Why Coupons Increase Online Sales

We've written before about how coupons can increase online sales.

There are certain customers who buy from you and then you never see them again. Perhaps they have forgotten about you or perhaps they have moved on to another supplier. Whatever. You want to get them back.

Let's assume there are a number of customers that haven't bought from you in over a year and you are certain they are unlikely to buy from you again. You know this because your automated long term reporting tells you this. Let's also assume:

1000 people have not bought from you for a year.
Your average sale is $120.
Your profit margin is 25%.
You send them a $15 coupon.
12% of people use the coupon.

What does this mean.

Well it means your profit on these people is:

1000 x 12% x ($120x0.25 - $15) = $1,800

That's $1,800 more than you would have received if you had not sent the coupon.

For the statisticians out there, you may have noticed the assumptions I have made are not quite right. It is more accurate to say that after a year a certain percentage of the customers that have not bought in the last year will not buy again. Let's see how that works out. Let's assume:

20% of customers who have not bought from you in a year will buy again.
80% of customers who have not bought from you in a year will never buy from you again.
Of those 80%, 10% will buy if you give them a coupon.

Profit if you don't use the coupon:

1000 x 20% x $120 x 0.25 = $6,000

Profit if you do use the coupon:

1000 x 20% x ($120 x 0.25 - $5) + 1000 x 80% x 10% x ($120 x 0.25 - $5) = $5,000 + $2,000 = $7,000

$7,000 versus $6,000 - that looks great, you have made more money.
Actually, the value of the coupon is even higher than this as many of the first lot of customers will buy after the coupon is expired, something not taken account into the above.

Obviously we have made a number of assumptions here that you might question. The point is coupons can work to increase profit if you measure their outcomes and deploy them after a year of hard data. And this reporting is something we can automate in WooCommerce so you don't have to worry about the maths.