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Why Groupon Not As Rosy As It Appears
Rambo Tribble writes "CNN is running an article detailing the dubious history of Eric Lefkofsky, Groupon's chairman and largest shareholder. It would seem Mr. Lefkofsky has an extensive history of taking investors' money for himself, then bankrupting the businesses invested in."
Another article posted today at TechCrunch explores one businesswoman's story of how working with Groupon was
the single worst business decision she ever made.
Social coupons like Groupon are businesses that feed off of other businesses. If you are lucky, you can make the relationship symbiotic instead of parasitic.
We negotiated a groupon a little over a year ago. Our classes usually sell for $150 a month. When I talked to the groupon rep, they initially wanted me to offer a 50% deal ($75 gross revenue), and then give them %50 of the gross ($37.50), with no upper limit on the number sold and a year to redeem. I got a fair amount of pressure to sign the deal that day. I told him I needed a few days to run numbers on it.
Long story short, when I ran my numbers I figured out that if I spend 2 months worth of our advertising budget on this, limit it to 200 groupons and restrict it to new customers only, keep classes at 60-100% capacity, then I need to take in $65.08 per student for the month to break even, and then I would have 200 new people that have tried my classes. Even if we only keep 10% of these students, we would come out in a much better position.
I said no to Groupon's initial offer, and sent a counter proposal - a %50 deal for $75. We keep $65, groupon gets $10 per groupon, minimum of 50, max of 200. We also added some additional conditions:
- 1 per person plus 1 as a gift
- Groupon students must pre-register for a class (they can't just show up)
- Groupon students will be admitted on a space available basis
- Groupon would only be valid for a specific 3 month period, to coincide with our slow season and the start of a semester.
- Our standard class cancellation policy would be in effect (class canceled if fewer than X students sign up for it). Rainchecks would be offered to students canceled on under this policy - essentially we extend the expiration date for these specific folks
- We would add a number of beginner classes to our schedule for the 3 months after the groupon.
- Groupon not valid for product purchases.
They accepted the deal, and we sign the contract.
Then I get a call from a supervisor, who wants me to change back to the %50 @ 50% deal, with no upper limit. I said no.
Our groupon never ran - despite having a signed contract.
Living Social did run the deal, and we did very well with it. We sold 133. Of that, 86 were used within the time frame (15 people tried to use them outside of the time frame, which we said no to. 3 more were used outside of the time frame, but that's another story having to do with a pair of social workers, 3 foster kids and Christmas). We converted 33 into additional sales, with 18 of those converting into long-term students, most of whom take several classes with us.
Will I do it again? Yes, I think I will.