Business owner working out the numbers

Groupon is tempting to many because of the potential of bringing in thousands of new customers. Instead of jumping into it, hoping for the best, here are 6 things to ask yourself before you go ahead to help you prepare for the cost and the benefits. 

1. How much does a new customer cost you?

If you run a restaurant, incremental cost may be 40% of the sale price. If you run guided tours on the other hand, incremental costs are close to zero – as the tour would run with or without that additional customer.

2. How much is an average sale?

Know your average sale, and be careful selling ‘too good’ a deal, ie. valued more than the average customer spends. And keep track – whether customers spend more than the voucher or not, makes a huge difference. For instance: your average spend could be £60, and your voucher is worth £50. Then you can assume that each customer will spend £10 on top of the voucher.

3. How many vouchers are bought and redeemed?

Your redemption rate matters. You can’t really know until the expiry date of the vouchers – but estimates range from 75-85%. Voucher that are not redeemed means you are missing out on potential new customers – but also earn you a little bit of money.

4. How many of those who bought a coupon are customers already?

This will vary depending on your business, the size and how long the business has been around for.

5. How many coupons can each customer buy?

Unless the limit is one per customer, you risk that fewer people buy more coupons, thereby giving you less exposure to new customers (your existing customers may snap them all up!).

6. How many customer who you acquire through a deal will return?

Some, naturally, but we often hear that as few as 8% do. The logic is – they know you discount so why bother paying full price? Unless, of course, the product or service is outstanding.

 

In addition to these – are you ready for a surge? Is your staff prepared to handle demanding new customers, and potentially disgruntled old customers? If the answer to both is ‘Yes’ then sit down and do the maths. You may find that although Groupon is losing you money on paper, but that you end up with new returning customers, i.e. what you want! And the cost of acquiring these through Groupon as opposed to conventional advertising may not be all that different. You also get exposure to a very large audience which may or may not be of value to you, depending on your business.

Groupon can work really well – you may even make a profit or end up with a significant number of new, returning customers. Just sit down, consider the above questions and do the numbers.