What is Groupon?
Groupon is a daily deal or deal-of-the-day website that replaces a regular, paper-based coupon with a digital coupon. It was one of the most successful companies from its inception in 2008 but has gradually lost its value over the time.
Groupon is not the only company that sells digital coupons, however. There are more than 500 companies with the same concept, and the number keeps growing.
How does it work?
Groupon offers deeply discounted services and products on its website. People buy the coupons and redeem them at businesses. For example, a product or service that is $100 retail price sells on Groupon for $50 to users. Groupon collects 50% of the sales price—in our case, 50% of $50 or $25—and gives the rest, that is $25, to the business.
Overall, a business can losses 75% of its sales value just to sell its products on Groupon.
Over time, Groupon added services that are beneficial to businesses and customers. In the “Gateway” section, you can buy a discounted vacation deal, which is really good for people. In the “Coupons” section, you can buy real coupons from major businesses, like Best Buy, the same discount coupon that you may have missed if there had been no Groupon.
Who buys from Groupon?
Many people buy Groupon coupons, but overall, most of Groupon’s customers are highly price-sensitive. Many of them are old or very young people from low income families. They may not have enough income to afford services at full price. For example, the cost of a Swedish massage may be $100 at full price. There is no way for a low income family to afford to pay such a fee on a regular basis. Groupon gives those groups of customers the opportunity to buy the services or products they may not be able to afford normally.
What do businesses use Groupon for?
For returning clients
The main reason you may want to run a Groupon campaign is to get returning clients, the most difficult benefit to reap from Groupon. It is not easy to earn returning and loyal clients from Groupon, the reason being that those people who buy from Groupon cannot afford your service, even if they love it or want it. They just don’t have money to pay for your services.
But if you decide to run a Groupon campaign, you should offer the same great service as you offer to your loyal customers, even if you know the people who are buying a coupon from Groupon are one-time buyers and will never come back unless you run another Groupon campaign. When you run a Groupon campaign, you expose your business to a big group of people who have the potential to leave negative feedback if they don’t receive the service they expect.
In the best situation, you may get 10 to 12% returning clients off of Groupon; in other words, 1 of 10 Groupon clients may come back to pay your full price for the service they received.
Groupon is essentially not a good route to brand your business because you are spending your money on the wrong client base. Due to the income and personality of a Groupon buyer, most are not loyal simply because they cannot be. The best you may get from a Groupon buyer could be their positive feedback on Yelp, a Google review, or similar websites. For those reviews, you need to provide a very deeply discounted, exceptional service and convince them to leave positive feedback on social media.
Brand is the image of a business to its customers. Groupon users are hardly your customers. They are also not anyone else’s customers. At the beginning of a business, it may be worth trying Groupon in return for positive feedback; however, you need to consider the price of that positive feedback, if there is any positive feedback at all.
Most Groupon buyers work very hard for their money and want to get the best and most for their dollar. Those groups of clients are sensitive to the service they receive and are ready to leave negative feedback if they think the service is not worth their money.
For selling products
Making money selling tangible products on Groupon is not easy if you want to play it right. For everything you sell on Groupon, you have to give at least 75% of your retail price, meaning you have to sell really cheap or, like some businesses, just cheat.
For example, for a product that you can easily buy for $10, the sellers will list a retail price of $50. Then they advertise it on Groupon with a 75% discount at $12.50. Half of this $12.50 goes to Groupon, $6.25, and the business collects $6.25. This is cheating, but people just see the 75% discount, and so they buy the product. Groupon’s policy is to prevent these kinds of unethical actions, but still it is widely used in Groupon; those businesses probably found a loophole.
The other reason a business might sell their tangible products on Groupon is that their products are out of season, over stocked, and simply, they want to get rid of them.
Some businesses sell their products on Groupon just to get feedback and test the market.
For selling services
Essentially, there are two kinds of services that sell on Groupon: First, the services that don’t cost the businesses extra money, like a yoga class or selling extra seats that haven’t been sold on an airplane, and second, the services that take time, products, and extra expense, like a haircut, massage, wax, or other beauty service. There is a cost involved in almost all beauty businesses, even if it is just time. Time is money.
