In plain words
A gift with purchase is a free product the customer receives for buying. It is used in place of a discount: the price stays where it is, and the customer gets something they value.
The gift is free to the customer and not to you. It has a unit cost, it adds a pick, it may need its own packing, and it can push the parcel into a heavier or larger step. All of that comes out of the order's margin, with no revenue against it.
Formula
- Margin with gift = margin without − gift unit cost − extra pick − gift handling − any added shipping
- Lift needed = margin without ÷ margin with − 1
Worked example
A $4.00 mug added to the three-bag order takes its margin from $48.06 to $43.61. The engine's break-even lift is 10.2%: the gift has to bring that many more buyers.
The same mug on a single bag takes $15.36 down to $10.91 and needs 40.8% more buyers. A gift belongs on the order that can carry it.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
A gift is not cheaper than a discount just because it costs less than it is worth
A mug that retails at $15 and costs $4 looks like a bargain against a $15 discount. The comparison that matters is the gift's full cost, handling and shipping included, against the buyers it adds. A gift nobody wanted costs the same as one that sold the order.
Using it
Attach the gift to the larger order or tier, where its cost is a small share of the margin, and use it to pull buyers up to that tier. Enter the gift's unit cost and handling before you launch. A gift with no cost on file makes every order it rides on look better than it is.
In Offer Suite
In Offer Suite a gift is a line of the option with the role gift. The engine gives it no revenue and charges its unit cost, its pick and any handling cost of its own, so the forecast shows what the gift takes from each order.
Source: Offer Suite's margin engine.