Lately I was lazy. Do not worry I am back. I was reading every comment they say about Groupon after my very popular article.
I gave my quick response here.
Now it is time to give you the experience of a merchant. You need to know the complete process.
It is really easy to start a Groupon campaign. You answer their questions and you follow their advices.
Therefore it is easy to duplicate their system. Let me give you the numbers from my friend. My friend had a Groupon campaign for her Dance Class business in Montreal.
Like I said the process is very straightforward. It is almost too easy.
A normal class is $20. She gave two classes for $20. It is a 50% discount.
300 people choose to test this offer.
It is 300 * 20 = $6000 gross sales. Yes 300 people respond in 24 hours.
Groupon kept 50%. In this campaign my friend had $3000 and Groupon had $3000 (simple math here).
There are two big questions you should know before you start any campaign with Groupon. It is something you should know anyway. You should know your customer cost acquisition. In this case it is 3000/300 = 10. My friend pays $10 to get one customer.
Something is missing in this equation. She gave two classes so the real cost acquisition is $20 ($10 to bring one customer to one class).
The real cost is $20 * 300 = $6000
Oh wait… is she losing her money? Of course she did not lose her money because the Groupon marketing is a win-win situation or almost a win-win situation…. First you pay Groupon only if your campaign is successful.
However you gave away a lot of resource. Not only 300 people signed up but they signed up for a free class.
Like I said the real cost is $6000. Your profit so far is $3000 – $6000 = – $3000
Now you might say it is a very bad deal because I did not include taxes….
It was not a bad deal because 25% that spend for one class buy a second class. 75 % that spend for a second class upgrade for the full program at $250 (it is a 6 months program).
In this case everyone get two classes. You might think that 225 people choose the full program (75% conversion).
It was lower than that. It was 20%. Therefore 60 people choose the full program.
The new money is 60 x $250 = $15 000
Now you add the – $3000 and you have $12 000 in pure profit.
That’s a lot of money in a very short time for zero marketing cost.
On a traditional marketing scenario, in this case, you need 256 people to make $12 000.
However the cost per acquisition is bigger of course (in our example it was $10).
Normally, you need to spend $2560 to make $12 000.
In reality the cost per people is $30 (she needs to spend $30 to get one client).
To get 256 people she need to spend $40 * 256 = $7680
To complete this madness, she save $7680 – $3000 = $ 4680
$4680 for a local business is huge.
Groupon is a great service and it is easy to make money with them. However, you need to make sure you put strong limits because you may end up with more customers that you can handle.
From those numbers, Groupon users are not loyal because they are deal hunters.
From my experience I think it is easy to disrupt Groupon on a local scene because you can give let say 60% to the business owner. You can also be very specific like a company that I love Beyond the rack (more about them soon).
I will not put my money on Groupon because I do not think that 5 years from now they will be there. ( my prediction)
Only in Montreal they have over 20 competitors direct and indirect.
Last word: I’m already hearing about user fatigue about those offers by e-mail.