What is the biggest coupon I can offer without losing money?
Work backwards from the profit you want to keep per order, and the largest safe coupon falls out as a rupee figure and a percentage.
Most sellers pick a coupon number first, 10 percent or 20 percent, and check the damage later. There is a safer way. Decide what you are willing to keep from an order, and let the maths tell you the ceiling for the coupon.
Start from the order, not the coupon
Take an order of Rs 1,000. Write down every rupee that leaves your pocket because of that one order. Say the product costs you Rs 550 to buy or make, shipping is Rs 70, and packing material is Rs 30. That is Rs 650 of real cost.
Rs 1,000 minus Rs 650 leaves Rs 350. This is your contribution, the money that is left to pay for your ads, your time, your monthly bills and your profit. Everything a coupon gives away comes out of this Rs 350.
Decide what you must keep
Now ask the honest question: how much of that Rs 350 do I need to keep for this order to be worth packing? If you decide Rs 150 is the minimum, then the most you can give away is Rs 350 minus Rs 150, which is Rs 200.
So the maximum safe coupon on this order is Rs 200, or 20 percent of Rs 1,000. A coupon of Rs 250 would leave you only Rs 100. A coupon of Rs 350 would leave you with nothing at all, and you would still have done the work.
The formula in one line
Maximum coupon = order value minus cost minus shipping minus packing minus the profit you want to keep. Divide that by the order value if you want it as a percentage.
Keep this on a note in your phone. Before any sale, plug in the numbers for your best-selling product.
Watch out for these traps
- Costs that rise when a discount is applied. If a coupon makes people order more, your shipping per order may stay the same but your packing and handling time grows.
- Coupons stacked on an existing sale price. If the item is already marked down, the Rs 1,000 in the example may really be Rs 800, and the ceiling falls with it.
- Free shipping on top of a coupon. Free shipping is also a discount. Add the shipping you absorb to the coupon value before you compare against your ceiling.
- Payment fees. If your payment gateway charges a fee on each online payment, include it in your cost line. Check your own gateway terms for the real figure.
Different products, different ceilings
A coupon code that is safe on a Rs 1,000 item with a 35 percent contribution is not safe on a Rs 400 item with a 20 percent contribution. If you run one code across the whole store, set it using your thinnest-margin product, or limit it to selected products.
A fixed rupee coupon, such as Rs 100 off, is easier to control than a percentage. A percentage grows with the cart, and so does your risk on large orders. If your orders vary a lot in size, consider a rupee coupon with a minimum order value.
Use the ceiling, do not live at it
The ceiling is the point where you still earn your minimum. Your actual coupons should usually sit below it, because returns, failed deliveries and replacements will eat into the Rs 150 you planned to keep. If you are unsure how much to leave as a cushion, read returns and RTO, the numbers nobody tells you.
Where to go next
Once you know your ceiling, you can decide how and when a coupon should be used. The post on coupons that actually move stock covers when a discount is the right tool at all. And if you have not yet worked out your per-order cost properly, start with landed cost per unit explained.
A coupon is a purchase of a sale. Know the price you are willing to pay for it before you hand the code out.