I read a very interesting
blog post about a small business that used Groupon and the results of that decision. This post from Posie's Bakery's owner has become quite the sensation since it was posted in September 2010, appearing on sites like The Drudge Report and
MSN. I highly recommend it if you also own a small business as the owner, Jessie, makes some interesting points about how to spend advertising dollars. Skip the comments, though, as they quickly get nasty and are frequently off topic.
Anyway, reading Jessie's post got me thinking about our own attempt at Groupon. We originally heard about Groupon through a friend of ours that uses the site often. We contacted the company a few times but never received a response. As I'm sure you know by now, Groupon has spawned quite a few similar sites. One of those, BuyWithMe, was interested in talking to us about a possible deal. Ultimately, we decided against offering a deal through BuyWithMe or any other similar site because the math just didn't make sense to us.
At first the deal sounded fantastic. Wow, we get paid to advertise through you? That's awesome. Of course, that was the first thing we heard from the sales rep and things started to go down hill from there. We were told that customers much preferred deals that were 50% off or over, which was our first red flag. That not only wipes out our profit margin but also means we're losing money. Still, we thought, it might be worth it. We had a new service we were offering and we thought it would be a good way to drive in some business during our really slow winter months. The sales rep was enthusiastic about the idea. We talked about how many coupons per person to limit the offer to and how many coupons one customer could use at one time. We talked about price and profit margin and how to make the deal attractive to BuyWithMe consumers. Things seemed to be progressing nicely.
What worried me was that I couldn't figure out how BuyWithMe made money on this whole deal. This is not a charitable organization just looking to help businesses in a bad economy, its a business itself. I tried asking the questions a few different ways but didn't get a satisfactory response. Finally, after several phone calls and e-mails back and worth over the course of a week or two I got the answer. BuyWithMe was going to take 50% of the money paid for each coupon purchased. So, we were going to offer a steep discount and then BuyWithMe was going to take another 50% of that from us. For instance, our offer was going to be half off. We were going to provide two workers for two hours for $100 and hour. It was an hour free. Take another 50% off that and we were only going to be pulling in 25% of our normal rate. That's a lot of money to lose. Plus, our sales rep wanted us to agree to travel up to 20 miles away from our warehouse for any coupon. This would produce some very unhappy customers as travel time to 20 miles away would eat up almost half their coupon.
In the end, working with BuyWithMe just didn't make sense for us. They wanted too much from us that we just couldn't afford to give. There's no way we were going to ask our guys to take a pay cut or work for free half the time to make this offer financially viable. I know the point of sites like this (they claim) is to drive in new business and that those new customers will hopefully become repeat customers. We love repeat customers and we get a lot of them already. That's based on our good work and reputation. We love new customers, too, and we'd like to meet as many of them as possible. Honestly, though, we were worried that trying to get new customers through this BuyWithMe deal would seriously harm our business financially to the point that we might not have been around to see repeat customers.
We're glad we didn't end up taking the "deal." Our sales rep had a hard time letting go, but I suppose that makes a good sales rep. It is clear that BuyWithMe and similar sites appeal to certain businesses and it works our very well for a lot of companies. It just wasn't going to work well for us.