You’re not an entrepreneur if you don’t – at least once in a while – lay awake at night dreaming of the time when an advertising campaign, a product, or project takes off so well that you finally have a BUSINESS and not just DREAM!
I remember one time I ran a financial ad that had my voice mail box so filled with leads I didn’t know what to do. I spent money, got great results, but after that I found I couldn’t deliver. The ad was so sensational no human product or service honestly presented could live up to it I guess. But at least I knew I could write an ad!
It was a new technological concept for me… (this was before the Internet)… I used a newspaper ad to offer a free report and had people call a toll free number to hear another screening pitch and secure their mailing address. As I said, my actual performance sucked, but at least the ad was a success!
I remembered that when I ran across this post called “Groupon in Retrospect” . Groupon of course is the company that emails local customers and gives them an email coupon local companies hope will build their customer base.
So what happened?
As you may have guessed it DIDN”T make them rich.
In fact, it COST them $8,000! Why? Groupon doesn’t just charge per 1,000 to blast their email list. They do something that in one sense makes sense. They only get paid when they deliver paying customers to your business. They are paid up to $100 of all revenues earned by the retailer for sales under $10 according to this retailer!
This retailer negotiated a lower fee – 50%. Their groupon was for $13 in value for $6 in revenue. $3 for every coupon sold was payable to Groupon.
After 1,000 Groupons pouring in over six months, they figured they had lost $8,000 and that the advertising campaign had cost them more than it returned.
She conceded that for a service business that only uses otherwise “lost time” (if you’re a massage therapist for example and you schedule appointments when you don’t have paying customers anyway for example) Groupon could be great.
I wonder if her opinion will change over time?
She said some of the people Groupon brought were nice folks, not merely jerks wanting something for nothing.
Let’s say of the 1,000 redeemed coupons 500 were bad apples.
But the other 500 were decent people she’d like to have come back.
Will there ever be a chance that these 500 will buy enough to make her investment pay off?
I don’t know her “numbers”, but it seems to me this still could turn positive. If the average customer is worth $500 per year in sales, she might still see another additional $250,000 per year. (I get that by calculating 500 x $500.)
I don’t know what her profit margin is, but if you can’t make $8,000 back from $250,000 something is messed up!
But let’s examine the “worst case”.
Let’s say her profit margin is 10%.
That 500 would only have to purchase an average of about $3.50 per week for the next year (each) to recover that cost. All future purchases would be “pure profit”.
I’m not sure her Groupon purchase was such a bad buy. It least it holds the potential for breaking even unlike my little adventure.
But beware— sometimes success can be a “bear”!
Read it all at “Groupon in Retrospect”
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