- THE MAGAZINE
Many online marketing companies offer special coupon incentives. Groupon, Living Social, Flutter, Clip Mobile, Coupon Cabin, and Google Coupon Feeds are just a few. The following is what I’ve learned about Groupon and tested in my own cleaning company.
What is Groupon?Groupon is an online company that offers special deals in select cities. They work with local businesses to give online offers called “Groupons” to consumers. A Groupon is an online gift certificate that is purchased at a discounted price. For instance, a consumer may buy a $100 Groupon for cleaning at XYZ Carpet Care, but only pay $50 for it.
How Does Groupon Work?Groupon makes “couponing” a social experience. People talk about the Groupon of the day on Facebook, Twitter, blogs, and other online forums. The deals on Groupon are normally 40% to 60% off the regular price.
If you advertise a Groupon, you must give Groupon 50% of what the Groupon sells for. When I tested this in my cleaning business, we offered a $100 Groupon that sold to consumers for $50. Groupon got $25 and I got $25. So in this case, I’m getting $25 to do $100 of cleaning.
Yikes! This doesn’t look good on the surface. Who wants to give a 75% discount? First, keep in mind the scenario I presented here isn’t what Groupon requires, and you can choose a different type of offer to run. Second, know that I chose this amount because $100 of cleaning from our company is a minimum job. And lastly, we got to keep all the sales after the first $100 of cleaning.
When I first learned about how Groupon worked, I immediately dismissed the idea. There was no way I was giving a 75% discount off my services. I hate offering coupons in my cleaning business. We have never been a coupon-based company and I never recommend you market yourself based on price.
Check out the ICS Bulletin Board. There are lots of negative comments about the idea of using Groupon. Here are just a couple of them:
“I do not want to give my work away. You might as well say “Will clean carpet for a free will offering.” The main person making the money is the person doing the printing.”
“Groupon shoppers are only buying your offering because it is 50% off. That makes them no different than any other price shopper who uses Val-Pak, Craigslist, etc. The generated interest in your company is merely due to the significant percent off offering.”
I made a post on my blog and asked some of my e-newsletter subscribers to respond about what they thought. Sure, I got several responses similar to those above. But I don’t blame them. I was of the same mindset.
Then some of the cleaners who have actually used Groupon started posting, emailing, and calling me about their experiences. And the strangest thing was, not a single Groupon user that I talked with has had a bad experience.
Now that’s odd. If you ask cleaners about their experience with Val-pak, postcards, direct mail, Internet marketing, or any other ad media, you’ll get mixed reviews from people who have tried them. But after communicating with about a dozen Groupon users, not a single one testified to a negative experience. I was amazed.
One actual Groupon advertiser said, “I was very leery about this as well. I never did coupon pricing or Val Pac type ads. Our results were eye opening and they continue to get better as we service more Groupon buyers....I think you will be very surprised at the income level of the average Groupon shopper and their willingness to spend well beyond the deal they bought.”
Another thought that, “Putting a coupon out was to generate some work this time of year. We thought the middle income would be using it but has turned out we are booking more higher end.”
So I had to give it shot. We offered a Groupon for $100 of rug, carpet, or tile cleaning that sold for $50. Twenty-three people purchased our Groupon, which makes $575 in sales that we’ll get straight from Groupon. But now we have to do $100 of cleaning for twenty-three people.
Our number sold was less than normal due to the exclusions I had on my Groupon about areas served and new clients only. As of this writing, one week after the Groupon ran, we’ve only done two of the jobs from Groupon. One job tallied $280 and the other ended up being $230.
Everyone who has booked a Groupon cleaning is set to spend more than the $100 Groupon amount. In most cases, they are booking over $200 in cleaning. One man who saw the Groupon offer didn’t buy the Groupon, but had us do $704 in area rug cleaning. I’m generally impressed by the results we’ve gotten so far. I didn’t believe it, but the proof is in the results. The reality is that you typically pay that much and more for other advertising media. Let’s say paying $500 for an ad brings you seven new clients. That’s actually fairly good. Many of my clients get a better return than that, but it’s still not bad. The cost to gain a new client would be $71 per client.
Sit down and calculate your cost for gaining a new client. Take how much you spent on marketing and advertising last year and divide that by the number of new clients you gained. Make sure to include what you spent on personal selling and networking, which has the big cost of your time. Chances are, that amount is somewhere between $40 and $90 to gain each new client.
For the $230 Groupon job, we gave $25 to Groupon. Then we did the first $100 of cleaning for that $25. The question to ask is, how much does it cost you to do $100 of cleaning? On average, it could be $75 assuming, you have a 25% profit margin. So after the $25 we received from Groupon, it cost $50 to gain the new client. That’s not bad at all.
What Makes Groupon Different?The biggest roadblock is thinking Groupon is just another coupon. It’s not. Groupon states 69% of their users have household incomes over $50,000, with 29% over $100,000. And 77% are women; this is mostly our target market.
But the big thing is, the user must buy the Groupon upfront. Most other coupon media don’t have this requirement. And with cleaning, the user buys the Groupon as an investment to be redeemed weeks or months later. People living paycheck to paycheck won’t spend $50 now to get cleaning down the road; this seems to weed out your average price shopper. And by the way, you get paid for the Groupon purchase whether or not it ever gets redeemed. In addition, the other services offered on Groupon are normally higher-end services like spas, nice restaurants, and other establishments.
Groupon is great addition to the world of social media. If you understand the lifetime value of a client, it makes more sense. It may not be right for everyone, but for some it’s a great way to gain new clients.