How Groupon Led To $30,000+ In Profitable Revenue
Groupon is great from a consumer standpoint, but if you ask some of close to 1,000,000 business owners that have listed a deal on Groupon, you’ll usually find it to be a very polarizing topic. There are many ways to approach selling on Groupon, but if you don’t put thought into it, the deal you offer can be bad for business.
So this is what we did.
Right around the time I first launched Companion Maids, we were contacted by a Groupon rep. Fortunately, I had a friend that worked as an account rep for Groupon, and he gave me the low down on how it works.
- You contact Groupon or they will randomly contact you
- You work out some type of deal with the rep
- They do some research on you to prove that you’re a legit company (online reviews do the trick)
- They approve you
- You get a launch date
- You launch
So, armed with knowledge of the process, I set out to learn as much as I could about what type of deal to present to the rep.
After consulting with people who’s knowledge I trusted, and finding what I could online, I settled on two considerations that seemed to be a recurring theme with Groupon.
- Groupon takes a large cut of the sale (40-60% usually) and on our deal it was 50%.
- Groupon clients are not very loyal.
The second point is important, because it means that in order for Groupon to be profitable for us, we need to make a profit on the deal itself, because there’s a good chance that the client will not be a recurring customer. This is where a lot of businesses, cleaning businesses in particular, screwed up a bit. I’ll explain this a bit later.
So we ended up running a deal where a Groupon customer would receive $30 worth of service for $15. This is essentially only $15 off services, which isn’t a huge deal, but it would get our foot in the door, and clients would buy it. My Groupon rep kept pushing me to go larger, but I wasn’t having it. We were going to do a small deal, or we weren’t going to do a deal at all.
Finally the rep sent the deal off to get approved, and thankfully we were approved. My first business that was to be featured on Groupon! Awesome.
Then we got a launch date set—for December 25th. Yes, you read that right.
I must admit that I was a bit nervous, because we were just starting out, our representative told us there was a chance we would be flooded with clients, and I wasn’t sure if we would have the staff to handle it.
Because we set our expectations high and prepared for them, the initial response was underwhelming, but we made sure we were able to service the cleanings that came in as best as possible.
Take a look at the deals for different house cleaning services in my market (Chicago, IL)
You may notice that our company offers a smaller value deal, but we got a good amount of people to buy so far (we’ve actually sold over 200, but this is our second time running this deal.)
So let’s run the numbers on the rubber duck cleaning company deal. I picked this one because a sizable sample of people purchased it.
- Three 2 hour sessions is a total of 6 hours of cleaning. This company values that work at $300 retail total, which equates to $50 per hour. This is a reasonable price, considering we actually charge $60.
- Groupon charges $129 for this service, so assuming 50% of the sale, this company will receive $65 while providing 6 hours worth of work.
- After digging around on their site, I found that they REALLY charge around $30 an hour retail.
- Say they pay their cleaners 40% of the sale, which is low, this works out to $12 an hour on a $30 an hour rate.
- 6 hours times $12 an hour equals $72.
In short, based on our calculations, this company actually loses $7 per sale with Groupon. Multiply that by 90 clients and you’re down over $600 before recurring revenue.
More importantly, losing money on a Groupon deal is more common than many may think. But if you think this upfront loss is being made up by recurring clients, think again.
According to a small survey on Business Insider,
- Over 40% of businesses lost money on their deal
- Over 55% got 50% or LESS of the revenue on their deal as their cut
- Over 60% of businesses got no more than a handful of repeat customers from their deal
So if you can’t rely on getting a large portion of the revenue and you can’t rely on securing a lot of recurring customers, it’s best to run a deal that makes you money upfront.
So let’s run the numbers on our deal.
- Companion Maids average Groupon customer order size is roughly $155 (this is the size of the order that is placed at companionmaids.com using a Groupon voucher.)
- Our deal on Groupon is a $15-$30 deal, so we take $30 off of $155 for $125
- We pay our maids between 50% and 60%, so assuming 60%, we are left with roughly $48 after credit card fees
- Groupon pays us 50% of the $15 they charged the client ($15 for $30 worth of services) so they pay us $7.50
This equates to $55 after paying the maids and receiving our cut from Groupon, per booking, on average.
Multiply that $55 times 200 bookings, and Groupon has netted us over $10,000 in profit on over $30,000 in revenue.
Not bad, considering becoming an approved merchant on Groupon is free. There is no better ROI in marketing than free.
So with a little bit of research on what to expect, we were able to make Groupon work for Companion Maids. As expected, we only secured 2 recurring clients, out of over 200 clients. But the extra revenue was a boost, and we were able to give our teams around 10-15% more work than they would have had otherwise, which helps with retention.
Bottom line? We had a satisfactory experience with Groupon, and we would run a similar deal with them again.