How to Not Lose Money on Groupon

Groupon is not some scam. The deals, which they present on their site, are legitimately discounted. This issue, however, is not for consumers who take advantage of the service, but for businesses who see Groupon as a viable way to advertise their business.

In order to be featured on Groupon, businesses have to discount their services by 50%. In addition to that, they have to give Groupon another 50% off of whatever is left over. This means that a product normally selling for $100 will be sold for $50 on Groupon, leaving an extra $25 for Groupon and $25 for the business owner. In other words, to be featured on Groupon, you have to be willing to discount your products by 75%! If you sell hundreds or thousands of your product or service, your business stands to lose a lot of money! As such, if you plan on using Groupon, you have to think of the following before taking advantage of their service…

Return Rate

Groupon users are looking for bargain discounts and have very little brand loyalty. As such, if want your Groupon campaign to be profitable, you have to do something that makes the discount users wanting to come back. For example, you can upsell your Groupon customers by offering an additional product or service that you can actually make money off of. You can also form long term relationships with customers by collecting their contact information, asking them to follow you on social networks such as Facebook, and offering them a future incentive (in the form of a coupon) to come back without having to pay Groupon 25% of the discounted price.

Variable Costs

If you’re, say, the owner of a massage parlor that sells $30 massages, losing $5 on a redeemed Groupon is not that big of a deal. If, however, you offer $500 helicopter tours, your business simply cannot afford to take a 75% cut off the original price. A third of businesses who’ve used Groupon say that they’ve lost money, meaning that many business owners are too lazy to do the math before accepting a Groupon promotion. Groupon’s promise of charging you for guaranteed revenue may seem appealing, but that revenue may very well come at a heavy loss to your business.

Online Reviews

A massive amount of new Groupon customers will also bring in a massive amount of reviews to your business on sites such as Yelp.com. Although the amount of reviews may help your business in the search engines, a study claims that Groupon reviewers often leave negative comments about your business, which may negatively influence purchase decisions of future prospects.

Your business may also suffer negative publicity from your current customers, who may get agitated if they see you discounting your products. Long term, this may harm your brand.

Like with any form of advertising, you, as a business owner, have to do your homework. If you feel that you can get a high return rate, sell products or services whose variable cost is low, and can please your Groupon customers so that they write favorably of your business, Groupon is a viable option. Otherwise, you stand to lose a lot of money if your business uses Groupon.

About the Author: Nickolay Lamm protects individuals from invention promotion company fraud at InventHelp.

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