How Does Groupon Work?

[Dien Rice]

Originally Posted by Chuck

THANKS in advance for refreshing my memory!

A business owner told me how his groupon worked once, but I forgot.

I downloaded a Groupon, Valpak, and MoneyMailer app on my phone just to be more familiar with the local advertising competition.

It reminded me that I have forgotten how Groupon works.

I've heard horror stories of businesses being overwhelmed by response but complaining they're going broke.

The local guy I asked said it basically was used by existing customers so was not meeting his goals at the time, though I fail to remember our discussion of it's mechanics.

Does groupon keep 50% of the advertised price they collect?

Hi Chuck,

I also had to refresh my memory...

It looks like you're right. You have to give a big discount, generally 50% to 90% off. Then, 50% of the money you collect goes to Groupon.

When you do the math, it means you're only taking in 5% to 25% of the normal "retail" price, once you give Groupon their portion...

So, if you normally charge $24 for a fancy meal, you're only really taking in $6 or less for that meal! (E.g. a 50% discount means you take in $12, then half of that goes to Groupon, so you only get $6.)

Most businesses will not make money directly on these offers, and many will lose money. However, they hope to make money by introducing their business to these new customers, and getting repeat customers who will later be happy to pay full price...

Where I've read there is often a problem for these businesses is that - quite sensibly - many people just get the Groupon discount, then never come back....

Best wishes,

Dien