How does Groupon make money

Couponing - the silver bullet with risk for small business owners

Online couponing systems such as the one from the market leader Groupon or competitor DailyDeal exude an almost irresistible attraction for small businesses and self-employed: thanks to the wide range of online advertisements, a million-strong newsletter mailing list and the social sharing of offers, companies quickly gain awareness - without to pay even one euro cent for it. We asked three women entrepreneurs from Hamburg about their first experiences with Groupon discount campaigns. Not everyone was happy with it.

Like its competitors, Groupon relies on a powerful newsletter distributor and flanks its e-mail marketing measures with the purchase of online media in order to draw attention to the discount campaigns of its cooperation partners. Cooperation partners are all service providers who offer their offers via Groupon at significant discounts - mostly over 60 percent - locally as a "city deal" on the Internet.

These deals are advertised, for example, by means of advertising banners on the web, targeting the user's place of residence via geotargeting. After clicking on the advertising banner, the user registers with his email address on the landing page and can thus purchase the relevant voucher for the promotion, print it out and redeem it with the cooperation partner. At the same time, the voucher buyer becomes a subscriber to the Groupon newsletter.

For Groupon, the newsletter is the central marketing tool to inform the bargain hunter about new discount campaigns in his city on a daily basis. But supra-regional deals are also offered there as “national deals”. Groupon does not give out an exact number of its newsletter subscribers; According to Groupon spokeswoman Sophie T. Guggenberger, there should be "several million" in Germany who have subscribed to the newsletter. A special feature of Groupon is that a minimum number of vouchers must be sold before a deal actually takes place. As a rule, the duration of a discount campaign is 24 hours. But there are also exceptions where the runtimes can extend over a whole weekend.

When creating the advertisement and the landing page, the cooperation partner only has to think about the content. The rest of the deal, i.e. the editorial and graphic design of the deal through to payment processing, is done by the couponing provider based in Berlin. It now employs a good 1,000 people in Germany, and worldwide it should be 10,000. As a Groupon cooperation partner, you can benefit from a sophisticated online marketing machine with little effort. Our examples will show how well this machine works.

Groupon itself earns its money with the commission on every campaign, the so-called success bonus. Unless otherwise negotiated, this is 50 percent of the offer price. "Our cooperation partners only pay a commission to Groupon if they are successful, ie as soon as a customer has actually purchased a voucher or redeemed it from the provider," explains Guggenberger. The service provider can therefore only demand the agreed share from Groupon after the voucher has been redeemed by the consumer. In this way, Groupon also benefits from all those users who have purchased a discount voucher over the Internet but never redeemed it.

The period of validity of the discount vouchers is 24 months without further arrangements with the cooperation partner, but the period of validity and the amount of the commission for Groupon always depend on the negotiating skills of the entrepreneur. “This commission, which Groupon receives from the partner for its services, as well as the payment modalities are always the subject of an individual agreement with the cooperation partner who places the deal on All framework conditions are ultimately dependent on the wishes of our partner, the specifics of the respective industry and the specifics of the offer, ”says the press spokeswoman.

Example 1: A clean affair

Daniel Ott is the boss of the two-man car care company "Shining Car" from the Hamburg district of Fischbek. He's one such small business owner who has lately partnered with Groupon. His first deal was in October: “A Groupon employee called me and explained the concept to me.” The result was the “Resin-Teflon sealing including hand wash at a price of 39.90 euros instead of 150 euros”. The buyer saves a good 110 euros or 73 percent of the actual price on the car wash. Ott had absolutely no experience in dealing with Groupon or similar providers and is more than satisfied with the result of his first campaign: “I sold a total of 380 vouchers. My advisor at Groupon told me beforehand that I could count on 250 vouchers. ”Cross-selling other services was particularly important for Ott. "Of course, after hand washing the car, I also offered customers a polish at an additional cost, which was accepted by 80 percent of voucher customers."

Ott himself hadn't given any thought to the number of vouchers sold, it should just "roll up", as he says. And thanks to the Groupon campaign, he got enough work. “I'm still processing the vouchers. For me it was important that I only offer something that can be done quickly without any loss of quality, without losing a lot of time. ”But Ott had to negotiate hard with his Groupon advisor:“ First he wanted me too include interior cleaning for the same price in the offer. Madness. Of course I refused. It quickly became clear to me that I wouldn't count on it. ”For Ott, the Groupon campaign was a clean affair and in the meantime he has successfully“ dealt with them ”again.

Example 2: On the verge of ruin

However, entrepreneurs who do not negotiate with Groupon consultants can quickly endanger their economic existence with such a discount campaign. Especially if he does not limit the number of promotional discounts from the outset. The photographer Marlene Sonnenfeld (name changed at the request of the person who gave the quote) had to experience this firsthand. Sonnenfeld is a photographer who offers portraits, wedding photos, office photos, campaigns, and still and pack shots in her Hamburg studio. A Groupon City Deal nearly drove them to economic ruin. "That was close. Without my reserves and the support of my friends, I would not have survived this difficult time, ”reports Sonnenfeld today. "I was just exhausted with my strength and just incredibly annoyed."

