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January 21, 2012

Groupon, LivingSocial and daily deals – merchant FAQ

Filed under: daily deals, groupon, livingsocial — Rakesh Agrawal @ 6:36 pm

Judging from the queries that come to this blog, there are a lot of questions that merchants have about daily deals from Groupon and LivingSocial. If you are a consumer and are interested in learning about the consumer experience, see the Groupon consumer FAQ.

These are the most frequently asked questions about daily deals:

Does it make sense for a small business to run a Groupon or LivingSocial deal?

In many cases, it does not make sense. For most of the cases I see with small businesses, I would advise against it. It is especially bad for restaurants, bars, spas and other service businesses. It’s possible to make daily deals work — if you are very careful about the construction of the deal. You want to try to ensure that people spend more than the value of the voucher. You also want to try to get people to come back. See my list of Groupon and LivingSocial best practices for guidance on how to negotiate and prepare for your deal.

In what cases does it make sense to run a Groupon?

The absolute best time to run a Groupon is if your business is about to go out of business. In the United States and Canada, Groupon and LivingSocial provide cash upfront. This might help your business get over the hump. Because they don’t do background checks, you can run a Groupon even if you can’t get a loan from the bank.

How big a cut do the daily deal companies take?

Typically, they take 50% of the value of the deal. If, for example, you sell $50 worth of product for $25, you will receive $12.50. The commission rate varies. I’ve seen it as high as 100% and as low as 10%.

Is the fee negotiable?

Yes. You can negotiate the terms with your sales rep. If you business is well known within the community or you have a unique product offering, there’s a reasonable chance that you can negotiate an 85% or 90% share.

Do I control when the Groupon runs?

No. Groupon typically runs a deal when it thinks it will be most profitable for them. You might only get a few days notice before your deal runs. Do not believe any assurances that your sales rep gives you about when he expects it might run. If it’s not in writing, it’s not a commitment.

What is the biggest risk in running a Groupon?

For many businesses, the biggest risk is that the customers who come in are already your customers. Instead of acquiring new customers, you will end up taking a loss on your existing customers who would have come in anyway at full price. Plus, I hear more stories lately from consumers who choose not to go back to their favorite restaurants for several weeks after a Groupon runs because they don’t want to deal with the Groupon people.

Running a Groupon can also lower your Yelp ranking in a way that might be hard to fix. This can have a long-term negative effect on your business because many people rely on Yelp reviews to decide where to go.

Is Groupon really no risk advertising?

No. The best way to think of Groupon is “no money down” advertising. Instead of paying for ads upfront as you would with a newspaper or magazine ad, you pay for it in the form of large discounts and fees over time. I talk to many businesses who lose tens of thousands of dollars running Groupons. With a newspaper or magazine ad or Yelp subscription, the most you can lose is the price of the ad.

Can I cap the number of deals sold?

Yes. It is absolutely essential to set a maximum number of deals sold. It’s not in Groupon or LivingSocial’s short-term interest to cap it because they make more money if they sell more deals. Insist on a cap and make sure it is in your contract. I’ve heard from former deal sales people that they would lowball the number of deals that they estimated so as not to scare merchants. For example, if they expected a deal to sell 1,200, they would tell the merchant it would only sell 300 so that the merchant would run the deal without a cap.

Will Groupon or LivingSocial give me the email addresses of the people who come in?

No, Groupon and LivingSocial do not provide email addresses, phone numbers or other contact information for customers. To maximize the effectiveness of your deal, you should ask each customer for their email address. This will give you the opportunity to re-market to them. Be sure to train all of your staff to ask for this.

What does a daily deal contract look like?

See:

I signed a deal agreement three months ago, but my deal hasn’t run. What can I do?

In the agreements I’ve seen, there is nothing you can do. The deal company has total discretion over when a deal runs. They can also choose never to run the deal.

I changed my mind. Can I get out of my contract?

In the agreements I’ve seen, merchants cannot break the agreement. If I were in this situation, I would consider telling my sales rep that I will not honor any deals that come in if they run the deal. The deal company is typically on the hook for refunds, so this may get them to choose not to run it. (See the comments section on this post for a business that took this approach.)

My Groupon ran already, but I’m fed up with Groupon customers. What can I do?

Some businesses choose not to honor any more Groupons and tell customers to call Groupon for a refund. In theory, Groupon could sue you. But I haven’t seen it happen yet. Regardless, I would honor any Groupons from my existing, loyal customers.

Am I responsible for honoring expired Groupons?

Technically, according to current terms and conditions, you are responsible for honoring the original price paid for the Groupon for eternity. Legally, you may be required to honor the full value (including the discount) depending on your state. In practice, Groupon and LivingSocial will issue refunds to customers who complain. I might encourage consumers who aren’t regulars to call the deal company and ask for a refund.

