Offering Coupons without Killing Your Profitability

Some buyers will always look for the best deal around instead of the best product or brand available. They will price shop, compare and search for coupons, never developing any brand loyalty in their quest for the lowest price. While it can be tempting to blast coupons out all over the internet, using coupon affiliate sites to grab the attention of the bargain buyer can do more harm than good.

Drew Sanocki and I share our experiences with coupons including our successes and failures. Find out the best practices for offering coupons to entice your customers to come back time and time again, without losing money in the process. With our help, you can learn from our mistakes, offer coupons like a pro and avoid the destruction of your margins along the way!

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The Full Conversation

(With your hosts Andrew Youderian of eCommerceFuel.com and Drew Sanocki of DrewSanocki.com.)

Andrew: Today on the show, we’re going to be talking about something that, yeah, doesn’t get talked about a lot, but it’s important. Every eCommerce store is doing this at some level or another. And it’s coupons, how do you use them, how do you use them to make sure they’re actually driving sales in a profitable way, that you’re not completely destroying your margin. And to tackle the issue with me is a man who is a religious coupon cutter. He just hoards coupons from the grocery I think every Sunday morning, just as the scissors go crazy, Mr. Drew Sanocki. Drew, how are you doing man?

Drew: Good. I’ve been a coupon cutter for ten years now.

Andrew: Recovering coupon cutter?

Drew: Yeah, yeah . . . no, I love coupons. I’m very passionate about this subject.

Andrew: Well, perfect, man, this will be an exciting one. We’re going to make an episode on coupons as sexy and exciting as possible. So if you think this isn’t going to be fun, you’re in for a surprise.

But first, I want to a first sale shout-out. And this one’s going out to Julie Barnwell. And Julie writes in and said, “I left my six-figure corporate job of 12 years in March to follow my dream of opening Cali Baby Boutique, an online baby clothing and accessory shop. And I’m happy to announce that after only a short month of using the tips and advice on the podcast, I’ve my first non-family or friend sale. I launched the site on Shopify and then focused my marketing efforts on Pinterest, Instagram, and Facebook. And I’m also taking a page out of the Whipping Post strategy, good friend from Ryan Barr over there, and making the package a big part of the buying experience . . . the packaging, rather, a big part of the buyer experience. Thanks for all the great tips.”

Julie, that’s awesome! Congratulations, loved your site, really cool interesting baby gifts. They weren’t over the top. They weren’t frou frou. They were really cool, like wooden teething rings and cool gifts for moms, which is not on most baby stores but should be. So best of luck and good luck with that.

Drew, I love how a lot of times people will differentiate between their first sale and like their first non-family and friendly sales.

Drew: First sale to somebody who wasn’t related to me.

Andrew: Exactly, first sale to someone who I did not compensate them to test the check out. And Julie, I’m not harping on you. I did the same thing. This is exactly where I was . . .

Drew: Got a sale. Aah, it’s mom.

Don’t Let Your Customer Abandon Their Cart

Andrew: Yeah, as soon as I started, man, everyone, needed to see the radio. All right, let’s get into today’s discussion on using coupons with eCommerce.

All right, Drew, so we’ve got six or seven points here. And the first one I want to hit on is with coupons, I think one of the biggest mistakes people make is don’t give people a reason to abandon your checkout for a coupon. I think a lot of times different people may have different levels of control over their checkout process. But if you’re going down, you type a name, address, phone number. And then there in huge block print is a label for a field that says, “Do you have a coupon?” You might as well say, “Do you want to leave my site, abandon my checkout process, and potentially pay me less money?” because that’s pretty much what you’re doing.

Drew: Yeah, we change the name there. We still had the field, but we tried to hide it a little. We called it something like “promo code” or just like “special code.” But if you put coupon code there, people are like “Oh, these guys must have coupons. I’ll be right back.” And they go and google your brand plus the word “coupon” and come back with a coupon.

Andrew: Yeah, it’s crazy. Same thing we’ve always tried to . . . It’s tough. It’s a tough balance because you can’t put it in three point font that’s unreadable at the bottom of the page. People won’t find that. It’s got to be where if somebody is actively looking for it, they can find it. But yeah, the last thing in the world you want to do is pull people out of that purchase process and make them pay less money.

Make Customers Feel They’re Scoring Big Time

Andrew: So number two, if you’re using coupons, try to accomplish generating that deal effect, that, oh, man! the kind of feeling you get when you score a deal. Everyone loves having a deal. Try to accomplish that with coupons without destroying your margin. So how do you do that?

