Groupon has become very popular as a marketing tool for local businesses. What better way to gain new business than to offer a cut rate coupon and have it end up in thousands of local deal seeker's email boxes!
Understand though... Going into it can be a benefit or you can end up having Groupon nightmares or Groupon problems.
Big exposure costs money as all marketing venues do. So my suggestion? Take time to estimate how your "cost vs. return" works BEFORE you jump in.
I am going to break down some Groupon cost structures. Apply your own to see if you can justify the "cost of lead".
I talked to a friend who owns a flower store. She was promoted by Groupon just before last Christmas.
She is pretty bullish on them. They sold 150 $50 coupons at $25... She figured her hard cost was $20 each...
Her "cost of lead" formula then was...
150 x $50 = $7,500 worth of product
150 x $20 cost per coupon = $3,000 cost
150 x $25 = $3,750 Total Revenue...
The way Groupon works is half goes to the Flower Shop ($1,875 ) and the other half goes to Groupon.
-$3,000 Cost + $1,875 Revenue = $1,125 Total Promotion Cost
$1,125 / 150 = $7.50 per person "cost per lead" on each $50 coupon...
I'd say that seems reasonable. And you are seeing leads automatically connected with a sale.
If you compare it to say, taking out an ad in the local newspaper... you have ad-readers but not automatically people trying your products or services.
(To calculate the "cost of lead" with a newspaper print ad, you would take the cost of the ad and divide it by the number of calls and walk-ins you get.)
But understand, in this situation money was lost on each of these Groupon transactions guaranteed (-$7.50 plus the labour to process them)... with a newspaper ad you may end up with enough sales to cover the cost of the ad.
If I apply the same formula to a home furniture company that ran the promotion...
They sold 220 $200 coupons were purchased at $50 each... I figure their hard cost was $100 each...
Their cost of lead formula then was probably...
220 x $200 = $44,000 worth of product
220 x $100 cost per coupon = $22,000 cost
220 x $50 = $11,000 Total Revenue
Again, half to home furniture company ($5,500 ) and half goes to Groupon (which I do think is reasonable).
-$22,000 Cost + $5,500 revenue = $14,500 Total Promotion Cost
Cost per lead was probably about $65.90 per person on each $200 coupon... Gulp!
Again, money is lost on each one of these Groupon transactions guaranteed (-$65.90 plus the labour to process them)...
Here's a few further thoughts...
For an alternative... Google Adwords "cost per click" for most local businesses cost aprox $0.25 - $1.00 each. If it took 20 web visitors to get a call or walk in, it would cost $4 - $20 each lead. For most this is still very inexpensive.
In relation, I heard someone say the other day "You don't have a customer until they buy again." So true...
Here are a few good articles that relate...
Subscribers Eager to Open Daily Deal Emails
5 Ways To Profit From The Group Coupon Game
Groupon Nightmares (and How to Avoid Them)
Groupon in Retrospect
Understand though... Going into it can be a benefit or you can end up having Groupon nightmares or Groupon problems.
Big exposure costs money as all marketing venues do. So my suggestion? Take time to estimate how your "cost vs. return" works BEFORE you jump in.
I am going to break down some Groupon cost structures. Apply your own to see if you can justify the "cost of lead".
I talked to a friend who owns a flower store. She was promoted by Groupon just before last Christmas.
She is pretty bullish on them. They sold 150 $50 coupons at $25... She figured her hard cost was $20 each...
Her "cost of lead" formula then was...
150 x $50 = $7,500 worth of product
150 x $20 cost per coupon = $3,000 cost
150 x $25 = $3,750 Total Revenue...
The way Groupon works is half goes to the Flower Shop ($1,875 ) and the other half goes to Groupon.
-$3,000 Cost + $1,875 Revenue = $1,125 Total Promotion Cost
$1,125 / 150 = $7.50 per person "cost per lead" on each $50 coupon...
I'd say that seems reasonable. And you are seeing leads automatically connected with a sale.
If you compare it to say, taking out an ad in the local newspaper... you have ad-readers but not automatically people trying your products or services.
(To calculate the "cost of lead" with a newspaper print ad, you would take the cost of the ad and divide it by the number of calls and walk-ins you get.)
But understand, in this situation money was lost on each of these Groupon transactions guaranteed (-$7.50 plus the labour to process them)... with a newspaper ad you may end up with enough sales to cover the cost of the ad.
If I apply the same formula to a home furniture company that ran the promotion...
They sold 220 $200 coupons were purchased at $50 each... I figure their hard cost was $100 each...
Their cost of lead formula then was probably...
220 x $200 = $44,000 worth of product
220 x $100 cost per coupon = $22,000 cost
220 x $50 = $11,000 Total Revenue
Again, half to home furniture company ($5,500 ) and half goes to Groupon (which I do think is reasonable).
-$22,000 Cost + $5,500 revenue = $14,500 Total Promotion Cost
Cost per lead was probably about $65.90 per person on each $200 coupon... Gulp!
Again, money is lost on each one of these Groupon transactions guaranteed (-$65.90 plus the labour to process them)...
Here's a few further thoughts...
- Groupon seems to work better for businesses that have lots of labour in their pricing (such as restaurants and flower shops) who are paying staff to stand around waiting for customers. Best to then do it in slow times. The only glitch is accommodating a rush of Groupon-buyers and giving them great service so they come back (which is the desired result right?)
- My friend with the flower shop also mentioned that they haven't had all that many back yet... and at 6 months the coupon goes to paid-value only. Lessens cost certainly but does it not lessen promotional value?
- In my city, the London Ontario area, I understand the Groupon e-blast list is 45,000 plus. This is pretty big... so this seems to be a way to get into email boxes (although you don't get their list or the list of people who bought your coupons).
- The one reason you can analyze Groupon is that it is trackable - something offline advertising is mostly not - this is one positive
For an alternative... Google Adwords "cost per click" for most local businesses cost aprox $0.25 - $1.00 each. If it took 20 web visitors to get a call or walk in, it would cost $4 - $20 each lead. For most this is still very inexpensive.
In relation, I heard someone say the other day "You don't have a customer until they buy again." So true...
Here are a few good articles that relate...
Subscribers Eager to Open Daily Deal Emails
5 Ways To Profit From The Group Coupon Game
Groupon Nightmares (and How to Avoid Them)
Groupon in Retrospect