Has Groupon sued a merchant?

I don’t know of any cases where Groupon has filed suit against a merchant. If Groupon is threatening to file suit against you, please email me at dailydeals@agrawals.org.

Why do you hate Groupon so much?

In its current state, Groupon is selling its product in a fundamentally dishonest way and is ripping off many small businesses. While it’s certainly true that Groupons can work under the optimal circumstances, many of the deals I see are bad for businesses. If Groupon changes its business practices and does a better job of taking into account the needs of small businesses, I will happily say so.

If you have other questions, you can email me at dailydeals@agrawals.org. I’m always interested in hearing from merchants about experiences, both good and bad. Due to the volume of mail I receive, I can’t respond to everyone. But I do read every message.

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22 Comments »

  1. [...] See the Groupon, LivingSocial and daily deals merchant FAQ. [...]

    Pingback by LivingSocial merchant agreement « reDesign — January 21, 2012 @ 7:03 pm

  2. At our deli, we ran a Groupon deal the first time and based on initial results we thought that it was a great way of improving our business. So we went ahead and put ourselves back in queue once more to run another deal since there was a waiting period of about 3-4 months. Once the rush died down and we realized there was almost zero return on our investment, we emailed our sales person and simply told them that we are not interested in running it again, even though it was close to the run date. We simply told them the truth about not getting a good return on our investment and we were firm about not wanting to run the deal again. Despite our contract, they simply accepted our request and did not run it. I think they figured that we would not honor the deal if they’d gone ahead with running the deal.

    Comment by Eman Talei — January 22, 2012 @ 1:00 pm

  3. [...] If you are a merchant and are interested in learning about the merchant experience, see the Groupon merchant FAQ. Please note that although I use “Groupon” extensively throughout this post, the same [...]

    Pingback by Groupon, LivingSocial and daily deals – merchant FAQ « reDesign — January 22, 2012 @ 8:03 pm

  4. [...] If you are a merchant and are interested in learning about the merchant experience, see the Groupon merchant FAQ. Please note that although I use “Groupon” extensively throughout this post, the same [...]

    Pingback by Groupon, LivingSocial and daily deals – consumer FAQ « reDesign — January 22, 2012 @ 8:05 pm

  5. [...] The way Groupon works, the business gets paid a chunk of cash up front. The business then runs the Groupon. If it’s a restaurant, it often involves offering 50% off the meal. But they’re actually making about 25% because half of the 50% goes back to Groupon. [...]

    Pingback by Better Approach than Groupon? A Denver Restaurant Case Study | Webalize Your Business — February 9, 2012 @ 4:04 pm

  6. Living Social is not a recommended media for selling services such as ours. Our local companies are being squashed by illegals anyways in our marketplace and this only further drives the prices down in Austin. One local company a hair sylist company Salon 505 went out of business after 9 years due to Living Social overselling their deal. Please beware consumers this is a trap and we do not advise it as a marketing angle to get new customers. One time services is what the customer is looking for when they buy these deals and upselling and collection of sales tax, gratuity has not been a good business marketing for us.

    Comment by Dawn Csernai — March 27, 2012 @ 11:36 am

  7. [...] Groupon, LivingSocial and daily deals – merchant FAQ, from Rakesh Agrawal [...]

    Pingback by Wishpond Social Offers vs Facebook Offers vs Groupon | Wishpond — June 20, 2012 @ 12:01 pm

  8. Man I wish I would have read this before running my deal. My sales representative neglected to tell me I could put a cap on the number of deals sold….I run a photography business and now I’m booked for the whole year with their deals! I’m losing so much money its not even funny. I’m wondering if I should just tell the clients to go to the company for a refund.

    Comment by Jenny — July 25, 2012 @ 12:04 pm

    • Hey Jenny:

      I did the same thing. I ran a photo deal and ended up being booked solid by a bunch of cheapskate customers. I told about 50% of them I was unable to fulfill their dates and that they should get a refund. It was perfect!!

      Comment by Nima — August 5, 2012 @ 9:27 am

      • I also ran a photo deal. I am thinking for telling all other voucher holders to contact livingsocial for a refund. is that within my bounds as a merchant? This has truly been a grave mistake for my business. I have received phone calls from buyers of the deal and am feed up with the bottom of the barrel customers. What can I do with the rest of the customer vouchers that are unclaimed?

        Comment by Mert — May 18, 2013 @ 9:40 am

  9. I too ran a photo deal. I wasn’t informed about a cap, and was encouraged that up-selling would be a big part of my ROI. I sold nearly 250 deals. I’ve been booked solid for 6 months, working practically for free around the clock for some very pushy and ungrateful clients that I am certain will never reuse my services! Oh and those extra sales I was planning on… $180 total in 6 months. These folks are cheap bargain hunters. I lost my home, sent my daughter to live with her grandparents and I am now living out of my car desperately trying to finish out the appointments I already booked to salvage my businesses reputation. This was a miserable experience that destroyed my life.

