Is Groupon Marketing Really Worth It for Your Businesses?
Should you pursue Groupon marketing in 2020? This post sets the record straight with the most important considerations for business owners.
/ August 6, 2020
Working in sales at Groupon was my first full-time job after graduating from college.
My responsibilities revolved around building relationships with businesses that were considered to be a good fit for the Groupon marketplace.
After selling them on running a Groupon deal, it was also my responsibility to work with these businesses to structure the resulting campaign in a way that it was good for Groupon, good for the customer, and good for the business.
The Ideal Groupon Deal Structure
Groupon works with merchants via a revenue share model.
The company takes in all the money from customers buying a deal, then they distribute the merchant’s cut with scheduled payments throughout the life of a deal.
It’s for this reason that Groupon salespeople can’t be considered telemarketers.
They technically don’t collect money from the merchants they work with – just the customers who buy Groupon deals.
How much a business will make by working with Groupon starts with the sales price for the deal.
Groupon popularized the concept of offering deals with a 50% off sales price.
For customers, this creates a great situation where they can try out a business’s products and services at an otherwise unheard of promotional price.
But where does this leave the merchant?
And what’s Groupon’s take?
After giving the customer 50% off, Groupon typically splits the remaining money on the table – the sales price – 50/50.
The Most Popular Groupon Vertical: Food & Beverage
Let’s use Groupon’s first-ever deal, for The Motel Bar, to detail the financials behind a typical Groupon deal.
But first, a fun fact:
Motel Bar, before it went out of business, operated in the same building (Chicago’s Montgomery Ward building) as Groupon. I can personally attest to the fact that it was a popular after-work hangout for the sales team.
With a deal value of $26, a $13 sales price makes sense with Groupon’s policy of offering deals at 50% off.
Assuming a 50/50 split, $6.50 would go to the merchant and $6.50 would go to Groupon.
So here’s where it gets a touch more complicated:
Groupon’s favorite deals to run are food and beverage related (like restaurants).
Food and beverage deals are the easiest to sell to customers and make the most money for the company.
Deciding on a sales price starts with a discussion about a customer’s average spend.
For restaurant deals, this would likely involve a conversation about the average bill for two people.
Knowing that restaurants are already running at low margins, a salesperson could work with their manager to create a slightly better split.
It wasn’t hard to get a 60/40 margin approved for a food and beverage deal (with 60% of the sales price going to the merchant).
Of course, not every salesperson concerned themselves with getting the best split for the business – lower margin for Groupon would impact a salesperson’s potential commission.
For an awesome restaurant already beloved by a local community, a 70/30 margin could be approved.
But this would require bringing a bulletproof case to your manager regarding the restaurant’s popularity (and therefore saleability).
Groupon sales reps had access to lead scoring metrics within Salesforce that could help with making this case.
On a related note, if a particular business didn’t score high enough as a lead, sales reps couldn’t work with them – these businesses would have to use the self-service platform.
To further complicate things, sales reps sometimes structure food and beverage deals to be over the average bill total for two people.
To ensure that restaurants could make a certain amount of money from Groupon customers, assuming they wouldn’t go for an upsell.
Interestingly, uber-popular chain businesses like Starbucks or museums with international acclaim (like the Field Museum) struck deals with Groupon that resulted in none of the split going to Groupon.
In fact, although I don’t have documentation personally to verify it, it was rumored internally that Groupon actually paid these businesses for their participation in Groupon campaigns.
The point was to activate new marketplace subscribers who they could find profitability with over time.
Other Popular Groupon Deal Categories
Although food and beverage deals are, literally, Groupon’s bread and butter, it’s not the only successful category on the platform.
Other popular marketplace focuses include:
Beauty & spas
Health & fitness
Since I worked at Groupon, this has expanded even further to include deals for online businesses and more retail offerings.
There are other popular verticals on Groupon, such as Goods and Getaways, but these deals were managed by other specialized sales teams, so I can’t speak to the fine points of how they worked.
Getting the Most out of a Groupon Campaign
In general, I think that Groupon can definitely be a good way to reach new customers and make use of unsold inventory.
But in order to get the most out of Groupon, I recommend:
Talking to other local/similar businesses who have done a Groupon deal before talking to a Groupon sales rep so that you come into the process knowing what to expect.
