BOGO versus free gift: which protects your margin?

Buy one get one free and a free gift at a minimum spend both feel generous to shoppers. For you they behave very differently, and the difference shows up in the margin. The numbers below are made up round numbers. Put yours in and the same sums apply.

#What buy one get one free really is

Buy one get one free on the same item is 50 percent off when two are in the cart. Say an item sells for 100 and costs you 60, a 40 percent margin.

• One sale normally earns 40.
• Two items under the deal bring in 100 and cost you 120. That is a loss of 20.

At a 40 percent margin the deal loses money on every pair. A margin above 50 percent is needed for a buy one get one free on the same item to leave anything at all, and what is left is small.

A gift has a cost you can name before the offer starts.

#What a free gift at a minimum spend is

A free gift has a fixed cost to you: the product cost plus packing, paid only on orders that reach your minimum. You can write the cost down before the offer starts.

Break even minimum spend is your average order value plus the gift cost divided by your margin. With an average order of 50, a gift costing 5 and a 40 percent margin, that is 62.50. At that spend the extra margin from the added items pays for the gift. The gift is 8 percent of the order.

#Side by side

| | Buy one get one free | Free gift at a minimum | |---|---|---| | Cost to you | Half the price of the second item | The cost of one gift | | Who gets it | Anyone who buys two | Carts that reach the minimum | | Known in advance | Depends on which items are paired | Gift cost times gift orders | | Effect on basket | Can lift units, cuts margin on both | Nudges the total up to the minimum |

#When each one fits

• Buy one get one free can make sense for clearing stock where your cost is already low or the item is going to be written off anyway.
• A free gift fits when you want shoppers to spend a little more and you have a cheap, worthwhile gift. Keep the gift cost small against your margin at the minimum.

#Before you launch either

1. Work out the margin after the offer, not before.
2. Decide whether sale items and discount codes count toward the offer.
3. Try sample carts, including a cart just below the minimum.
4. Set an end date.

#Try your own numbers

Use the free gift threshold calculator at https://taskivator.com/free-gift-threshold-calculator/ and the discount margin calculator at https://taskivator.com/discount-margin-calculator/. Or download the planning spreadsheet at https://taskivator.com/free-gift-offer-planner-template/.

#Setting up the gift in your store

Giftproof is a Shopify app that adds a free gift to the cart when a shopper reaches your minimum spend, and removes it if they drop below. Giftproof is coming soon.