    Comment by Kelly — August 28, 2012 @ 9:27 pm

    • Sorry to hear that Kelly! I was set to run a deal on the site and the night before I panicked and asked the sales guy who was handling my file how far my limits were for the vouchers. He casually said 300! They NEVER disclose this information with you! It’s a kind of “SUPRISE you fool! We got you”! But to make a long story short, I was lucky I had been anal about an expiry date! It limited many people (CHEAP BASTARDS) from buying the deal! I ended up cancelling out on all those cheap blood suckers and fleed as fast as I could. If ANYONE needs help on crafting a story to cancel their deal, please get back to this comment and I will try and help. It can’t be a big number of vouchers sold though (you may need a lawyer for that)!

      Comment by Nima — August 30, 2012 @ 7:05 pm

  10. I’m surely coming again to read these articles and blogs

    Comment by Rob DealsExtra — October 30, 2012 @ 11:55 pm

  11. My first deal was with Groupon and it sold almost 500 therapy service deals. Admittedly, I was over-run with calls, but if you use your head, you can overcome any problem. Either select certain days for deal clients and use the other days for regular clients. I got in touch with a few therapists around my county and pitched an idea to them. I send them a client and they upsell and can only charge the same amount the client paid for the deal. I received the groupon fee, but many clients were already primed for upselling after speaking to me about the reason they called. My colleagues got new clients, where none existed and I got paid. The biggest gripe I have with Groupon is they only pay the merchant for redeemed vouchers and they keep the rest. 80 – 100 vouchers were not redeemed in that deal and less than 10 were refunded after the sale. Groupon made almost $1,000 USD on un-redeemed vouchers. Living Social at least pay for all vouchers sold and there is no need to claim for them. They pay 50% a week later and the 30% and 20% 3 and 6 months later I think. In my case, the deal companies have been excellent for business, but I can upsell my services, offering the client a 50% discount off the full price, which i’m quite happy to do. They get nearly 70% off with the deal company and I only end up with 15-20% of my full fee, which I can live on. Now my deals usually sell less than 100, because there were a lot of copycat deals after mine. I live in western europe by the way. Don’t want to be more specific.

    Comment by Gary — December 31, 2012 @ 1:48 pm

  12. [...] Source URL: http://blog.agrawals.org/2012/01/21/daily-deals-merchant-faq/ [...]

    Pingback by Best Online Marketplace — February 5, 2013 @ 7:20 am

  13. I have friends who own or run restaurants. When this frenzy began in Atlanta 2-3 years ago, one of them tried one of these deals. Months after the deal ended, there was no indication sales increased from a new customer base, leaving them wondering if what they paid benefited them. I wanted to come up with a way to allow businesses with their own promotions such as happy hour, BOGO, or daily specials, exposure to attract new customers. Local Leaper, at http://www.localleaper.com, uses maps and geolocation so users can locate deals around them, whether they are at work, home, or en-route.

    Comment by MK — February 21, 2013 @ 12:07 pm

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    Comment by Cindy — August 2, 2013 @ 11:36 am

  15. I did a deal because I thought it would be a great way to get new faces in the door. I found that 99% of the customers were coupon hoppers and did not return even when given another discount ( not as low as the LS deal ). I found most do not tip well because they know they will not be back. There is always another deal in their mailbox for same service so why pay more ? I have been in business 15 years and did not need to do this and it was the worst business decision I ever made. I never had more complaints, more people showing up late or not showing at all. I agree they are bottom feeders. In 15 years I never had one complaint, only good reviews on the net until I did this. Those were from people who never entered my door. One was mad because her mother gave her a voucher and she did not show up on time and when I told her she can re-schedule but as per the rules she has to pay the coupon price she had a hissy fit and said “she would ruin me”. Of course she couldn’t but the stress is not worth it. Then LS sends out reminders about a month before the deal is to end so I got 50 people wanting to book in the last few weeks. These are people who did not use them in 6 months time and are not big on the service I offer so will not come back. I feel it is much better to take my regulars who pay full price, tip on that, show up on time and never complain. I think the mentality of coupon hoppers is very bad for small business. I could not hand these people over to another business person as no one deserves it. You cannot upsell them. That is just false and probably a LS salesperson who wrote that.

    Small business’ are better off giving half price to their client’s family, co-workers, friend, neighbors, etc. and giving a free service to the client than doing these daily deals. At least you will get all the money rather than giving half to these big corporations, plus they take out credit card charges from you !
    MERCHANTS DON’T DO IT !!!

    Comment by Sorry merchant — September 12, 2013 @ 5:51 am

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