Well, for us, at least for us on the radio side of things, we discount when we do discounts. We don’t do a lot, which we can talk about in a minute here, Drew. But when we do discount them, we try to discount our higher margin products. So let’s say a radio only is . . . maybe there’s like a 20% markup or a 25% markup on a $100 radio. Well, a 10 to 20% coupon on that is going to kill most, if not all, of your profitability on that. Whereas, if you’ve got, let’s say you’ve got accessories that, by and large, accessories, the markup on them is much larger, 50 to 100%. If you give a 20% coupon of a 100% markup accessory, it still, to somebody who’s buying it, it sounds impressive. But you don’t have to actually . . . You’re able to give it on a product, you can afford to give up the margin on. So I think thinking through that is important.

Drew: Yeah, there’s also leading with your merchandise too. If you don’t want to coupon, you can just do something like Gilt or Woot does with the daily deal and just have like “Hey, this product is just going to always be a bargain. And we’re just going to sell this product only until it goes out of stock. And then tomorrow, we’ll sell another product.” So you’re not really couponing. You’re just . . . It’s like always low prices.

Andrew: Yeah, or somehow having some incentive to get people to buy. If it’s not a discount for a limited time, it’s an availability issue right, like it’s a scarcity. It’s going to be gone.

Don’t Over Offer Deals

Andrew: Number three, don’t offer so many coupons and discounts that you discourage people from purchasing from you at full price. I think this is something that a lot of companies maybe err in terms of what they do in just blasting coupons all the time. If you’re getting mail promos and discounts and there’s a sale every Thursday at 2:00, you’re never going to buy at full price. You’re always going to wait. And so thinking through that I think is important.

There’s a site I shop at. It’s called GoWesty. They sell like VW van parts. And they do a really good job of . . . They don’t discount very often. They have like two sales per year. And they’re not always, to my knowledge, they don’t always run them, I think. They usually do, but it’s been years they haven’t. And so I don’t hesitate to purchase from them if I need something. But a lot of times that I’ve got some maybe non-time sensitive thing and a sale rolls around, one of their occasional ones, definitely, that’ll push me to action to purchase then, maybe in more quantities than normal as I would. But they do a great job of not completely training me to wait for sales.

Drew: Yeah, this is the biggest point we can make here on point number three about permanent discounting is just . . . It’s like it kills retailers, absolutely kills them. And it kills their brand. Once you’re customers have been trained to look for a coupon, it’s very, very, very difficult to bring them back to pay full price. It leads to bankruptcy at retailers. There are situations where you go in and buy one of these companies, and to turn them around, you got to retrain the customer base not to look for couponing. And it’s really, really hard to do that.

It’s all because there’s this hidden cost involving couponing. It’s called the subsidy cost. And a subsidy cost is a cost that you have to pay to get a sale even though the customer would’ve have bought anyway. And so you run into this situation where you’re going to . . . If you’re always couponing, there are a certain percentage of your customers who would’ve bought your product at full price. But because you’re giving them 10% off, you’re essentially paying this subsidy cost of 10%. So the key is to just think of that as a cost, which most retailers don’t do. They just fixate on the fact that they got a transaction. You got to manage that just like all your other costs.

Coupon Customers Are Less Loyal Customers

Andrew: Yeah, and number four, realize that customers that convert with a coupon are significantly less loyal than other customers. So . . . not always. Sometimes, you’ll have people come through that’ll just pull out of the checkout. They get a coupon then come back in. But customers that use coupons, yeah, you may get that sale initially. But the lifetime value of them is probably going to be much lower than other customers because they’re incentivized not by your brand, not by your offering, not by the fact that you have a great reputation but likely, at least a much larger part or a larger percentage of the time, by the fact that you’re hooking off with a discount.

Drew: Yeah, yeah. This is CRM 101 that there are good customers and bad customers in any business. And the goods will order at full price. They’ll order a lot. They’ll order frequently, and they won’t return. The bads will order once. Or they’ll only buy on discount. Or they’ll take up a lot of customer service time and then return something. And there’s this saying in database marketing that good customers are born, not bred that if you think, okay, there are these two groups, the goods and the bads, the likelihood of me turning a bad into a good is very low. I don’t have to give the goods a coupon to get them to buy. So focus on those goods.

There are other ways to incentivize a purchase by adding on additional services, additional selection. These are people who want to pay for your product. And in focusing on them, I think the flip side of that is the ones who require that coupon to purchase are just bad customers. They’re less loyal and very low lifetime value.

