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?
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 firstname.lastname@example.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 email@example.com. 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.