Many small businesses are asking if Groupon is “a good deal”.
Well, the answer is possibly!
You have to determine several things first:
1. What the average value of a repeat or lifetime customer is.
2. Whether the customer you obtain from an advertising source would otherwise patronize your business.
3. Whether you have a means for following up on one time customers to make them repeat customers.
4. Whether you can obtain new customers through a given advertising outlet for less than their “lifetime value”
THEN you may be able to rationalize using an advertising resource like Groupon.
Here’s one other thing that you should answer… how will you respond to a surge of business. Can you do so profitably?
Check out this story: Baker Forced to Make 102,000 Cupcakes for Grouponers
In addition to the advertising, she had to pay $20,000 in extra wages to accommodate the surge – an extra cost of nearly $3 per customer.
She charged a 75% discount or $10 and obtained 8500 new customers.
Personally I can see how that would hurt.
But if the store can retain even 10% as ongoing customers who turned a profit… would that be worth it?