Affiliate Sites Won’t Offer Great ROI

Andrew: Number five, listing coupons on affiliate sites probably isn’t going to offer a great ROI. What do I mean by that? Well, there are affiliate sites out there that pretty much say, “Hey, you can post your coupon on our website. We’ll advertise it to other people. And then if somebody uses it, we’ll also . . .” Yeah, you pretty much have to pay them as well.

So why is this a bad idea? We had a thread in the private forum, we’ll link up to in the show notes here, that talked about this. And it was, man, just completely across the board criticized by my members. I don’t think anyone had anything good to say about these sites because it’s a double whammy. All the things we’ve talked about discounts initially that you’re having to deal with, lower margins, less loyal customers, etc., etc. But you’re also paying an affiliate commission on top of that. Unless you have some crazy business structure where getting the first sale is difficult without coupons and you have really have a long back end[SP] where people purchase time and time and time and time again, yeah, it’s rarely a good deal. Have you ever seen this work very well or heard of clients of yours . . . ?

Drew: No, I think this is one of the dumbest things you can do as a retailer. And I say this because I did it. In the early days, some affiliate manager somewhere sold me on the idea that like, “Hey, I’m going to get you on so many different coupon sites and affiliate sites and imagine how big you’re going to be when every affiliate out there is driving tons of traffic to you.” And I signed up. And whatever it was, several thousand dollars a month for this person to run my affiliate program. And as far as I could tell, all she did was like, every week, she was like “I need more coupons. I need more coupons. I need more coupons.”

I was under the impression that she was going to like court these affiliates and do outreach to them and convince them that we had great product. But all she was doing was taking these coupons and like spraying them to the Internet, to every coupon site out there and every aggregator. And yeah, it brought us traffic. But you run the ROI on that after a couple of months, and it’s terrible. If you want to be on coupon sites, you can do it. You don’t have to pay an affiliate manager to do it. This is getting into our second reason. And Andrew, do you mind if I go to the second reason? Oh, sorry, the next reason?

Andrew: No, go for it.

Develop Your Own Coupon Page

Drew: The next reason being that all these coupon sites are doing is they take advantage of the fact that people are googling your brand name, your company name, plus the word coupon. So Coupon Cabin and Retail Me Not, they’ve all been built around this SEO play where they know people search for J.Crew coupons or Bonobos coupons or Warby Parker coupons. And they rank really well for that. But once you figure that out, you can play that game too. And a better way to do it is to develop a page on your own site for your own coupons. And then they’re only available through that page. Once we figured out that this was going on, we did it at our retailer. Our coupon page was Design Public coupons. And it was a very simple note on that page that said, “Hey, if you want coupons for Design Public or offers . . .”

Andrew: Take a hike!

Drew: No, no, you’re not going to get them anywhere else but from our newsletter. And here’s the signup for our newsletter. And that’s where we release our coupons. And so we reigned in every other coupon site. I set Google alerts, and I was just for months pulling them in. It got to the point where the only . . . When you search for Design Public coupons, the top-ranked search result was our own site. And it essentially was lead gen for our email list. And so that’s what I would recommend you do. Andrew, any comments?

Andrew: No, I was actually curious to hear what you did because, yeah, like you said, you google Right Channel, you used to Google auto search, and people search for Right Channel coupons all the time. And I’ve thought about creating a landing page for it but wasn’t quite sure how to do it. And that is brilliant. It just happened to be . . . That’s a great idea. We’ll probably do that, so yeah.

Set A Deadline for Coupons

Andrew: Number seven was, well, make sure you set a deadline on your coupons. There’s nothing worse than having a coupon that you send out for a specific use or an organization or something, and you forget about it. And maybe you’re not tracking your orders close enough. And then you log in and you look, and it’s gotten on some popular site, or it’s ranking well in the search results. So when people search for your company name and coupons, it pops up. And you realize it’s been used dozens or hundreds of times or something. And all of that because it wasn’t for the people you intended and you didn’t set an expiration date for the coupon.

Integrate Coupons With Email

Andrew: And then finally, number eight is use them well with email. And, Drew, that’s something I’d love to get your thoughts on. And this is kind of your wheelhouse. We talked about a lot of the dangers . . . Dude, if you look at all of these points we’ve had so far, you might as well just say, “Hey, why do people use coupons at all?” So what are your thoughts on using them well with email? Do you have any, not best practices, but ways you can incorporate them into email campaigns where they’re actually useful. They’re doing you more benefit than harm? What are your thoughts on working those in well?

Andrew: Well, I think that the first thing is to just get a general sense of the customer life cycle. So the customer life cycle is this natural cycle that a customer follows in their interaction with your brand. So they find out about you. They start buying. They buy a little bit more. And that’s all on the uptick. The customer’s accelerating. And eventually, their engagement decelerates. And maybe they buy less frequently until they never buy again.

