Jonty Kelt is CEO of Group Commerce, a white label group buying platform that enables publishers and media companies to succeed in the daily deal market. Before cofounding Group Commerce, he led DoubleClick's search technology and services businesses in Europe and Asia, through the acquisition by Google.
In today’s daily deal market, rigorous performance measurement often takes a backseat to sensational success stories. A fascination with these “blockbuster” deals is understandable; even more than the millions of dollars in revenues they generate, they embody the promise of this emerging space.
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As is often the case with new markets, these incredible stories, widely reported in both tech and mainstream media, have helped galvanize excitement around (and entrants to) the deals industry. However, this enthrallment with revenue leads to a critical misunderstanding -- namely, that the relative success of a deal can best be measured by the number of deals sold (and revenue generated).
While revenue is an important indicator in any industry, it’s also frequently among the most deceptive. As Group Buying 2.0 takes shape, partly fueled by traditional publishers keen to introduce deals programs to their large audiences, participants are increasingly looking to determine which metrics should be prioritized in evaluating program efficacy -- specifically, which numbers are going to tell you the whole story.
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Over the past few months, my company has been particularly interested in the “send-to-conversion” rate on offers, which measures how well a certain group of people responds to an offer. This is a classic ecommerce metric that has been previously used to evaluate send-to-targeted lists for coupons, emails and other uses, and is now providing invaluable insight into analyzing the performance of deals. The STC calculation has been and continues to be widely used to monitor the effectiveness of group deals.
The send-to-conversion of a deal is calculated by dividing the number of offers sold by the number of emails to which the offer was sent:
Clearly, a number of different variables have an impact on the STC rate of a given deal: price, discount and relevancy to the defined group all play into this calculation, along with a number of other merchandising factors (e.g. seasonability). Additionally, and perhaps most critically, STC is particularly useful because it prevents daily deal providers from being deceived by list size, and helps place the focus instead on engagement and program efficiency.
How so? Well, one question we hear a lot is, “How large of a local list is needed to make a deals program profitable?” The answer depends largely on the list characteristics. If the list has a highly-engaged, vertically-focused audience in a tight geographic radius, then 30,000 emails could generate real revenue -- and far more efficiently than a more general list sent across a wider geography. In fact, one of our clients recently released an offer to its modestly-sized, vertically-focused local Facebook list. The offer sold out in less than three hours, achieving an extraordinarily high STC rate.
In addition to maximizing program efficiency (specifically, revenue per dollar spent on program), tracking STC is critical precisely because deals are a new type of content. Sending an irrelevant deal to a publisher’s audience can be off-putting, and will increase unsubscribe rates and reduce traffic. Even if more offers are sold by sending to a larger list, the send-to-conversion will be lower than with a more concentrated list, and audience apathy can eventually devalue the larger list.
Finally, it also should be noted that the denominator in the send-to-conversion calculation also has implications for sales force compensation, which can be based on total revenue from a deal or on deal revenue per email sent. In the latter case, a large, untargeted list will result in low revenue per email, making the work of sourcing offers for that list unappealing and further driving down the quality of offers.
Final Thoughts
It’s important to remember that price-point has a strong impact on STC. For example, a $1,000 deal on a spa getaway is going to convert at a lower rate than a $6 deal for movie tickets, but may ultimately result in greater revenue per recipient, and therefore represent a better offer for the client. As a result, STC gains additional accuracy by normalizing with revenue per email -- a process that we’re still refining in my line of work.
As with any emerging industry, new metrics will continue to be developed. It will be critical for both merchants and publishers participating in the space to respond by evolving their respective approaches. More than anything, the diversity of opinions surrounding Groupon’s planned IPO highlights the difficulty inherent in achieving consensus in the current climate. How will the next generation of metrics inform the valuation process of players like Groupon? Time will tell.
Image courtesy of iStockphoto, mattjeacock
This story originally published on Mashable here.
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