If you are a small business and have wondered whether Groupon is right for you, let me provide you with some anecdotal information that might help you.
My hairdresser recently participated in a Groupon deal a few months ago. He had submitted his salon for a deal and a Groupon sales rep contacted him pretty quickly and came to his place to make sure it wasn’t a sketchy dump. Then my hairdresser didn’t hear back from the sales rep a long time– a few months later the sales guy called him to let him know that his deal would be going live the following week.
My hairdresser offered a pretty basic deal: a $40 haircut for $20, for new visitors only. And thanks to Groupon, his deal was purchased by 500 new customers. You might be thinking– hey, that’s $10,000 revenue in one day! But let me break down the hairdresser’s numbers for you:
—GROUPON TAKES 50% OF THE DEAL PRICE. Did you know that?! I didn’t. This means that for services or goods that are advertised as 50% off, it’s actually a 75% discount for the business
—For my hairdresser only 15% of the deals were abandoned, so that means 85% of the people have followed through with getting a haircut
—My hairdresser is a one-man shop– he had to hire someone to help him get through the Groupon appointments
My hairdresser has had a few repeat customers so far, but the jury is still out on what the ROI is. He’s seeing his Groupon participation as a marketing expense (he usually spends money on local flyers and mailers in my neighborhood). Luckily for him, a haircut doesn’t really require purchasing any raw materials. The poor nail salon across the street also participated in a Groupon deal too, and sold 1500 discounted packages! But they definitely lost money using Groupon because their cost of materials (nail polish, nail files, etc) + the cost of labor exceeded the price of the deal. According to my hairdresser, they really regret their Groupon decision.
So there you have it. If you decide to participate in a Groupon deal, don’t say you weren’t warned!