So it happens in every business. In content businesses, instead of buying, use the word, comes back to the site or engagement. So there’s this acceleration, and then there’s a deceleration.

So it’s very easy to do. You can look at your list of transactions. And you see that, hey, we have a fair amount of customers who haven’t purchased from us in 60 days or 90 days. And that is uncommon for our business. That’s probably where you want to start couponing, to bring those people back. Again, it gets to the concept of subsidy costs. You don’t want to coupon before when they might still be purchasing. Like say you sell something like razors, your hairies[SP] or clothing where purchases will be fairly frequent for a while. and then they’ll taper off. Like you don’t want to coupon when they’re in that mode where it’s sort of frequent. You want to coupon when they’ve stopped, when they haven’t come back to the site in a while. You want to give them a reason to come back.

And so a good way to do that with email is using something called a promotional ladder. And a promotional ladder, you can set it up to be automated in most email systems. And it just increases the promotion over time. So maybe it’s been 30 days since the customer’s last order, and they get a 10% off to come back coupon. At 60 days, it’s 15%. And at 90 days, it’s 20%. Maybe at 180 days, that customer ain’t coming back. So give them like a 30% off coupon. Who cares? You’ve got nothing to lose. But that kind of ladder where you’re increasing the amount of promotional dollars you’re giving away with the customer’s likelihood of defecting is really, really effective. So that’s how I’d approach it.

Andrew: And there’s a couple other great ideas you had in your kind of five Powerhouse Email Campaigns. I went through those videos. Dude, nice job on them, by the way.

Drew: Thanks.

Andrew: Yeah, I went through them when I was doing the emails for Right Channel. We haven’t actually, this is really embarrassing, we haven’t implemented these yet, because we got the templates. There’s an email glitch I won’t get into. But they’re all drafted up. And they’ve got . . . You mentioned that the order confirmation and the shipping confirmation emails are two of the most widely opened in terms of open rates. And the highest open rates you’re ever going to see for email marke-, it’s not email marketing, but they’re transactional. And so why not put products at the bottom of the those? Why not put offers at the bottoms of those? And we’ve got them set up with time-expiring coupons for those customers where for the first order in the next 24 hours, this coupon will give you free shipping. If you add any of these items to your order that you just purchased, we’ll waive the shipping fee on it. And then on the follow-up one we have like, I don’t know, 15% off accessories or something like that.

Drew: That’s a great idea.

Andrew: Yeah, have you seen those work really well on the . . . ?

Drew: Yeah, they work super well. The first step is you got to get a sense of what is typical or standard behavior. Like if people are always buying the radios with . . . what else goes with the radios? Radios with the radios and covers with the radio antennas, then, obviously, you don’t want to create a coupon for them to go together. You want to create the incentive for someone to go outside of their normal purchase behavior. So maybe if they’re buying the radio, incentivize them to buy from a completely different category.

But you’re right, you can look through your order history. You see most people. Hey, most people when they check out buy only one product. There’s really no risk of putting a coupon in there to sort of double down like, hey, if you order two, you get a coupon. Or order one of this and one of that, you’ll get another 10 or 15% off. Really, you’re not losing anything there.

Andrew: So I think the bottom line, correct me if I’m wrong, Drew, these can be super useful. Coupons can be really powerful if used correctly. But in the wrong hands or in the wrong strategies, man, they can just cause you a lot of hurt and margin depletion. So proceed with caution.

Drew, as always it’s been fun. We’re going to have to get together, have some brunch, and cut some coupons. I haven’t done it in a while.

Drew: Sounds good.

Andrew: Thanks, man.

Drew: All right, Andrew, take care.

Andrew: That’s going to do it for this week. But if you’re interested in launching your own e-commerce store, download my free 55 page ebook on niche selection and getting started. And if you’re a bit more experienced, look into the eCommerceFuel private forum. It’s a vetted community for store owners with at least $4,000 in monthly sales or industry professionals with at least a year or more experience in the e-commerce space. You can learn more about both the ebook and the forum at eCommerceFuel.com. Thanks so much for listening and I’m looking forward to seeing you again next Friday.

What Was Mentioned

Photo: Flickr/Carol Pyles

Andrew Youderian
Post by Andrew Youderian
Andrew is the founder of eCommerceFuel and has been building eCommerce businesses ever since gleefully leaving the corporate world in 2008.  Join him and 1,000+ vetted 7- and 8-figure store owners inside the eCommerceFuel Community.

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