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How a Small Business Can Benefit From a Coupon

In this day and age, businesses left and right are struggling to find ways to increase revenue. People are out of jobs, so they don’t have nearly as much expendable income as they would normally have. Because of this, companies that have employees are struggling to find ways to either increase their revenue or cut their costs. It becomes a nasty, cyclical situation where more employees lose jobs so there are fewer people buying the products.

However, in my years offering consulting and running websites that offer coupons for products such as Island Surf and Navteq, I’ve learned a thing or two about the overall potential success that a coupon can have on a business. What is probably the most important thing that a business can understand is that there is a fine line between number of products sold and profit. To understand that, there’s a basic economics lesson to appreciate.

One of the basic ways in which we can determine the price of a product is by looking at basic supply and demand. By increasing supply, demand drops. As more of a product is made available, the demand continues to drop. The two lines then meet up and that is a good price point. However, another way of doing it is through profit maximization. What this does is help you find the exact price that maximizes your profit taking all costs into consideration. In other words, at what output and at what price does a company need to sell a product to ensure maximum profit.

You’ll be surprised, I’m sure, to hear that it’s not the highest price that automatically means the most profit. Because, as you go back to looking at the supply and demand chart, high price generally means a drop in the amount of product sold. Take, for example, a Mercedes…Fewer of them are sold because they are more expensive, but because they are the price they are, each one provides an increased amount of profit for the company. Mercedes figured out how, by keeping their costs where they did, to increase their profits.

Because of this, it is important for small businesses, especially when competing with big companies, to find ways to utilize coupons in their business. If a business can throw a coupon into the fray—whether it’s a % off a purchase or a % off an item—more money can potentially be made. There are three reasons for this:

  1. There’s the psychology behind it. Psychologically, we’re more likely to buy something if there is a percentage off. We feel like we’re gaming the business.
  2. More than that, we’re likely to buy MORE because we feel like we’re saving more money. If I buy two shirts instead of one, I get 50% off both of them.
  3. People flock in when they hear of a coupon and they tell their friends about sales. If Old Navy or Gap is having a sale, I’m told about it five times before the end of the day. That increases exposure to my business.

With that in mind, it’s easy to understand how a coupon can be beneficial. By utilizing a coupon, you make less money per item sold, but you sell more items. If you were only going to sell $100 worth of items, but then you have a coupon that takes off 25%, the person might be willing to spend more because they are getting so much more for their value. And you, in turn, are getting so much more in sales.

To implement a coupon for your business, there are a few very important steps to follow.

  1. Determine the type of coupon you want to give away. A percentage off one specific item (this works if you only sell one item) or a percentage off the total purchase (works if you sell a ton of items).
  2. Determine whether it’s a onetime use coupon or whether it can be used over and over. If someone wants to buy another product from you, can they use the same coupon?
  3. Determine how long you want the coupon to last. Want it to be short so as to provoke fear of missing out on the opportunity or do you want as many people to see it for as long as humanly possible?

Once you’ve figured out those steps, you’ll be able to create the coupon and get it out to your customers. A coupon can quickly go viral, which is always a good thing because it results in more people potentially becoming customers of your business.

It should be noted, though, that when using a coupon, you still need to determine your profit maximization. If you are not making a profit due to the coupon, the coupon might not be a good idea. For example, if you were making $50 per product sold before the coupon and now you’re only make $45 per product sold, even if you’re selling more, then you need to rethink the coupon.

However, if all is working out according to plan, the coupon should actually result in more business, more profits and continued growth. And that might allow small businesses to hire more employees and help the economy right itself. Sometimes, making less per product can still mean more overall revenue.

 

Jay has been in the coupon business for quite a few years offering coupons and discounts for products such as Island Surf and Navteq. Currently, he participates on a discount site that offers an Island Surf Code and Navteq Discount Codes.