Groupon, The Company that Google Couldn’t Buy

Put away your sick fantasies, it’s not what you think it is. In fact, if you have a small business and you haven’t heard of Groupon, well shame on you. If you have a small business and aren’t taking advantage of Groupon, shame on you. Oh, Groupon is not available where you’re businesses is? Shame on you too.

What am I thinking, I know very little about Groupon as well. That won’t stop me from talking about it. Moreover, I’m going to do a near impossible feat! I’m going to tell you what I know about Groupon without even looking it up or Googling some references. I am, as I type this, closing all my Explorer and Firefox windows so I can’t cheat. And if I don’t know it, I’m going to make it up and I’ll let you figure out what’s the truth.

A little bit of trivia, Groupon is a portmanteau. A port-man-too. Portmanteau. Obviously, I’ll have to explain further. One, a portmanteau has nothing to do with small business success, or small business for that matter. Two, a portmanteau is a word that is made up of two or more words like spanglish (Spanish/English), slithy (slimy/lithe), spork (spoon/fork), skorts (skirt/shorts) or liger (lion/tiger). Why the only portmanteaus I can mostly start with the letter “s”, I don’t know. Lastly three, yes, for whatever reason, portmanteau was one of those useless bits of knowledge stored in my head I decided to pull for this occasion.

Groupon is a portmanteau. It’s the words group and coupon…duh.

The idea of Groupon is to provide great limited time deals to people in a community, and thus promoting your business at almost no cost to you.

But how does that work?

Ok, first, Groupon is only available a limited amount of cities. I’m sure they’ll be adding cities far and wide soon, but in the meantime, they have a healthy list of cities that offer Groupons, including mine, Fayetteville, NC. Everyday, Groupon features a business in your area (that you defined when you register for Groupon, or elsewhere if you’re traveling), with a special deal on a product or service. In order for the Groupon to be valid, a set number of people have to buy the Groupon before it’s available to use. Once the minimum number of Groupons have been bought, these patrons can now print their Groupon, take it to the place of business and redeem their savings. Now customers know about the business and may return again.

That’s what it looks likes from the customer side, here’s what it looks like from the business owners side.

Groupon is a service to help advertise and market your business without up front costs. Actually almost no cost to you, I’ll explain the almost part in a minute. But you can’t just log into Groupon and add your small business and start offering Groupons. You have to go about the old fashioned way and speak to one of their Groupon agents who interviews you about your business, what your business offers and what kind of deal you’d like to provide.

Here’s the first hurdle, whatever deal you’re offering, Groupon insists that you offer at least a 50% discount from the normal price. That’s a pretty hefty discount. If you can’t afford to lose that much money on products or services provided, then Groupon probably isn’t for you. But for the All-American Fencing Academy, our beginner classes aren’t our money makers, it’s our regular and satellite classes, the difficult part for us is to just getting them in the door. I’d say we have about a 90% retention of clients after their beginner class. Offering a one time 50% class for potential new students…no big deal for us.

Buuuut, we still won’t be seeing 50% of the actual beginner’s class fee. We’ll actually receive 50% of that 50% and I’ll explain that in just a minute. Once you’ve provided the Groupon agent with information about your company (location, service, special offer, etc.), they are going to put you in a line up of many other businesses. Although they can’t tell you when your Groupon will run (a new and different one is run everyday), they can tell you probably within the week of it running.

When your Groupon actually runs, the special offer you provided Groupon only lasts for a day. From the time they post it, 24 hours later, that Groupon is no longer available. No biggie, if you missed it, you could probably Xerox a copy from a friend who got it, right? WRONG! Here’s the magic of Groupon. People who want the Groupon have to buy the Groupon during that one day offer online (on Groupon’s website). Groupon keeps a list of everyone that has bought a Groupon and as soon as that day is over, they will send that list to you, the business owner, so you know exactly who is eligible for the Groupon you offered. Customers can either present the Groupon as a printout and there’s also a handy iphone and android app that customers can use to show you. So customers can’t cheat and just make copies of Groupons.

Wait, there’s more magic! You can set the minimum amount of Groupons to sell before the Groupon becomes valid – this guarantees advertising and marketing for your small business and puts the footwork of spreading the word around to your customers. Let’s say I put the minimum of 10 Groupons to be sold for my special offer to be valid, potential customers are going to spread it to their friends to make sure that they can receive that special offer through Groupon. All this great advertising and marketing and still at no cost to the small business – direct contact and feedback from your customers. You’re not spending on advertising that you don’t know how many people are possibly looking at or hearing each day. In my town alone, it’s a guaranteed 30,000 people subscribed to Groupon that will see my offer the morning it’s run.

After the day your Groupon runs online, Groupon will send you a check for what it owes you. Bingo.

Oops, I did mention that you don’t get 50% of the product or service you’re offering, it’s 50% of the 50% that you take in. Hey, Groupon has to make money and here’s where it is. Although it’s free to use Groupon, Groupon makes their profit by taking 50% of the total profits earned through your offer.

For the All-American Fencing Academy, bringing in new fencers is the difficult part, but keeping them is easy. I also asked Groupon to do a little research for me, fortunately, other fencing clubs have offered Groupons and their price structure was very similar to mine. Their final sell of Groupons was about 80 sells. To Groupon that’s a low number, for a fencing club, that’s large numbers. That would equate to almost $1400 and for us our normal beginner class income for a month is about $140. If we keep any of those students is a great thing for us. In addition, now 30,000 just heard about the All-American Fencing Academy.

But here’s the downside to Groupon (and this is just what I’ve read). There are some small businesses where Groupon simply overloaded the ability to provide for their customers and the low price the special offer provided, and they went out of business. In effect, the turnout was much larger than expected.

So there you go, Groupon in a nutshell and I did it all from memory. Just take my word for it. If you have any doubt, look up Groupon at groupon.com.

Oh, and in case you were wondering about the title, Google tried to buy Groupon for $6 billion and was turned down. So Google is going to come up with their own Groupon alternative. By the way, that one I had to look up.