What happened? Sonnenfeld received a proactive call from a Groupon consultant in September 2010. This convinced the young entrepreneur to start a city deal campaign with a validity period of one year through Groupon. For 49 euros, the Groupon bargain hunters were offered an “exclusive photo session in the charming photo studio of the likeable young photographer Marlene Sonnenfeld” as a deal of the day. A service that would cost 150 euros for the photographer in the best case.

That sounds like a good deal. Because the coupon buyer received a professional photo shoot and saved 67 percent of the actual price. Who can still say no to that? Only a few. "Groupon probably wouldn't sell more than 80 of my coupons, my Groupon advisor told me at the time." He should be wrong. In fact, Groupon sold 580 Sonnenfeld discount coupons. "I was overrun and of course that completely exceeded my time frame and almost ruined me," said Sonnenfeld, who worked through all Groupon customers little by little over the course of the year and took just as much time for the Groupon customers as for any other customer .

In addition to the time expenditure and loss of income, the bargain hunters could hardly be converted into existing customers or additional new customers could be won through recommendations. “It was just the wrong clientele that came through Groupon. They would never have paid my standard prices. No new customers came through them. ”Although Sonnenfeld actually lives from word of mouth. “I am usually recommended from customer to customer. But that didn't work at all with Groupon customers. "

“Adapted to the requirements of the company and completely risk-free”, this is how a Groupon advertising film describes the advantages of the largest couponing provider for entrepreneurs. But from the Hamburg photographer's point of view, this freedom from risk ends where Groupon's interests also end. “That wasn't individual advice, but advice that primarily serves the interests of Groupon,” says the photographer today. But Sonnenfeld blames himself mainly. “I let myself be blinded. For a small self-employed person, the advertising by Groupon with its immense bandwidth sounds very attractive at first, of course I had hoped for a lot for my marketing. In retrospect, I have to say it was my own fault. I didn't get enough information, especially not about whether I could have limited the action. "

Because a limit is possible if the entrepreneur negotiates about it with Groupon, says Guggenberger from Groupon: “Basically, our partners who place a deal on have the option of limiting the amount of vouchers sold - through the Limitation of the vouchers, as well as by the deal duration. It is always important that the partner has the opportunity to optimally support all Groupon customers. If, in our opinion, a partner overestimates their quota, we would definitely limit the deal. "

Example 3: Always at the last minute

The real estate specialist Tarun Salman (name was changed at the request of the person quoting the quote) has built up a second economic pillar with his Hamburg gym. Salman was approached by phone from nowhere in July this year by a Groupon employee. With Groupon he wanted to draw attention to his new muscular vibration training in his studio, for which he had just bought the equipment. A 10-card vibration training including advice from a personal trainer worth 149 euros for just 29 euros. It was agreed to run for 12 months with a commission of 50 percent for Groupon.

Salman also underestimated the Groupon marketing machine: he had sold 871 vouchers at lightning speed, and he himself had expected “a good 100”.

Salman can partly understand Sonnenfeld's criticism. Because he was not informed about the possibility of a limitation. “The Groupon consultant never spoke to me about the possibility of a different percentage of the commission or the possibility of setting limits. In the beginning it wasn't fair advice because I wasn't informed about all the possibilities. "

He was only to find out later that everything is a matter of negotiation at Groupon. “Some time after the first deal, the consultant tried to persuade me to do another deal, but since I was dissatisfied, I didn't want to continue working with Groupon on these terms. Then another employee called and suddenly offered me a commission rate of 70-30. Only then did I find out that I could set limits. I didn't want to sell as many vouchers as possible, I wanted to limit the whole thing at a higher price, ”reports Salman. And that should turn out to be exactly the right strategy. In the second Groupon campaign, "the quality of these customers was significantly better, some came back later."

What Salman particularly disliked at the beginning was the lack of coordination. “It had a bit of a pusher mentality and you always had to make a quick decision. There was far too little vote on starting one's own campaign. Everything had to be done very quickly, ”reports Salman, who is just as enthusiastic about the quality of the ad text as he is about the follow-up support. “Great texts, well researched. In the back office area they all work well, everything was fair and decent. Groupon was also very cooperative in terms of follow-up support, ”reports Salman, who would deal with Groupon again.

Couponing offers like the one from Groupon are actually a good way to quickly draw attention to yourself and your own offer. If you take the following points to heart, you will be able to use it well as an entrepreneur at no additional cost.

  • Does the offer / business model fit the type of bargain hunter, can this type of customer be converted into an existing customer in the long term through the discount campaign?
  • Can you also sell suitable products or services for the campaign?
  • How many campaign vouchers are economical? Limit the action!
  • Do not be pressured; the couponing provider depends on you, not the other way around.
  • Don't be too cheap on the promotion. It is far more difficult to turn existing customers into real bargain hunters.
  • Negotiate a lower commission for the couponing provider than the 50%.
  • If the first action went well, remember that your negotiating position with the couponing provider has improved.
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