Coupon marketing is all the rage in small-business marketing circles. The idea is simple: sign up, offer a steep discount and rake in customers. Unfortunately, unless you calculate the risks and rewards of providing coupons, such marketing efforts could cost you more than you bargained for. Before you jump into a coupon marketing deal, make sure you understand the potential ramifications of offering coupons to your customers.

Why Offer Coupons?

Coupons have been used for decades by large and small businesses alike to get new customers through the door to try their goods or services. The idea is that the discounts offered via coupons will be offset by new or recurring business later on.

Innovations in couponing, such as social media site Groupon, have upped the risks and rewards of coupon marketing for small businesses. Instead of reaching a few hundred people, you have the potential to reach thousands. However, with such great potential comes both risks and rewards.

Risks of Large-Scale Coupons

Anytime you provide coupons, you are losing money. You have to weigh the advantages of gaining more customers against the potential financial losses to see whether it's worth it to offer coupons.

If you offer coupons too frequently, you risk training your customers to wait for a coupon before they shop with you. For instance, a local pizzeria that has two-for-one pizza specials on Friday may end up doubling its business on Fridays but losing customers the rest of the week. If your customers know they can always count on that coupon, they'll likely wait to shop or eat at your establishment until the next coupon offer comes out.

Assessing Risks and Rewards: Customer Value

Before you sign up for a coupon marketing program, you need to know how much business each potential customer brings to you and whether your discounts are offset by the amount of potential new business gained from coupons. The following is a quick and simple way to estimate the risks and rewards:

  1. To find the average value of each customer, take your daily sales figure and divide the dollar amount by the number of customers you served.
  2. Examine the potential coupon offer. How many customers do you estimate a coupon might bring to your business?
  3. Multiply the number of estimated new customers by the average value of each customer to your business. That's how much you stand to make from your coupon offer.
  4. Now, look at how much you're giving away to get that many customers through the door. If your coupon is for 50 percent off, divide how much you stand to make in half. Then, look at the cost of coupon marketing against the money you're investing (or discounting) to make the offer. Is it worth it?

Only when you examine the facts and figures can you accurately assess the risks and rewards of coupon marketing. With some simple math, you can make an educated guess as to whether coupons are right for your small business.

Tags: Coupon marketing coupons Pricing Strategies Groupon