Researching your market for similar deal types to set expectations for deal structure and sales prices. Just because something performs well in one market, at one price, doesn’t mean the same will be true of a smaller or bigger market in another location. Yes, this means that to find success with Groupon marketing, you may actually have to offer more than 50% off.
Working with a Groupon sales rep instead of Groupon’s self-service platform to ensure a win-win-win deal structure. If you’ve inquired about getting started with Groupon and they send you to the self-service platform, that means that they don’t think you’re worth the sales rep’s time and you likely won’t do well on the platform.
Making sure that the revenue split covers your costs to provide a service (or product), even if it doesn’t result in a profit. Profit isn’t usually the goal with running a Groupon marketing campaign — brand awareness and new customers are.
Creating a strategy to upsell customers or incentivize them to come back ASAP to realize a small profit. A great example — I recently bought a massage on Groupon and the merchant offered me another appointment at the Groupon price (with the full revenue going to the business).
Using the deal structure or fine print to protect full-margin sales. For example, if you’re a restaurant, offering limited Groupon availability on weekend dates (with less of a discount) to push people to buy Groupons for weekday dates. Or if you’re a hair salon, setting a limit for how often people can rebuy your Groupon deal (for example, every six months).
Julia Spahiu of Haven Color Bar shares her experience setting up and tweaking a Groupon marketing campaign for her salon: “When we first started, we did not have restrictions but as we started getting more buzz we had to make sure we added some terms and restrictions. The Groupon Merchant team was very attentive and anytime I would reach out about updating our terms they were very helpful. We used this opportunity with our Groupon clients to make sure we got reviews and pictures to build our salon Instagram.” She goes on to add: “Even though we do not have any current deals with Groupon and a lot of business owners might not have had a good experience, for us it was a success. I think for anyone who is looking to sign up they should be sure of their reasons as to why they are signing up. Do not sign up just because you want more clients and then when they come in you keep upcharging them. Unfortunately, the Groupon clients most likely came to you because you had a deal, so if they end up leaving with $50-$100+ on their bill they won’t be happy and you will probably end up with a bad review. If your goal is to grow your business and your fan base than I highly suggest you work with Groupon. They will help get clients to your door but the rest is up to you.” Groupon customers have a reputation for not tipping. I’m sure this is the case for some but I honestly believe that most Groupon customers are normal human beings who recognize that the businesses they patronize are taking a hit by offering a Groupon deal and that tipping doesn’t suddenly become optional where it’s otherwise expected (beauty salons, restaurants, etc.). But all that said, it doesn’t hurt to put up signage about tipping or incorporate reminders in other collateral that Groupon customers would be exposed to. When I worked at Groupon, they had a tool that merchants could use to track actual spend by Groupon customers (in addition to the deal value) – if that’s still the case, I’d recommend using it so that you have enough data to judge the effectiveness of your campaign when it wraps. The Groupon Customer Experience It’s worth talking about potential points of friction that Groupon marketing campaigns can create between customers and businesses. Here’s what Jake Lane of NuBrakes Mobile Brake Repair had to say about a Groupon marketing campaign his company put together: “The Groupon deal creates a level of friction between our ops team, technician and customer when it comes time to pay for the job, as everything has to be done via the Groupon Merchant app and multiple parties need to be involved to document and make the transaction happen. Additionally, there is a bit of confusion when someone buys a voucher for one axle and we get to the job and find out their brake pads on the other axle need to be replaced too. This is very much an auto repair or service-related problem as oftentimes there are unknown variables being found on-site.” When I worked at Groupon, taxes, and tips were also not included in the cost of a Groupon. I’m assuming this is still true. Even though this is usually stated in the fine print, it’s easy for customers to miss. The resulting awkwardness of trying to collect these components can leave a bad taste in a customer’s mouth, potentially stopping them from returning if they attribute the fault of the awkward situation to the merchant – instead of to Groupon. The Pandemic Impact on Groupon Marketing Christal McKinney of Massage Therapeutix shares her experience running a Groupon campaign in 2020: “Over the years I’ve heard horror stories about Groupon. My colleagues would adamantly advise against Groupon. However, at the end of 2019, a former high school classmate and I reconnected via Facebook and learned she had become a massage therapist as well. We shared our best practices and tips with each other, discussed successes and lessons learned. She recommended Groupon. I was hesitant at first because of the experiences I’ve read about. I also had concerns about the location of my studio versus hers. I’m