profit-loss from coupons with more coupons. But the beauty of follow-up coupons is that you can hand them specifically to new customers. Plus, the discount generally does not need to be as high as the first offer. If you started with a free item, for example, follow it up with a buy-one-get-one free.
As for the second problem, it’s unrealistic to completely prevent existing customers from using new customer coupons. You can minimize the number, however, by promoting your coupon on the right channels. Avoid websites like RetailMeNot. Instead, try using targeted Facebook ads, or local coupon websites like LocalSaver and Coupons.com.
The Bottom Line
To do it right, coupon advertising takes a lot of planning. First off, you need to figure out a discount offer that balances attractiveness and profitability. Secondly, you need to offer follow up coupons that ensure customers are retained. Thirdly, you need pick the right distribution channels that help you draw in new customers.
The need for trial and error is a major reason we recommend LocalSaver for brick and mortar businesses. Among other benefits, you can edit your coupons at any time, so you can play around with redemption values, and cancel any coupons that are hurting your bottom line. To learn more about this option check out our guide How to Use LocalSaver to Advertise Your Business.