Groupon's revenue drops 30%

March 23rd, 2011 • Posted by Seth Gardenswartz • Permalink

Downward dogFor all of use that have been saying Groupon is a fad, we now have some numbers that may support our forecast. Today's  TechCrunch reveals exclusive information showing Groupon's domestic sales plummeted 30% in February from  their  January high.

Commentator Erick Schonfeld ponders if the drop is a response to Mason's taste-free superbowl ads or just a post holiday breather. Personally, I think there is another, more fundamental reason: small businesses have gotten wise to Groupon's business model and are looking for more profitable ways to grow their businesses. I guess we have Groupon to thank for yet another lesson installment of "If it sounds too good to be true, look for the catch." Or perhaps "What goes up…."

UPDATE: The reporter who broke the story on Google's sales being down released an update today saying the numbers he used were way off. You can read his update here. These "confirmed" numbers show January as $93M and February as $102M. It looks like there were still plenty of suckers out there in February.

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17 Responses...

  1. Sandra says:

    Thanks for sharing this. They just emailed us yesterday and try to tell us how some of our competitors "sold out" using Groupon. SMALL BUSINESS OWNERS BEWARE — just do the math and you will see that there is not much benefit for the business (unless you just need to give away services to get customers in the door). Just because they "sold out" Groupons, means they booked up their spa at a ridiculous discount, gave Groupon 50% of that discounted price (so basically 50% of 50% off regular price), and then by the time they pay their overhead, they are lucky if they made $0. Yeah, somebody sold out….

    I am not a genius, but I know better than to fall for this. I hope all the other hardworking, fair-minded spa owners do too.

  2. Ramona says:

    I am not sure if it is a fad, but I think Groupon has more competition from other providers like LivingSocial. I also know a lot of our local radio stations are doing similar deals.

  3. Margaret says:

    This is what I have been saying all along. What Groupon et al have is not a sustainable business model. They are pinching and sucking the life out of small businesses and it couldn't go on forever. Its great exposure but even if you consider it as advertising its not good value for money. Requiring a minimum 50% discount on services then taking 50% of sales leaves us, the spa, with ONLY 25% of service price which is barely enough to cover costs!! I have not tried SpaBoom's BoomTime Deals but am curious to know if anyone has and what their success has been.

  4. Groupon still represents almost half of the US group buying according to some industry analysts. Those radio and TV "half price deals" are also a rip-off. They "give" you the air time (worth less every day) and you often get NONE of the revenue! Most of them are fulfilled by a company called Neofill

  5. Jax says:

    My midwest city of 2.5 million is now experiencing a major glut of these Groupons and multitudes of copy cats. Every TV station, the one remaining daily newspapers, and others have these super deals of the day going, most offer 60% to 75% to business…and no credit card fee deduction like Groupon. I've done the TV version where they take all the money and I committed to 85 one hour massages in exchange for 3 minutes on live-TV demo at their studio, plus 5 thirty second well-done TV commercials (they put together) 30 five second TV billboard ads the week before the live studio demo. They also sent my deal to their 85,000 email subscribers. I limited it to 85 massages. I also did another coupon deal with the local newspaper which ran my spa offer everyday for 2 weeks before Valentines, as part of 1/2 page ad long with some restaurants, jewelry stores etc. This one was for a service that did not require any therapist labor (like sitting in a suana with music). Both of these brought in people who either still watch daytime TV and still read the daily newspaper. Many have never heard of Groupon by the way… (folks in their mid 40s and up). So I've got some exposure to new people and it has only cost me my time, which I could control. Plus, instead of giving gazillionaire Groupon founder Andrew Mason another 3 to 7 million a day profit, I'm keeping those profits in my local community.

  6. Anne-Marie says:

    This Groupon, Social Living, Deal Find is sucking the lives out of small business. Do the math, people this does not work for us, most of the people coming in are only in for the huge discount that we provide, most of these new clients are not regular spa goers. They are only looking for the next best deal. I tried it, and it is a total waste of time, and no profit to the spa.

  7. Kris says:

    I believe that the only businesses that should ever even try Groupon or a similar types of discounting are brand new start up companies that are doing the services at 0% profit just to get new clients in the door at the hopes that the will earn some new clients. An established spa that is doing well would be doing services for free at a time when they could have a full paying customer. I also believe that a lot of the people buying the discounted services are people looking for a deal and rather than them come back and pay for a service they will go to your which ever of your competitors is doing their own discount of the month.

