Groupon vs. Direct Mail: An ROI Story…

I have gotten the following question a number of times regarding Groupon and Direct Mail:

Why should I offer a discount on my direct mail piece when I could do that for free through a service like Groupon?

The short answer is that it is all about who you are getting to respond to that offer. But the short answer doesn’t really provide the full weight of the difference between the two platforms. For that…

…we need a hypothetical. Think through this with me…

The Situation:
You are a fine dining restaurant and the majority of your patrons are within 10 miles of your restaurant and earn over $100k per year. You charge $100 for dinner for two.

Marketing Option 1:
You do a Groupon offering 50% off dinner for two. The Groupon is sold for $50 and you keep $25 of it, while Groupon keeps the other $25.

You sell 100 Groupons, 40 of which are people located within 10 miles of your restaurant. 15 of those make over 100k per year. 5 of those were already regular patrons. So only 10 of the 100 you sold a discounted meal to are actually in your ideal target market.

Your initial revenue from the promotion is $25 per Groupon. For 100 Groupons, this comes to $2500. If 7 of those 10 new qualified patrons become regular customers and come back 3 more times per year, you will make an additional $2100 per year in revenue.

Total revenue from the campaign is $4600 for 121 dinners for two. This equals $38 per dinner for two.

Marketing Option 2:
You send a direct mail piece offering 50% off dinner for two. You target only those within 10 miles of your restaurant who earn over $100k per year. You exclude from the list any current patrons.

100 people come in and redeem the coupon. They are all qualified to become regular returning patrons and none are existing patrons.

Your initial revenue is $50 per redemption, and 100 people redeem the coupon. This is $5000. There is no commission to Groupon, so you keep all revenue.

70 of them (the same percentage as in the Groupon option) become regular repeat customers and come back 3X per year spending $300 per year. This equals another $21,000 per year in revenue. Total revenue from campaign is $26,000 for 320 dinners, which equals $81.25 per dinner for two.

So, yes, the direct mail campaign had an up front cost. But does that cost justify choosing a $4,600 ROI (return on investment) over a $26,000 ROI?

In year one alone you can see the stark difference. Once you start looking at how that plays out in future years in terms of those new patrons coming back time and time again, the revenue difference continues to grow exponentially.

To schedule your next direct mailing, call your marketing consultant at 1-800-628-1804.

Want to find out the right marketing method to get the best results for your business? Download our Best Advertising Techniques report to find out.

Best,
Joy