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.
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…
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Groupon seems to be legit to increase the Revenue… I will surely give it a try. Thank You
what’s the business that you will use it on/for?
I wondered how businesses could profit from the huge Groupon discounts, and now my burning question has been answered: they don’t! LOL.
that’s right. not immediately. it should be viewed as a marketing tool that has future potential pay off.
I was wondering how someone could profit off Groupon with their price discounts. I guess it is a way to market your business and land in front of their subscibers. Great insight and Thanks!
most welcome Ron. yes, a business cannot sustain/survive just on doing Groupons
This is actually my first to getting into business with a Groupon. Looks like you are enjoying the idea, though you shouldn’t rely on this alone.
Sarah – can you share a bit more about how you are doing this and the results you are seeing?
There are many group-buying sites out there but I only trust Groupon. I have tried other deal sites but only Groupon provided the quality products and excellent customer service I am always looking for.
certainly customer focused more so than client group focused – just inherent in their business model
My wife owns a bed and breakfast, and was able to profitably run two Groupons and one Living Social ad in 2012. Like you, she negotiated the rate quite a bit. She also played them against each other, because they are very competitive.
Her feeling after doing it is that the “group deal” kind of customer tends to be more demanding and also more likely to leave a bad review on social media sites like Yelp if you don’t jump through hoops to keep them happy. Also, she has seen almost no repeat business result from it, because group dealers just jump from deal to deal to deal, as far as we can tell from talking to any other businesses that use them.
Most people lose money like you, except that they don’t even have a system in place to get repeat business on the back end, so it’s even worse.
My wife was smart enough to structure hers where she still made a decent profit, but that’s mostly because of the way a hotel / B&B works where the costs are fixed and room nights are mostly incremental profit.
I have a business that sells products, and couldn’t make a Groupon work even with a very profitable product that we have manufactured ourselves. Your math explains why perfectly. Might work with a replenishment product that has a high lifetime dollar value with repeat buys though. But you’re training your customers to value the product at a fraction of what it is worth, and often below its actual cost.
People don’t forget those low prices and ask for them again later.
I think the deal site model has jumped the shark. People get tired of getting the same laser hair removal and tanning deals over and over again, and the group sites eventually burn through all the suckers who lose a lot of money on their first deal and won’t ever do it again.
I think Ravi up there likes to comment on every blog post to get a link back. I’m pretty sure he won’t be doing a “tech blog” groupon.
I wish I knew more about what your business was. Didn’t you mention dry cleaning once? That seems like one that people would take advantage of to get a bunch of stuff cleaned cheap, and then go back to their normal cleaner on their way home.
the model just doesn’t work for hard goods with given COGS attached. in your wife’s case it can work, more so with mechanisms in place to attract repeat business. remember that even if you offer Groupon price for repeat customers you don’t have to split that price with Groupon. the model is clearly best for service related businesses. I don’t think people will ever get tired of such deals. I know that I purchase repeat deals over and over again. my business is dry cleaning, and our prices are very competitive. I use deal sites to get the name out (exposure). we have retained several from the deal. I will likely run the deal again down the road (different season of the year). I agree that customers would revert to their old cleaner providing prices and distance are favorable – those are the ones that will use a Groupon to get mass cleaning done for cheap. we had our share of those as well.
I have spoken to quite a few local companies who have used Groupon but none of them were left happy with the way the campaign turned out and the majority of them lost money. The only saving grace for them was that they got the contact details, email addresses, of the Groupon customers so they could try to bring in repeat business.
I would question the business sense of anyone who runs a Groupon expecting to be profitable on the initial go. almost all business owners I know and have spoken to know exactly what the pros and cons are going in. this is a marketing initiative (cost center – long term investment) – not a short term play
I am an independent contractor working with a small service business that ran a groupon in 2011. We did a ton of business from the groupon, over 200 customers in one year. We made next to nothing because we also had to split with the owner of the business. We got NO (ZERO) repeat business. Customers who used the groupon also either left very small or no tips. Totally not worth it other than I did get more experience in my profession.
I am hearing a lot of the same Suzie. many customers who are attracted to Groupon are bargain hunters and are less likely to form any kind of loyalty toward a particular establishment or service provider. that said, for the end user/consumer, the deals can be very good
I have a website that’s just floating around out there and I was just getting ready to finally work on promoting it when all this happened. I guess I’m lucky I waited but now I’m just sitting around waiting to hear from someone who knows what to do that will get it ranked safely.
what have you tried so far and what have been the results? how long has it been?
Have you ever considered about adding a little bit more than just your
articles? I mean, what you say is fundamental and all.
However imagine if you added some great images or videos to give your posts more,
“pop”! Your content is excellent but with pics and video
clips, this blog could undeniably be one of the very best in its field.
definitely Matthew. I will have some time to shift focus on syndicating content through other media avenues in 2013. YouTube and iTunes are def on the list. thanks for the compliment and suggestion
One of th groupon bigwigs used to live across the street from me. No lie!
did you get a chance to interact? any feedback?
This is good to hear. Success story. Unconventional marketing is risky but the rewards are worth it. Glad to hear this worked out. More to come!
I certainly will look into it, study it and see if I can make something profitable out of it.
I never really thought Groupon would accept any kind of negiciation. This is why I never even bothered to try… I’m really positive now that you told us what you done. I’ll have to try my hand now.
what business do you run?
We have done several groupon deals. We have sold out on every show!! We get a little tired of their lack of organization, but they are sending us business, so we are willing to put up with them! Until this last show when they decided to take a chunk of money out of a payment that we were waiting on. We have proven that we are owed the money and our buyer refuses to deal with it! We can not get past our buyer!! How do we get to someone who is in charge?? Any suggestions??
We are sad to be in this position, becuase groupon was a great opportunity and if I were to guess This young lady who is our buyer is over her head and if her boss knew what was going on it wouldn’t be happening!!
this is a good question Ivanna. I have found it difficult as well to get people’s attention at Groupon, partly because of their decentralized work force model. many Groupon sales reps work from home and have very minimal regular interaction with their chain of command. have you tried blogs/forums/social media? these tend to grab corporate attention quick. curious, what show are you running?