The Groupon phenomenon has grown like wildfire.  If implemented correctly, a Groupon campaign or a living social campaign can significantly transform your business and increase your bottom line.   Let’s be honest, a successful Groupon campaign is not cheap.  Groupon wants you to give at least 50% off to its members.  Then Groupon splits the upfront money.  So you are giving away 75% of your product and service.   If you have a 50% margin, then the campaign will cost you 25% of the wholesale price minus the percentage of no shows which is usually around 10%.  

For a Groupon campaign to work, you need to run the numbers and see it makes sense.   Let’s say you have a restaurant and you offer a $10 Groupon for $20 worth of food.  The campaign manages to sell 1000 Groupons.  This means you are required to provide $20,000 worth of food if 100% of the groupons are redeemed with the six month period.  Groupon received a total of $10,000 from it members.  (1000 members x $10.00).  Groupon sends your portion in 3 installments during the term of the deal which may be up to a year.   Also Groupon takes out all credit card processing fees.  You can figure 3% for that.   You should receive at the end of your sixth months campaign $5,000 – ($5000 x 3% = )150 = $4850.  10% of the Groupons were never redeemed or $1000 dollars.  That means you save $2,000 in food costs.  You have a margin of 50%.  If you take your $20,000 obligation subtract out the $2000 for no shows, that gives you $18,000, which you divide by 2.  Your real costs are $9,000.   Groupon will pay you the $4850.  $9000 – $4,850 = $4150.  You brought in 900 new customers.  It cost you $4.61 to bring a new customer through the door.  You must decide it the cost is really worth it.  But if half the Groupon customers comeback a few times, then you stand to make your money back and more.

There are several different Groupon strategies.  The worse one is where you are hoping a certain percentage doesn’t show up and so you get to keep their Groupon cash.  Look, if you are proud of your business, you want the foot traffic, even if you are losing money in the short term.

You need to think strategically.  What do I need a Groupon campaign for?  The obvious answer is to bring in more customers.  That’s fine, but they come and then what?  You’ve got to turn these Groupon customers into repeat customers.  That’s where you will make your money, right?   You need to make sure that if you sell 1,000 Groupons, that you can actually offer excellent service to all 1,000.  Anything less is counterproductive.  

Groupons are a great way to change the demographics of your client base.    Groupon will bring in a certain demographic, 18-45 year olds.   I knew of one restaurant that had become the senior citizens’ club each evening.   They were desperate to change their clientele base.  They used Groupon offers to bring in a new demographic. 

Also see if you can limit your offer to a certain number of Groupons.   A successful campaign might include thousands of your Groupons being purchased.  Can you handle thousands of new customers for free?  You might.  You might also be overwhelmed.  You’ll need to negotiate with the Groupon representative.  If they don’t budge, then tell them you’ll run two campaigns, one now and one in six months. 

Groupons are a great way to market your business.   These marketing companies have a huge client base in your cities and their emails are read on a daily basis.  Try that with any other email campaign.  You need to think strategically.  How can a Groupon campaign help my business?  Do I need to attract this demographic?  How many Groupons can I actually handle?   What do I do next to make that Groupon customer a repeat customer?