November 23, 2017

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!

Groupon Case Study

I have real world numbers from a GroupOn campaign to share with the world! This in combination with my very sexy equation from a previous post and my newly added, downloadable GroupOn Excel calculator allows us to get all kinds of insight.

The businesses I know that have participated in these campaigns have seemed pretty happy with the results, but none of them tracked their numbers. That meant I had to make some assumptions, but no longer.

Case Study

Here are the metrics from a real GroupOn campaign. I would expect that results will vary from business to businesss and especially between different industries. If you need to better understand these numbers, read the previous post.

  • Business Type: Very Casual Dining
  • Business Age: Fairly new business
  • GroupOn offer: $20 certificate for $10
  • GroupOn’s commission: 50%
  • Total Sold: 1,225
  • Redemption Rate: 68% (32% were never cashed in)
  • Average Ticket Amount (with certificate use): $20 (people spent pretty close to the face value amount)
  • Estimated number of new, recurring customers: 75%. This is expressed as a % of the total number of certificates sold. These are people that will come back even without a certificate.
  • Estimated Long term, recurring customer income: $20. Without a certificate, the average ticket is about $10. This means that it is assumed the new, recurring customers mentioned are expected to come in about 4 times over the “long term”
  • Normal Margin on sales: I did a loose calculation because I knew the net result… 230% margin or COGS is about 30% ticket price.
  • Brand Value: $0. This is such a fuzzy number, that I left it as zero.

The real world result is that this business owner was paid $6,000 with costs around $5,000. According to the super-awesome spreadsheet – using the numbers above – the analysis shows:

  • Campaign Profit: $1,076.52
  • Total Long Term Profit: $13,883.33
  • ROI over the “Long Term”: 130.77%

Not too shabby.

Footnotes

There are some notes worth mentioning:

  • The business was paid by GroupOn in three, equal payments over 1-2 months. They were happy with this.
  • Purchases with certificates with Tickets less than $20 don’t get change. Typically, they would order something else to get over the $20 level.
  • Redemption volume was heavy in the first and last month, the numbers were:
    • Month 1 – 225
    • Month 2 – 150
    • Month 3 – 100
    • Month 4 – 50
    • Month 5 – 50
    • Month 6 – 250
  • The number of new, recurring customers is very difficult to determine and is basically a gut-check. Unfortunately, it is largely responsible for the determination of the Long Term Profit… so be careful how you use it.
  • I assumed “Long Term” meant over the course of a year when determining some of the more “magical” numbers. You can assume whatever you want, but make sure you understand what it all means.
  • The calculator is intended to be functional, not fancy. It’s pretty basic, but still very, very sexy.