July 31, 2014

Scoutmob ROI

I finally got around to it… the ScoutMob ROI calculator! For the purposes of this post, I’m going to stick to the numbers and post-pone analysis for another time.

ScoutMob ROI Calculator

I’ve provided a link to the Excel ScoutMob Calculator which also includes a tab for the GroupOn calculator for comparison. Because they have different business models, it’s not a one-to-one comparison, but it should give you an idea of how things shake out – one of the biggest conceptually changes is how I represent COGS, so pay special attention to that. Unlike my first post regarding GroupOn, I won’t bore everyone with the details, but just provide an explanation of what the parameters mean.

The calculator is divided into 4 sections. The top left section is where you put in your numbers – everything else is automated. The section at the bottom left cuts to the chase and summarizes what kind of profits – if any – you can expect based on your assumptions. The two sections on the right are scratch work related to the Cost of Goods Sold and the income (not profit) from the whole endeavor.

Calculation Variables

  • Discount (D) – What is the percent discount you are offering. Typically, this seems to be 50%.
  • Maximum Discount (X) – What is the maximum discount anyone can get when redeeming the offer.
  • Average Discount Ticket (A) – What is the face value of the average ticket before the discount is applied. Any amount above X/D is the happy place where you will make your normal margin.
  • Cost Of Goods Percentage (G) – What percent of the sell price represents your costs. If you are a restaurant and your costs represent 33.33% of your sell price (it costs $10 to sell something for $30), that is the number you use. Ideally, this includes overhead and labor costs as well, but use it as you see fit.
  • Number of Actions (T) – How many people take action on your offer. This is a combination of offers redeemed through smart phones, text messages and emails.
  • Printed/Texted Action (P) – What percent of people will request a printed/texted version of the offer instead of using a smart phone application? I have no idea what this is, but all the cool kids use smart phones, so I set it low at 10%.
  • Redeemed printed/texted certificates percentage (R) - What percent of the printed/texted certificates will actually be redeemed? I set this to 68% because that is the number from the one real-world case study I have from GroupOn. I actually think it is lower for ScoutMob because the consumer doesn’t pay for the offer so is less likely to use it, but there ya go.
  • Cost for Smart Phone Use (S) – How much does ScoutMob charge for each redemption through their smart phone app. The word on the street is that it is “a couple of dollars” so I used $2.
  • Cost for printed/texted coupon redemption (C) - the amount ScoutMob charges for each emailed or texted offer. Again, I’m not sure what this is, but $.50 seems in line with the word on the street.
  • New Patron % (N) – When it’s all said and done, what percent of the people that took advantage of a ScoutMob offer (through smart phone, text or email) will actually return to your business without a discount. This is one of the weakest parts of this model so be wary – I assumed 75%, although I completely made that number up and honestly think it is high, but it’s in line with the number I assumed for Groupon (which I also think is high).
  • New Patron Long Time income (L) – How much will the average returning customer calculated above spend over their “lifetime.” Lifetime is up for interpretation, but I think of it as being over the next year so the ROI has a nice, set length of time.
  • Brand Value (V) – Business owners have indicated a concern over how deep discounts might affect their brand because it could be seen as a sign of desperation. Others have said that there is a lot of value in the gained brand recognition. I have no idea how to determine this so I shifted the burden to the business… enter how you think the promotion will affect your business’ profits in real dollars – positively or negatively.

Results Section

This section is super easy to interpret, but keep in mind that it is based on all of the numbers you entered above and that Garbage In = Garbage Out.

  • Campaign Profits – What profit will you make from all of the people that use a ScoutMob offer
  • Total Long Term Profit - What profit will you make due to revenue generated because of the campaign beyond the special offer. Again, I think of this as over the course of a year.
  • ROI – a very simple ROI calculation that compares the profits you made to how much the promotion cost you.

Cost of Investment

What does all of this cost you?

  • Total number of redeemed offers - this is kind of important. It assumes that 100% of people that redeem through a Smart Phone are actually at your business and complete the transaction. Added to this are the people that had the offer either emailed or texted to them and applies the redemption rate parameter (R).
  • Discounted COGS – the cost to provide the goods or services within the discounted amount. For example, if you offer 50% off with a maximum discount of $10, this is the cost for the first $20 of the average ticket ($20*50%=$10 maximum discount).
  • GOGS for ticket beyond certificate amount - this is your cost in the case that the average ticket value exceeds the maximum discount limit (i.e. the $20 mentioned above). Building on the previous example, if the average ticket value is $35, the first $20 is within the discount window and the next $15 benefits from your normal margin … your costs for that $10 is shown here.
  • Amount Paid to Scoutmob – this is the amount you pay to Scoutmob for all of the redemptions
  • GOGS lifelong purchase costs – This is your costs for all of the people you hope will return without the discount incentive.
  • Brand Damage Cost – if you specified that you think the promotion will damage your brand (by entering a negative number for V), that number is represented here.

Income from Investment

This section is the scratch work for the other side of the equation – how much coin will flow into your bank account based on the promotion.

