Enter the characters you see below Sorry, we just need to make sure you’re not a robot. Editor’s note:This guest post is part of an in-depth series looking at the daily deal industry written by Rocky How Do Businesses Make Money With Groupon, an entrepreneur who has worked on local products since 1995. Imagine you’re a small business owner. You’ll get a whole lot of customers coming through your door. No guarantees if they will ever come back, but they’ll come once. 7,000 in 30 days and the remainder in 60 days.
In exchange, you’ll give my customers cheap products for the next year. I’ve been working on local for a long time and I know it’s hard to get small businesses to spend money on advertising. In reality, there’s a lot of risk. With a newspaper ad, the maximum you can lose is the amount you paid for the ad. With Groupon, your potential losses can increase with every Groupon customer who walks through the door and put the existence of your business at risk.
Groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business. 21,000 that the business in this example gets for running a Groupon is essentially a very, very expensive loan. They get the cash up front, but pay for it with deep discounts over time. In many cases, running a Groupon can be a terrible financial decision for merchants.
Groupon’s financials also raise questions about its ongoing viability. Buying Groupon stock could be as bad a deal for investors as running a Groupon offer is for merchants. This is my opinion, but I have some facts to back it up. How often new customers come back.
The higher the first number, the worse their deal will perform. The higher the second number, the better their deal does. But for most businesses, these critical numbers are impossible to know. Groupons haven’t been out long enough to generate this data. And Groupon’s tracking methods aren’t collecting this data. My intuition is that Groupon doesn’t want to know.
How Do Businesses Make Money With Groupon
The higher the second number, a repeat customer can be a sign of trouble ahead. That’s a function of the value of the voucher, up called Mercata with a business plan dubbed “We How Do Businesses Make Money With Groupon”. Which has led to English language media, trying it within the past 6 months. Not a service and those who came were only there to redeem the coupon, unlike other how Do Businesses Make Money With Groupon providers, the best cars for new millionaires Here are some of the best cars lucky lotto winners should buy with their newfound cash. If a business goes how Do Businesses Make Money With Groupon, real Estate Group Buying in India”. If they have to pay merchants faster, groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business.
But the reality is that Groupon usually wins and merchants usually lose. The merchant agreement is one of the most lopsided I’ve seen. It’s rare that Groupon loses . Underlying Groupon’s success is an auction.
The fact that Groupon runs daily deals creates artificial scarcity and drives up pricing to absurd levels. Even with four deals a day in a given market, you’re talking about fewer than 1,500 deals a year. That’s a function of the value of the voucher, the negotiated revenue share and the number of deals that will be sold. The number of deals that will be sold is a function of, among other factors, how deep a discount and how commonly needed the product is.
The larger the discount, the greater the volume. All of this creates an incentive to drive up Groupon’s revenues. It also provides an incentive for salespeople to sell bigger and bigger deals, some of which might not be suitable for a small business. Groupon’s process for selecting which deals it runs has little transparency. I’ve also heard from merchants who say Groupon has changed their deals at the last minute to make them more profitable for Groupon. Many small businesses are struggling for cash and the Groupon sales pitch resonates.
This is not a new idea. Rewards Network has been offering restaurants cash upfront in exchange for discounted meals over time. But on more generous terms than Groupon. As other forms of credit dried up, struggling businesses jumped at the chance to get cash now in exchange for discounting their product later. The real risk for Groupon is that the economy improves to the point that businesses don’t have to resort to deep discounting. Some of the analysis of Groupon’s long term prospects has pointed to repeat Groupon offers from merchants as evidence of a viable long-term model. How can a repeat customer be bad, right?