One of the main concerns when choosing to offer a discount on your product or service is whether you can still make a profit.  The advertising awareness impact is important.  The repeat business is important.  But profit is the bottom line.  Since we have no profit taking (like deal-a-day sites) and no media cost (like paid advertising) our math actually makes sense and our program will provide a profit.

General Assumptions:

Our program offers a short-term promotion that provides a manageable increase in daily sales.  When we show the examples below we are assuming that your general overhead and labor costs will not change due to the increased business.  Your rent is the same whether you participate, you have the same number of employees, etc.  We know there are costs involved in the extra patrons the promotion generates that aren't displayed here, from dishes to laundry to those refreshing little breath mints restaurants put in their check. But those are easily offset by additional purchases made, tips for your staff, repeat business, and customers who come in after the promotion has ended but because of the awareness generated.

Let's look at some potential examples:

 


Casual Dining Example - Enrico's Cantina

 

Enrico's Cantina is known for affordable Mexican food and great margaritas.  They have an average spend per table of $36 including food and drinks but excluding tax and tip (about $12 per person, with an average of 3 per table).  For their From Your Friends promotion they offer a discount of $10 off a minimum purchase of $20 and we will send their postcards to 5,000 local households.  In this case, we will assume their food costs are 32% of the menu price (based on published industry averages).  We have calculated the profit based on a scenario where every customer ONLY purchases the minimum required to receive the discount.  However, it's very likely that many of our recipients will arrive with more than two people, and spend more than the minimum amount, so we'll base our expectations on the restaurant's average table.

Postcards Mailed:  5,000
Redemption Rate:  2%
Postcards Redeemed: 100
Discount Amount:  $10
Total Food Discount:  $1000
Actual Food Cost of Discount:  $320
Minimum Purchase:  $20
Minimum Total Revenue from Promotion:  $2,000
Minimum Revenue after Discount:  $1,000
Likely Total Revenue Based on Average Spend:  $3600
Likely Revenue after Discount:  $2600
Minimum Return on Investment: 313%
Likely Return on Investment: 813%

Enrico's Cantina spent $320 in actual food costs to generate revenue of $2600 after discounts and before tips.  For every dollar spent giving away food, they generated $8.13 in revenue. 

The math makes sense!

 


Finer Dining Example - The Pier Steakhouse

The Pier Steakhouse offers choice steaks and an outstanding wine list.  They have an average spend per table of $96 including food and drinks but excluding tax and tip ($32 per person and an average of 3 diners per table).  For their From Your Friends promotion they offer a discount of $20 off a minimum purchase of $40 and we will send their postcards to 10,000 local households.  We will assume their food costs are 32% of the menu price (based on published industry averages).  We can calculate the profit based on a scenario where every customer ONLY purchases the minimum required to receive the discount.  However, it's very likely that many of our recipients will arrive with more than two people, and spend more than the minimum amount, so we'll base our expectations on the restaurant's average table.

Postcards Mailed:  10,000
Redemption Rate:  2%
Postcards Redeemed: 200
Discount Amount:  $20
Total Food Discount:  $4000
Actual Food Cost of Discount:  $1280
Minimum Purchase:  $40
Minimum Total Revenue from Promotion:  $8,000
Minimum Revenue after Discount:  $4,000
Likely Total Revenue Based on Average Spend:  $19,200
Likely Revenue after Discount:  $15,200
Minimum Return on Investment: 313%
Likely Return on Investment: 1188%

The Pier spent $1,280 in actual food costs to generate revenue of $15,200 after discounts and before tips.  For every dollar spent giving away food, they generated $11.88 in revenue. 

The math makes sense!



 

Entertainment Example - Seaside Aquarium

 

Seaside Aquarium features over 5,000 aquatic animals and fun for the whole family. For their From Your Friends promotion they offer one free admission, with the purchase of another, maximum one per group. We will send their postcards to 10,000 local households.  We will assume their hard costs per customer are 30% of the ticket price (based on published industry averages).  Their average group size is 3.5 people and the average customer spends an additional $9 on food and gift shop items. We can calculate the profit based on a scenario where every customer ONLY purchases the minimum required to receive the discount.  However, it's very likely that many of our recipients will arrive with more than two people, and spend more than the minimum amount, so we'll base our expectations on Seaside's customer averages.

Postcards Mailed:  10,000
Redemption Rate:  2%
Postcards Redeemed: 200
Ticket Price: $20
Discount Amount:  $20
Total Discount:  $4000
Actual Hard Cost of Discount:  $1200
Minimum Purchase:  $20
Minimum Total Revenue from Promotion:  $4,000
Minimum Revenue after Discount:  $2,800
Likely Total Revenue Based on Average Spend:  $16,300
Likely Revenue after Discount:  $15,100
Minimum Return on Investment: 233%
Likely Return on Investment: 1258%
 

Seaside Aquarium spent $1,200 in actual costs to generate revenue of $15,100 after discounts and with extra purchases.  For every dollar spent, they generated $12.58 in revenue. 

 

The math makes sense!