Is Groupon a Biz Builder or Biz Killer?

I get Groupon emails. I like Groupon emails. People I know are avid Groupon fans, including my mom, who regularly buys stuff through Groupon and lets it collect, saving it for a rainy day I suppose.

Even I have purchased from Groupon not knowing when or if I would ever use what I bought. To this day I have a dental exam Groupon just a-waiting to be used!

The service is so cool that I became an affiliate and even displayed Groupon ads on this site for awhile. They are still regularly displayed via Google Adsense and I still include affiliate links to Groupon.

From the customer perspective, Groupon is a no-brainer. But what’s it like from the perspective of a business owner? Do they feel the same way?

Not according to Karyn Climans, a regular bizchickblogs contributor and small business owner living in Canada. Karyn wrote in a blog post about Groupon last week,

“As a small business owner, I have been approached several times to enlist Groupon (plus other similar companies) to help promote sales of my adorable helmet covers (www.tail-wags.com). The problem is I would actually be losing money if I went along with the scheme.”

Karyn goes on to talk about the way that Groupon makes money – which, quite frankly, is genius for them but not-so-great for business owners. Groupon asks their clients (the business owners) to mark down their products/services at least 50%. Then, Groupon collects 50% of the sale price. So when you get all happy about the $15 30-minute massage at some salon in your town, remember that Groupon’s collecting $7 of that! Wow.

Last year, Extreme John wrote a post titled, “6 Reasons I Won’t Use Groupon to Market My Business” where he listed some personal reasons why he chose not to work with Groupon on the marketing for his tanning business. Among them were a couple of customer service related issues as well as one that echoed Karyn’s reason above – the jarring 50% that Groupon wants to take eats into profit margins (and in Karyn’s case, eats all the way to the point where she would be losing money on each sale).

Yeah, But, Groupon Must Be Doing Something Right

It’s clear that the 50% cut makes Groupon an impossibility for some businesses, especially those with lower profit margins than you’ll find in service industries. But what we do know is that for many businesses, Groupon can spur significant growth and profit. Below are three things to consider when looking into Groupon or any similar service for marketing your business.

1. Before you consider it affordable or not, weigh all options.

The Groupon service is marketing. Ultimately it provides a two-fold service. It gets your name in front of a heck of a lot of people waving their wallets, and it also does the direct selling on your behalf. Even if for some wacky reason your offer didn’t really sell, you would still have received a considerable amount of exposure.

Before you decide whether or not you can afford Groupon, take a look at your marketing picture as a whole. It’s possible that Groupon could replace some marketing activities. It may be a better option for some of you, because the costs are not upfront as they would be with many other marketing tactics.

On the other hand, the cost of Groupon may be more than your marketing budget allows, and may bring in fewer sales than other tactics you’ve planned. Bottom line: Put your thinking cap on rather than jumping to any conclusions about affordability.

2. Are you ready for the rush?

One of the common negative issues businesses report with Groupon is the inability to handle the rush after the Groupons go out. If you’ve ever used Groupon before, you know that some businesses are totally ill-equipped to handle it. My mom once experienced a night out where the server never actually deducted from/used the Groupon, so to the restaurant’s demise, my mom could easily go back within the expiration date and get another meal practically free (not that she would, but she could). That’s not the only time it’s happened, either. Staff that’s not prepared for Groupon could result in serious loss of profit, not to mention irritated customers.

Conversely, if you’re completely and adequately prepared for the rush, you’ll end up with a whole bunch of happy customers, and that’s the whole goal.

3. Have you crafted the right offer?

Nothing gets under my skin more than to have gotten some sort of deal that isn’t really a deal, or to be treated like a new military enlistee, forced to abide by all of the establishment’s “Groupon Rules.” I walked into a Tucson-area restaurant that had apparently been burned by the Groupon experience because the very first thing they displayed at the host’s podium was a big sign listing all of their Groupon rules – basically everything the Groupon did NOT cover, which of course was everything that anyone would want. What a joke!

Businesses that use Groupon that way are paving themselves a path of social promo disaster. If you treat Groupon customers like they are trying to take advantage of you, what happens is that you as the business comes off looking like a jerk. After all, it’s your offer. You alone are responsible for figuring out the right offer so that your business doesn’t lose money.

That said, crafting the right offer could work out really well. For example, dentists offering $30 cleanings and exams are in a good position to profit, since those procedures are largely service based (so profit margins are super high) and they’re also something every potential patient has to go through on their way to the more expensive procedures like root canals and crowns.

The follow-up is just as important to success as the offer itself, though. Using the example above, the dentist offering such a Groupon should have a flawless intake system in place, and should map out a plan for patients who don’t make a follow-up appointment during that visit. If those things aren’t done, then the leads portion of the Groupon experience for the business will be completely wasted and that’s such a valuable asset!

What has your experience been with Groupon, either as a happy Groupon purchaser or as a business owner?

Tagged as: Groupon