While a number of radio broadcasters are utilizing a daily deal program, a very large majority are not. One of the reasons is certainly that the economics of the deal space are foreign to a transactional spot-based business like radio. Sure, the basics of deals make sense—the merchant provides you with a discount in return for roughly half of the proceeds of the sale, while the broadcaster sells the deals and keeps its portion.

But beyond that, questions remain. How does this business scale? How much investment does it take? Where should I focus my attention to build this business? I’d like to address the final question in this blog post, which also illustrates how the deal business can scale so dramatically, as we have seen in markets like Buffalo, where one broadcaster is grossing over $100K/month.

The questions above also cut straight to the basics—one of the fundamental decisions that a manager has to make is how to allocate his or her resources. When looking at a program like Daily Deals, this can get complicated as the transactional value of a deal can look small yet the volume can provide large returns. So let’s look at how these go together, along with some other economics of Daily Deals.

How much money can I make?

The answer depends on multiple factors; from the size of your database, to the number of deals you sell, to the quality and pricing of the deals. It is important to remember one thing, however: the deal business is about volume. So, the more deals you sell to more people, the more money you can make. Okay, that said, a great guide is simply this: for every member of your database that opts into receiving deal emails, you will receive $3 in gross revenue every month. Your goal, however, should be to overperform. A high-performing program should generate $8-$10 per member.

Deal economics 101

There are three factors that go into how much money you can make: the average price of your deals, the conversion rate of your email database, and the number of deals you sell. Let’s look at each piece:

Deal price. This is pretty simple to understand. 100 deals priced at $10 will make you half as much as 100 deals priced at $20. However, pricing also has an impact on purchasing. You may sell 200 deals at $10 and 100 deals at $20, and generate the same revenue. Generally speaking, however, it is better to focus your sales team on higher-priced deals—the gross savings for the consumer is greater, the value of the underlying product is greater, and your potential revenue is greater on a per voucher basis.

Conversion rate. This simply means the percentage of people in your database that will buy a deal when you send one out. This is roughly 1.1% for media company programs, which is higher than you find for companies like Groupon and Living Social. Here’s how it would work. If you have a deal database of 10,000 and send out a deal, 1.1% or 110 people will buy the deal on average.

Number of deals. This is simply how many deals you sell to merchants in a month. Weekly deals will be around four, and daily deals will be about 20. 

Additionally, you should know one more variable:

Vouchers sold per deal. When people buy deals, they don’t just buy one. They sometimes buy two or buy one for themselves and another as a gift. The average number of vouchers sold per deal is 1.4.

When you look at the above factors critically, you start to see where to prioritize your resources. 

Putting it all together

Let’s look at a use case:

Database: 10,000
Conversion: 1.1%
Avg. # purchased: 110
Vouchers sold per purchase: 1.4
Avg. deal price: $10

With the above profile, a radio station could expect to sell 154 vouchers of each deal. With an average deal price of $10, they will gross $1,540 per deal. 

How does this change if we double the database size to 20,000?

• This doubles your revenue to $3,080 per deal.

How does this change if we double the sales price to $20?

• This doubles your revenue to $3,080 per deal.

How does this change if we have TWO deals for sale instead of one?

• This doubles your revenue to $3,080 per deal.

Do you see the pattern? The economics are all affected equally by database size, sales price, and merchant deals sold. The key question is how do you prioritize your resources knowing the above. Well, in an ideal world you would be working on all of them—selling better deals, increasing your database size, and selling more deals. Doing that would really turbocharge your revenue.

However, some of these things are easier to do than others, and this should have a bearing on how you prioritize your resources. If you had limited resources and could only focus all of your managerial attention on one of the above, which should it be?

The answer is simple: sell more deals.

Think of it this way. Which of the following is easier: generating 10,000 more database members, convincing your sales people to play hardball with clients so that they’ll only offer $20 deals instead of $10 deals, or having your sales team sell a deal to one more merchant? In order of difficulty from easiest to hardest, it probably looks like this:

1. Sell one more deal to a merchant

If your program is selling one deal a week, all you need is to have your salespeople find one more client to buy into your deal program every week and you’ve doubled your revenue. This is even true if you have an established program. The interesting thing is that as you get more successful, you’ll find it easier to sell deals. It is not uncommon to talk to successful media general managers in the deal space who turn down deals for various reasons.

2. Sell higher priced deals

This requires more work from your salespeople and some managerial discipline, so it is harder than simply finding more merchants to sell to. Still, focusing your sales strategy on deals in the $15-$25 range will pay dividends.

3. Increase your database size

You should always be working on increasing the size of your database. It is the single, most consistent part of your program to generate long-term revenue. However, it is also the most difficult to affect. Going from four deals a month to eight is orders of magnitude easier than taking your database from 10,000 to 20,000. 

The good news

The good news is that there are multiple paths to growing your revenue in the deals business, all of which you and your team can directly impact. You should obviously focus on all of them for a maximum return, but if you need to prioritize, keep the above in mind.