  8. Wendy says:

    I have signed a contract with Groupon. Afterwards they are trying to change it to get me on sooner. I was shocked when they asked me to offer $99 promo for $800 worth of services, and allow people to purchase multiples. For the service we were going to market costs me $1,200 just to turn it on (so if the potential client bought 3 of these offers they would pay $297, I would get 1/2 of that so $98.50, but the client gets a service that is worth $2,400). I would have to pay $1100 out of my business for each client that Groupon sends to me. That is very expensive advertising. I have also heard from other businesses that have used Groupon that the Groupon clients are very hard to please, and will complain or leave negative reviews which will damage your business' image. I am still going to do the Groupon ad but for a different service (as I have already signed a contract). The day after I signed, I was told about the SpaBoom Daily Deals. I have implemented them… and they are FANTASTIC! I get the products or services sold that I need to get moving, and I determine what I am willing to charge/loose on the item. I do $10 off things, and every single day I have people printing them off and bringing them in. Worth every single penny. Whoever designed the setup for Daily Deals is a genius, and is really on the Spa's side to help increase business, and I appreciate that.

  9. Update: The reporter who broke the story on Google's sales being down released an update today saying the numbers he used were way off. You can read his update here. These "confirmed" numbers show January as $93M and February as $102M. It looks like there were still plenty of suckers out there in February.

  10. prov says:

    So, are they up or not? I certainly hope not up, but I just heard an NPR thing about them being up.

  11. Angela says:

    When you pay for advertising, you are out cash and have no guarantee that anyone will respond to your ad. When you do a 'groupon' style ad, you are out zero and are guaranteed heads in beds plus more market exposure than most other vehicles can offer (at least in our neck of the woods). With the offers we have done with groupon, we have brought over 2000 new customers in our doors with a 15% retention rate on them and have made money both on the individual services and the breakage. The cost for us to bring in 2000 new customers via traditional media advertising would be astronomical. we've been in business for 13 years and frankly, were it not for the lousy economy I probably would never have considered Groupon, but it has worked well for us under the circumstances. But when we are at 80%+ occupancy every day, you won't see me doing these kinds of deals again.

    I LOVE SpaBoom and am trying to figure out how we can use their model to bring new customers in our doors. The critical factor, in my opinion, is that Groupon has a massive database of people who have not been to our spa — trying to see how SpaBoom can offer a similar benefit.

  12. It looks like they are up. The original story Techrunch broke was based on a flawed estimate. The reporter admitted that fact and published an nice overview of why it's so hard to estimate Groupon's numbers.

  13. Sara Daly says:

    Great comments and insight from the other respondants..thank you. I refuse to participate in Groupon for many of the reasons sited above: de-valuing spa services, low retention rates of people who use discounts, keeping my money local. I did sign up to receive offers from Groupon to keep my eye on the competition and see what other spas do to stay in the know and I think there is value to using it as a tool. We use a rewards program that has yielded us a very high retention rate, and I save the marketing dollars while our valued clients get rewarded for rebooking etc. Win-Win.

  14. Angela:

    We are in beta with a new feature that is deigned to accomplish exactly what you describe. Let me know if you are interested in being a beta tester.

  15. Hi Seth,

    We are opening our new location next month and we would love to beta test your new idea. let me know. I hate the idea of Groupon (and the local "1/2 off deals") and have always resorted to in-house deals. But with the new location being 3 hours away in a different market, I might be tempted to go groupon to "introduce our brand" to the new market.

  16. Cross MBA says:

    Wow, I see so much discontent with Groupon, and I really don't understand it….ESPECIALLY in a industry where repeat business is key, I think their business model is superb. They offer business through your door for a cost. How much money do we spend on marketing with no guarantee that you will see the return?

    To make it even better, you get paid even if they don't show up, which 75% of them don't.

    The key is to structure your deal in a manner that will lead to upsells, and return business. This is truly a win/win/win. Don't look at it sucking the life out of small business. look at it as an advertising company that'a willing to get paid only when they send you the business.

  17. Michelle says:

    Cross MBA — let's say that you have $20k available in your budget to advertise and promote your business. You want to attract clients who can afford to patronize your business and clients who will return on a regular basis. Instead of doing a promotion or campaign targeting the demographic that is most likely to become a regular client, you decide to do a Daily Deal at 50% off your regular price. The Daily Deal site convinces you to offer a $100 service for $50, promising that you will get repeat customers and the ability to upsell additional services. Out of the $50 profit, you keep $25. The daily deal company won't run your deal unless you agree to a high cap. In the end, you sell 300 services with a loss of $75/service. If you think of this as an advertising expense, the cost of this promotion is $22,500. And what do you get for spending this amount of money? Nothing. You have blown your advertising budget on coupon shoppers who will not purchase anything beyond the value of their coupon and are very unlikely to return to your business. You have now blown your entire advertising budget on the wrong demographic. I think the other issue with daily deal sites is the collateral damage that this phenomenon is doing to all small business. This viral, steep discounting is driving down all of our prices at a rapid rate. It is changing consumer behavior to chase the next deal. The only one making any money with this proposition is the daily deal coupon business. I can't believe anyone running a small business would think this is a good idea. Don't be short-sighted!

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