One of the ways I have diversified my income portfolio over the years is by investing in a physical brick and mortar business in my local community. You can read all about it here.
I consider this mostly a passive income stream (in fact one of my top passive income streams) because after the initial work involved in setting up the structure and systems that I wanted in place after I had bought it, it didn’t require all that much involvement from me.
This business is not fully passive because I still have to be close enough to it to appropriately manage it.
For example, I hold periodic meetings with my manager to get updates. I also participate in some of its accounting and tax related matters.
Most recently, I pursued some additional marketing related activities which is what I want to talk about in this post.
Almost a year ago I contacted Groupon to see if I could run a promotion with them. I had never seen a Groupon run in the business that I am in previously. It’s a bit unconventional although I saw 2 immediately after I had run mine.
So I got the auto responder saying that they’d get back to me after evaluating my business. I had totally forgotten about my application but months later I received a call from a rep in Chicago. My excitement about Groupon had died down by now but she sounded hot so I decided to carry on the conversation.
The conversation led to very good things for my business, and weeks later my Groupon was live!
Take away: Companies sometimes deliberately hire men and women who sound attractive on the phone (case in point above)
Groupon is an interesting business. They tell you to discount your stuff by 50%. Then they tell you they want 50% of that 50%. Then they pass on roughly a 2% credit card fee to you.
So in essence, if you normally sell something for $10, Groupon wants you to only keep $2.50 less the 2% credit card fee. Do you see why most businesses doing Groupons are service businesses?
Retailers cannot survive doing Groupons without some serious caveats (deceptions tricks) in their offers because they will be bleeding cash left and right. So being in the service business, I decided to run the Groupon anyway.
I have costs of goods just like a retailer does, but a slightly different dynamic. I bit the bullet because I treated this campaign as a marketing campaign.
I was ok loosing out some cash in exchange for exposure. Groupon has a huge user base. To relate this to online business, tihs is similar to affiliate marketing. You may see a product owner offer 75% commission on affiliate sales and you think they must be nuts. But are they?
First of all that’s 25% of something that the product owner wouldn’t have otherwise received if it wasn’t for the affiliate’s hard work marketing their products. Second, the owner now has access to the buyer’s email ID, therefore a chance for a repeat sale, and even several others after that.
Now obviously the dynamic is different online in that the cost structure in many cases is non existent. With mostly information products sold, the incremental cost to produce, sell and distribute a product online is not much, if any at all. Further, the process is all automated and therefore passive in nature in most cases.
But the point here is to look at Groupon as a marketing mechanism to grow your business, not as a mechanism to get rich directly off of it. I am sorry to say, but that just will not happen.
So how did my business do with Groupon? A WHOPPIN 48% INCREASE IN SALES! But a HUGE NET LOSS 🙂
Why? Because for every $10 I sold, I provided $20 of services. Of the $10 I sold, I only kept less than $2.5. I don’t think anyone can make that business model work. There is a cost to provide service, and it’s certainly more than the less than $2.5 I kept.
This is why I wished everyone who published income reports online on a regular basis published their expenses as well. Revenues are just one side of the equation.
To truly understand how lucrative an endeavor is relative to others, one must understand the true cost structure as well as the time commitment involved (cost of service).
The terms I wrote about above are Groupon’s standard terms that they approach every business with. But being the personal finance junkie that I am, I just couldn’t help but ask if they could do better on the 50/5o split. I was nice, but firm about my intentions, and my rep, being as nice as she was, agreed to slash her cut by less than 50%.
I don’t want to step on any toes or breach any agreements so I will not mention the type of discount I received, but it sure helped minimize the losses. I would have lost a lot more money if it wasn’t for the discount She gave me.
So the take away here is that you CAN negotiate with Groupon.
The bigger take away however is to ASK! Always ask. Never accept the first counter offer either. Try saying this: “you have to do better than that” and when you get close you say: “we are really in the ballpark now, but you have to do just a little better than that”.
The higher the stakes, the longer you can drag it out and the more you will usually save. This strategy can work on a .99 cent purchase of a Hershey candy bar too, but certainly don’t get your hopes up too much.
The seller may just show you the bird and walk away, and then tell everyone they know about the silly character they came across who thought they were a hot shot but really were just a fool wasting everyone’s time.
And if you are wondering, yes I asked my Groupon rep to run my eBooks as well. As you can imagine, She wasn’t too hot about it, and I can see why.
So when the rep rejected me, I told her that if I ever get a chance to publish a hard copy down the road I will hit her back up. She didn’t say no, she just smiled (over the phone). I guess I will be naive and think that I have a chance.
Groupon has done wonders for retailers across the world, but I wouldn’t dare invest in the company. I just don’t think it has long term staying power unless they drastically change / add to their business model.
The world will soon run out of establishments, and Groupon out of cash – the trajectory has already started – but this is not investment advice 😉
If you are a consumer, Groupon is God sent. If you are not already using it, you can check it out here.
What are your thoughts? Outside of devouring restaurant related Groupons which end up in huge net losses for most establishments, what has your experience been with this business? Have you, or know anyone who has used it from a business perspective? How was the experience? This post is a bit “different than the norm”, so feel free to rave and rant on unrelated topics too if you feel like it…
For those who celebrate, Merry Belated Christmas to you and have a very Happy New Year Ahead. For everyone else, Happy Holidays and Happy New Year! See you in 2013!Previous: See How Much You Can Make With Self Publishing eBooks: Plus A Royalty Chart