Ecommerce Analytics: How Much Revenue are You Losing to Coupon Extensions?
by Eric Trouton, on Feb 23, 2021 9:00:00 AM
Every good ecommerce strategy focuses heavily on keeping margins as high as possible. This usually means looking for ways to optimize across the purchase funnel, from customer acquisition costs to shipping costs.
However, you may have overlooked one key thorn in your side: coupon extensions.
Have you taken the time to understand how they are affecting your margins or quantify their effects on your revenue?
This article will help you understand exactly how to estimate what they're costing you.
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What are coupon extensions?
Coupon extensions are browser extensions that buyers can install in their web browsers (ex. Google Chrome) that allow them to discover and automatically apply coupons in shopping carts on ecommerce websites.
Learn more about what they are and how they work with the following articles:
- How Do Coupon Extensions Work: A Primer for Ecommerce Merchants
- How Coupon Extensions Allow for Unauthorized Coupon Usage on Ecommerce Sites
How much are coupon extensions costing you?
To get started, there are a few things you’ll want to know about your own website in order to make these calculations specific to your situation, including:
- Your average order value
- The average number of monthly orders transacted through your site
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For the purposes of this example, we'll be working with some nice round numbers of:
- Average order value: $100
- Average number of monthly orders transacted: 10,000
Some of the averages we’ll be using to provide you with an estimate of how much coupon extensions cost you include:
- The percentage of transactions on your site in which an extension like Honey or Capital One Shopping is present
- The average savings a coupon extension provides per transaction
For the purposes of this example, we'll be using these estimates:
- Percentage of transactions with a coupon extension: 7% (This number is derived from our measurements across our beta test group for cleanCART as of January 2021. Keep in mind that as coupon extensions continue to grow in popularity, this percentage will continue to increase over time.)
- Average savings a coupon extension provides per transaction: 17.9% (This number comes directly from the Honey website as the average discount value they publicize.)
You can make any of these calculations more specific to your own website if you have metrics on how many of your customers are using coupon extensions and what the average discount they are providing is.
Now that we’ve covered the inputs, let’s dive into the calculations.
We'll start by calculating your average monthly revenue (also called Gross Merchandise Volume, or GMV) in a typical month:
10,000 orders X 100 dollars per order = $1,000,000 monthly revenue/GMV
Now, let’s see how much coupon extensions are eating into that revenue. To do that, we'll start by determining how many of your monthly orders are affected by coupon extensions:
10,000 orders X 7% of transactions = 700 transactions affected
Next, we’ll see how much each of your affected orders are are being reduced by:
100 dollars per order X 17.9% average discount = $17.9 reduction per affected transaction
This means that in a month, coupon extensions are reducing our fictional merchant’s revenue by approximately:
700 transactions X $17.9 reduction per transaction = $12,530 in lost monthly revenue
That might not seem like much, but when you start to extrapolate what this means, scale it across a year, and look at the percentage of your revenue being eaten up, it starts to paint an ugly picture.
These numbers mean that our merchant is losing 1.25% of total revenue to coupon extensions, or $150,360 per year.
And that's just the beginning.
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Those numbers don't include any affiliate payments you're making to the coupon extensions or to affiliates whose codes have been hijacked by them.
They also don't account for the time you're likely spending trying to manage leaked codes.
Of course, these numbers are just averages. Try replacing the calculations above with your own numbers and see just how much coupon extensions could be affecting your site.
What does the future hold?
The scariest part about these numbers isn’t what they look like today, but what they will look like tomorrow. As your business grows, more and more of your revenue will be sacrificed to coupon extensions. And as coupon extensions grow in popularity, the percentage of transactions affected by them will continue to increase.
Are you ready for that future?