As the small business owner, does Groupon work?

Earlier this week, I came across a very interesting case study article from a small business owner describing his experiences with Groupon.  Groupon and other group buying coupon sites is one of the hottest trends these days.  However, a growing controversial debate is whether there are any actual, long-term benefits to the small business — not the consumer.

There are 2 main things that make Groupon (and similar sites) unattractive to the small business owner.

• One, Groupon takes a huge cut of the already discounted product or service.  In this article, he says the Groupon cut is typically 50-60% of the revenue.  As a result, in most situations, the business is literally losing money for each coupon sold (and consumed).  Therefore, business view Groupon promotions as a marketing investment.  It’s a great way to get the word out there about their businesses.
• Secondly, the customers that Groupon drives to businesses are, for the most part, price-sensitive consumers — i.e. cheap bastards. 🙂  Therefore, are these the customers businesses want to attract?  Also, what are the chances of repeat customers, since most products/services offered via Groupon a fairly expensive (without the Groupon discount)?

Now given these odds, the author describes the strategies he used to make the Groupon promotion a worthwhile investment.

What he did was use the influx of Groupon customers to drive secondary sales.  Now, to put things in context, his business was skydiving service.  Here are the additional products and services he sold:

Exact excerpt below

• Apparel: We sell at lot of cool shirts and hoodies at a great margin. We didn’t really have enough volume before for this to really make sense.

• Cross sales: We sell Video packages a pretty good margin to about 60% of customers. We also offer a ‘Same Day Special’, allowing customers to buy another jump at 50% the same day they have skydived. Sometimes upwards of 40% of customers purchase this product.

• Up sales: If people want to jump on a weekend they need to upgrade to a higher altitude. $30 to 15k gets them twice as much freefall time, and $90 to go to 18k is a fairly popular option.

Even though he runs a physical, offline business, the key lesson here is directly applicable to many online businesses.  To attract customers, you can offer something for a very low price, if not free, with the aim of upselling down the line.

This is the reason why Internet Marketers offer free eBooks.  The free eBook is given for free, in exchange for your email address.  You then will most likely will receive emails asking you to buy stuff.

This is also the tactic I used when I launched the 300K Job Search In-a-Box turnkey solution.  To promote, I had written and released my 21K in 21 Days guide, which was given out for free and piqued people’s interests in my script.

The author also described some additional benefits to using Groupon, though not as directly applicable to online businesses (with the exception of the first):

Exact excerpt below

• Post experience contact: We post their videos to Youtube, encourage them to check-in and like us on Facebook, and add them to an email list where we run our own promotions on tandem skydives and solo training.

• Breakage: It hovers around 30%. This directly boosts the effective payout of each Groupon. Also, many people take close to a year to use their jump, turning their Groupon into a business loan which we use to invest in maintenance, marketing and equipment purchases.

• Scheduling: Unlike a coffee shop, we can control how many customers come in our doors. If we’re booked up we can tell them so, rather than have a line out the door.

Here’s the original Groupon article.  It’s short and sweet, with great information about getting Groupon to work for your business.

dave