There are two ways you can make money off of Groupon: Selling a discount on your service or selling a discount on the amount spent. It is not a good idea to sell your most popular service on Groupon if you already have enough requests for it. For example, if your most popular service is Brazilian waxing, and you have enough regular clients, there is no good reason to sell the same service on Groupon. But if you have a service that is rare or brand new, you can sell that service on Groupon, as the clients of the rare service are also rare, and the chance of getting them as returning clients is higher.
How do you make money off of Groupon?
The simple answer is this: You cannot make good money off of Groupon. Nevertheless, there are some techniques that can help you get more return clients off of Groupon:
Instead of selling a service, give a discount on a purchase. For example, instead of selling a 50% discount on a Swedish massage, give a 50% discount if they spend $100 in your salon. There is a chance that, when clients start to shop, they will go over $100, and the difference would be in retail price, making you some profit.
Instead of selling a one-time service, sell packages of a service or an incomplete service so clients have to come back to get the service finished. For example, sell a package of 3 laser hair removal sessions with a Groupon discount. Laser hair removal needs at least 6 sessions to be completed, so there is a chance that clients will come back to get the rest of the service at full price.
Some businesses and clients have learned to cheat Groupon by making their own deal with a client who calls the business regarding the Groupon, and, therefore, they don’t pay Groupon. I personally don’t like or advise this kind of action, as it is unethical.
There is a small group of people who buy Groupon coupons but fail to redeem them. It may add a little money to your pocket to collect for the services you haven’t done, but it wouldn’t be much and so isn’t really worth it.
What’s the effect of Groupon on your current clients?
There is a good chance that your current clients will buy your Groupon coupon. Unfortunately, it happens all the time, and businesses lose tons of money. It also sends a bad message to current clients that they are paying a high price. Certainly no one is happy to pay $100 for a service when the person next to them is paying only $50 for the same service.
What else should I know about Groupon for my business?
Be ready for a heavy load of clients
For those who want to run their first ad on Groupon, the first thing they need to put into consideration is if their business is ready to handle a large load of clients and still maintain the same quality of service. For instance, you may have only three chairs in your salon, and with a Groupon ad, you get 700 clients. Such a load will exhaust you and your employees, and it is not practical to add more seats or employees to the business in a short time for temporary clients. Unfortunately, there are tons of sad stories about businesses that lost everything and eventually had to declare bankruptcy just because of the significant number of cheap clients who didn’t cover the cost of the business.
Include disclaimers in your Groupon coupon
The main reason to run a Groupon campaign is to put your name and brand out there, but if one person can buy many of your coupons, then you have lost all the benefits. Make sure to put these in the fine print of your Groupon ad:
- Only one coupon per person or family.
- Only for the first-time buyer.
- A cap on the number of people who can buy coupons. (Otherwise, you may end up selling your service at the Groupon price for a very long time. For example, if you do a massage without putting a cap on your Groupon ad, and hundreds or thousands of people buy the coupon, then you have to work months or even a year just to cover those Groupon buyers.)
- By appointment only. (Put them in time slots that are very slow. You should not sacrifice your regular, loyal clients for temporary, discounted Groupon clients.)
Know that Groupon clients don’t tip
Most businesses that run Groupon ads know that Groupon buyers are not good tippers.
Financial strain and having no intention of coming back are most likely the reasons. Tips in the beauty business are not the main line of income, but it is free money that always makes a beauty technician happy. Tips matter; they are a sign of respect and appreciation, and also help businesses buy equipment or other things they wouldn’t be able to afford otherwise.
Don’t run a Groupon campaign all the time
It is definitely not a good idea to run Groupon ads all the time, especially for service-based businesses, unless there is a good reason for it. Some business owners claim that they can make money off of Groupon, but the reality is that they are not making money off of it. Their friendly and attractive personality brings in people from Groupon. Yet the same people can get a much better deal if they advertise their services to families, friends, and other neighborhood communities.
Do you really need to use Groupon?
If you can afford to sell your service with a 50% discount, people will buy it anyway. You may not even have to pay an extra 50% of the remainder to Groupon. Look for another selling channel, like Facebook marketplace, Craigslist, and the like, to attract low-end bargain shoppers.