Greetings All,

There’s been a lot of talk recently on the forums about voucher code sites. Some of the discussion is around unethical behaviour & some is around the value that they add, there’s also one about a retailer that has recently asked all voucher code affiliates to stop promoting them for a period of 3 months. My guess is that they’re trying to work out whether or not they should dump the voucher code sites for good.

I suspect that the retailer will do a before & after comparison of Sales & Profit. I’m of the belief that voucher code sites do end up getting commission for sales that the merchant would have got anyway – I know that this may be a controversial point, but looking at my own shopping behaviour – I decide to buy something & then go looking for a voucher code. I guess the key question is what percentage of the voucher code sales would they have got anyway & at what point does it cease to make sense to carry on?

I’ve put a simple spreadsheet together to allow me to play around with some numbers. I’ll give you the download link in a moment, but let’s just look at some of the results.

I’m making some assumptions here :-
1. A Gross Margin of 30% – i.e. if they sell something at £100 then they bought it for £70
2. Affiliate commission of 10%
3. Other Costs of 10% – Credit Card fees, Processing fees, Discounts etc.
4. 10% of their business comes from Voucher Code Sites
5. 50% of the sales from voucher code sites, they would have got anyway

Also – I’m ignoring any fixed costs rent, rates, etc. etc. – this is intended to be very simple.

OK – so given the above assumptions, here’s what it looks like for every thousand pounds of sales they’re currently doing :-

As you can see if they were to remove the voucher code affiliates, then although their sales drop, they’re still making the same amount of net profit (for 95% of the work).
If however, we assume that only 25% of the sales from voucher code sites, they would have got anyway :-

Then it look like it’s probably worth their while continuing activity with voucher code sites.
But…. Supposing their Gross Margin is only 28% & that commission is actually 13% (with the network override) & the ‘other’ costs are actually 11% :-

Suddenly it looks like the voucher code sites are out again…..

So – if you run a voucher code site, take a stab at what you think their Gross Margin is, enter the commission – including the network override & estimate their ‘other’ costs. Then ask yourself seriously, what percentage of their sales do I generate & what percentage would they have got anyway.

Here’s the spreadsheet – have fun!

TTFN

BFG