  • Initial Discount Offer Income – This is the amount of income that will be generated from offer redemption within the maximum discount range
  • Income from sells beyond Certificate Amount - If the average ticket exceeds the maximum discount range, that income is reflected here
  • New Patron Long Time income - The amount of income that will be generated from all of those returning customers you are counting on.
  • Brand Benefit Income - If you specified that you think there will be a brand benefit from the promotion (by entering a positive number for V), it is reflected here.

Summary

There is no clear-cut way to evaluate if you should do one of these promotions or not, but at least you now have some tools to assist in the decision. If you have any real world numbers from your promotion, I’d love to have them. Let me know what you think!

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Comments

  1. Steve says:

    Great posts – thanks for sharing. How exactly does ScoutMob price? Is it always $2/redemption or does the price change based on the ticket. As a retailer, I calculate my ROI a little different than you lay it out, but we both show that (in a vacuum) with the given facts that the ROI is FIXED at a specific % regardless of if you have 1 redemption of 1,000 redemptions. The key elements are your average ticket, your margin, and what ScoutMob takes per redemption. So, with that said, you example shows an average ticket of $20 with a 50% discount and SM taking ~$2/redemption. How does SM price? Do they charge $2/redemption regardless of my average ticket? If so, their service is hugely more effective for higher priced tickets (maybe a meal at a full-service restaurant) as compared to a lower priced ticket (say, a QSR). At $5/ticket, the $2/redemption would break you. Just curious. Thanks again for the great posts.

    • mcrudele says:

      Good point! The Scout Mob model charges one price for redemption via smart phone app ($2-$3 per redemption) and a different price per offer that is emailed or text’ed (is that right?) to the user …. about $0.50.

      So if 100 people get the offer through email or text, you owe Scoutmob $50, even if none of these get redeemed.

      If 100 people come into your store and redeem the offer through the app, you owe Scoutmob another $200-$300. This does not take into account average ticket amount, but maybe that is something that can be negotiated with them.

      I think those examples come off a little shocking, so let me say that I actually do like ScoutMob’s model more than Groupon’s – both from a consumer and business owner standpoint. However, I’m used to thinking about this from the standpoint of an average ticket greater than $20. If your average ticket is $5, you would have to be really convinced that you were going to gain new, long time customers with a Scoutmob promotion to justify moving forward.

      That being said, if your average ticket is $5, I don’t think Groupon would be interested in promoting you since their cut would be pretty small.

      So, an update to my recommendations…

      * If you are a new business that isn’t worried about damaging your brand then I think Groupon and ScoutMob might be a great idea because you are pretty sure customers redeeming offers are new customers – huge value.
      * If you are not a new business, play with the ROI calculator and be careful. Maybe it’s a good idea, maybe it’s not and you need to make the call.
      * All of this may be moot if your average ticket is low dollar.

      Thanks Steve!

  2. Steve L says:

    I am moving to a new city and have begun some initial investigating into beginning a scoutmob type of service. Any tips on getting started?

    • mcrudele says:

      That could be a big answer. I would say:

      1. Get some really good developers with a good User Experience person tossed in for good luck
      2. Get some really, really amazing sales people
      3. Raise (inherit, marry into, etc) a good bit of money

      The idea behind ScoutMob – and Groupon for that matter – is pretty easy, but it will take some work to rebuild their solution. The biggest challenge, I would think, is going to be sales.

      Good Luck!

  3. Dave says:

    Scoutmob looks like a losing model for small business owners. At least with group buying sites, the customer pays first before anything goes down.

    • mcrudele says:

      I think any business should be cautious before jumping into any of these deals, but I actually think ScoutMob can make a lot of sense.

        Scoutmob charges a fixed price per redemption versus 50% of 50%. If you offer $40 for $20, you pay GroupOn $10, whereas Scoutmob seems to charge much less (a couple of bucks).
        A Groupon deal can only be purchased on a single day, whereas Scoutmob deals are location-based and are available to users for 3-6 months. I’ve tried new businesses because they were close by and I saw a Scoutmob deal… Groupon can’t do that (yet).
        Because many Scoutmob deals are done through smartphones, there is an opportunity to share the deal to social media at time of redemption – good WoM.
        Since Scoutmob is redeemed through smartphones, a business can easily limit the redemption of an offer to one per person (technically, one per smartphone). Of course, they can also offer return perks for patrons if they want to … kinda cool.

      Groupon still does provide one thing Scoutmob doesn’t … float. Businesses get money from purchased certificates over the first month or two. However, my gut is that Scoutmob might be more effective at getting new customers in the door that aren’t just hopping from deep discount to deep discount (because it’s based on location convenience). They also are definitely a more attractive solution to patrons.

      So if you are tying to quickly band-aid a cash flow problem, Groupon is probably the way to go.

      In my personal opinion, if you are trying to build your long term customer base and are in a market that Scoutmob has a strong presence, I think they might be the better choice. But, again, businesses should run the numbers and make sure they understand how the offers work before making either commitment.

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