in a small city and she’s in Las Vegas. So I decided to give it a try. I had 4 campaigns. It took some time to get some traction since mine was in the STL market and I’m 2.5 hours from there and then everything began to shut down. So I requested that my campaign be paused. After some hesitation and countering my objections, they agreed. In June Groupon launched my campaign again and discounted further leaving me with less than $15/hr. I am honoring those who purchased but I am extremely disappointed with my experience especially since they changed their policies during the quarantine period. Merchants are now paid AFTER the client is seen. I have now joined the group of massage therapists against Groupon!” Christal’s assertion that merchants are now only paid after a client is seen runs contrary to the state of affairs when I worked there. The status quo involved merchants receiving their portion of the revenue share on a regular schedule with no further action needed – whether the customer used the Groupon or not. This new change puts merchants in an especially bad spot during this pandemic when cash flow is important for survival. Although Groupon claims to want an equally good deal for the customer, merchant, and them as a company – you’re about to learn that there’s really only one stakeholder that Groupon really cares about: themselves. Groupon’s Unsavory Business Practices In an age of woke(r) politics, I would be remiss to end this article without giving you some insight into some of Groupon’s bad business practices. As a consumer, I think it’s your right to know. Over the year-long period I worked for Groupon, there were two incidents, over an extended period of time, where salespeople were asked to stay an extra two hours past the eight-hour mark of our shifts. The stated reason? A consistently falling stock price. Apparently, this proposal was put into place in order to somehow raise it. To be perfectly honest, I still don’t understand the mental gymnastics that were required for this to happen. These incidents lasted two to three weeks at a time and were incredibly demoralizing. Especially because Groupon didn’t think it was necessary to pay us sales representatives for the overtime. We were also told, via email, that if we weren’t enthused about being there in light of this policy, we should leave – that our seats were valuable to them. Not us. The space our bodies took up. At the time this was all going down, I was still commuting to the city from the suburbs (as many other Groupon salespeople did) and the train schedule did not line up well with this change. I would get home at 10 p.m., go to sleep, turn around, and do it all over again on the 7 a.m. morning train. Because this was definitely wrong, Groupon eventually lost a class-action lawsuit based on salespeople being misclassified as exempt employees during these periods of forced overtime. I got something like a $600 check – hardly enough to cover many weeks of overtime hours. But still, it was a nice win against an enterprise organization that treats its employees as commodities, whose seats are more valuable to the company than the living, breathing people who sat in them. Of course, there’s so much more I could say about how poorly salespeople are treated at Groupon but that’s not the point of this particular article. The other business ethics issue I’d like to uncover about Groupon here is their messy accounting. This may be particularly of interest to you if you are a Groupon stockholder or are considering the purchase of Groupon stock. I’m not a finance professional but if I may speculate, the majority of Groupon’s problems started when they went public with their IPO. It became a different company from that point on. So here’s the dirt: I’ve explained how Groupon’s revenue share model works. They take in money on behalf of the merchant and pay it out to them over time. The problem? Groupon was counting all of that revenue (even what was intended for the merchants) as their own, calling it “adjusted consolidated segment operating income”. To stockholders, this positioned Groupon as taking in much more revenue than it was really entitled to. This money was never actually Groupon’s to have – it was just their job to distribute it back to merchants as part of the deal around running on the platform. Final Thoughts: Is Groupon Marketing Worth it for Businesses? I’m a strong believer that you must be ethical to be a great salesperson. During my time at Groupon, my goal was always to create win-win-win deals for the company, the customers, and most importantly, the merchant who put their trust in me. If there was ever a situation where I knew the merchant wouldn’t be benefitted, I stopped the deal, even if it meant taking grief from my boss, who only really cared about the numbers. The pressure from our then-VP of sales was intense, to say the least. With the right deal structure, I honestly do believe that marketing your business on Groupon can be a good thing. But with the wrong deal structure, marketing on Groupon could bankrupt you. I’ve heard some horror stories. If you’re considering a Groupon campaign, talk to local business owners who’ve been there. Ask for insights regarding what’s worked and what hasn’t. And don’t let the pushy salesperson on the other side of the line force you to compromise something that’s important for protecting your business – even if it means not moving forward. If you’ve run a deal on Groupon, I’d love to hear about your experience in the comments. Or, if you’ve worked at Groupon and want to add to my insights, please chime in.