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Tell HN: Our experience with Groupon
562 points by joeguilmette 1421 days ago | 105 comments
For three years I managed a skydiving facility. In March of 2010 we chose to run a Groupon promotion. At the time I hadn't heard of Groupon, and frankly, not many others had. They were new and at the beginning of the discussion with our Groupon rep, we had no idea what to expect. Another skydiving facility in the area ran a promotion and sold something like 250 Groupons. IIRC it was a 15k jump for $129. We had three products to choose from:

10k: Weekdays only, $159. Low margin, low volume. We were planning to phase this product out.

15k: 7 days a week, $199. Good margin, high volume. Discounts available, custs usually end up paying $179.

18k: 7 days a week, $259. Ridiculous margin, low volume. Discounts available, custs usually end up paying $239.

All of these skydives cost pretty much the same thing to produce, about $80. The cost goes up about $5-10 for every level. So a 18k might cost around $90 to $100.

We chose to run a 10k for $99. The standard Groupon cut is 50-60% of revenue, so based on this standard we would get around $50-60 for each Groupon (the TOS precludes us from talking details, so I am not going to say what our margin was). In advance of the Groupon we raised our 10k price to $169 so that the discount percentage was higher - the price was raised for all customers, not just Groupons.

Our first promotion sold 700 in March 2010. It was insane, the phone rang off the hook and we were slammed with customers. They weren't the best customers, but there were a lot of them. Skydiving is seasonal, in winter we do anywhere from 15-50 tandem jumps per month, 100% on the weekends. In the heat of summer we did about 200 jumps per month, Friday through Monday.

We saw an immediate uptick in business. While our volume was increasing, our net was slowly decreasing. We ran another promotion in August that sold 950 Groupons. That August we did 400 jumps, by far a record for us. Then in March of 2011 we ran our third promotion, selling 1350 Groupons.

We felt the Groupon crunch. Right after the promotion our books were full, 2-3 phone lines constantly ringing, 80-90% of customers on weekends were Groupons. We did what we could to keep things in check and have weathered the storm. This last March we did more jumps than in any month, ever. March is historically a slow month, usually about 20% as many jumps as a busy summer month.

How we made it work for us:

-Apparel: We sell at lot of cool shirts and hoodies at a great margin. We didn't really have enough volume before for this to really make sense.

-Cross sales: We sell Video packages a pretty good margin to about 60% of customers. We also offer a 'Same Day Special', allowing customers to buy another jump at 50% the same day they have skydived. Sometimes upwards of 40% of customers purchase this product.

-Up sales: If people want to jump on a weekend they need to upgrade to a higher altitude. $30 to 15k gets them twice as much freefall time, and $90 to go to 18k is a fairly popular option.

-Post experience contact: We post their videos to Youtube, encourage them to check-in and like us on Facebook, and add them to an email list where we run our own promotions on tandem skydives and solo training.

-Breakage: It hovers around 30%. This directly boosts the effective payout of each Groupon. Also, many people take close to a year to use their jump, turning their Groupon into a business loan which we use to invest in maintenance, marketing and equipment purchases.

-Scheduling: Unlike a coffee shop, we can control how many customers come in our doors. If we're booked up we can tell them so, rather than have a line out the door.

Why it is kind of painful:

-The people: Lets face it, they are kind of stingy and leave a higher ratio of bad reviews. The bad reviews have been a great incentive for us to make the business more efficient.

-The cost: Groupon is expensive. If someone buys a Groupon and jumps without buying anything else, (with a standard Groupon margin) we'd lose about $20. About 30% of Grouponers fit into this category.

For our company, Groupon was an amazing experience. It is costly advertising, but we don't plan on keeping our ratio of Groupons/non-Groupons at 80% where it is now. It is expected to precipitously drop off as the year goes on, and when it does we will enjoy the collateral benefits of a huge word of mouth campaign and an email marketing list 10x what it would be otherwise.

We have learned to survive on the razor thin margins that Groupon throws at you, so as this ratio shrinks in size, even if our volume goes down our net will recover and we will continue to grow. Skydiving, as a business, has a lot of features that differentiate it from other retail businesses and make Groupon a lot easier to stomach. That said, I feel that all of the Groupon horror stories floating around are from businesses that would be in trouble regardless. Remember, the attrition rate for B&M businesses is scary.




Thank you for writing this.

Edit to add value: "Same-day" special + email list of people with confirmed willingness to pay money and get pushed out of a perfectly good airplane = a win. Presumably your costs are pretty much fixed after making the decision to do a jump, so you could hit that mailing list with a special promotion multiple times per year. It's a Tuesday, congratulations, have 20% off if we push you out of an airplane, etc.

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Thats exactly what we do! Basically run our own Groupons. Send out an email with a link to a hidden page on our site that will be up for a week. We generally do it in the winter just before Christmas. Lots of sales as gifts, and since it's winter they will wait a few months to jump which will raise breakage, and hence the margin.

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Joe just wanted to echo patio on thanking you. With all the breathless negative press Groupon is receiving post the S-1 IPO filing, it's tough to gauge what the reality is. Thanks for the informative post!

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I can't speak for Groupon's financials (that S-1 is horrifying), but the other end of it can work quite nicely :)

It looks like Grouponomics applies to Groupon itself!

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Do you guys have someone in house to run your groupons? This seems like a good service for a start up to offer.

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It does, but we're talking about less and less revenue. Ho much of that 25% are you going to ask for?

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Haha yes, you're certainly right. A start-up offering this service would have to do it on some sort of monthly subscription, say $20-30 a month. Though yes, I agree that this doesn't have nearly as much potential as groupon.

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It seems like you worked out a lot of the positives and negatives that Groupon brings and strategized around them. How much of this planning was done from inside your business and how much was done/consulting on by Groupon reps?

Was the 30% breakage specific to your business, or was that quoted by Groupon reps as an average? I'd have to think that a Groupon for something that requires specific scheduling and booking would have higher breakage than something like food coupon.

I haven't spent too much time thinking about how Groupon effects small business, but it seems like businesses like yours are in the best position to really benefit. Jumping out of a plane is an experience, and one you're probably not used to doing. Seeing that show up in your email may spark the idea of jumping out of a plane. Since it's somewhat novel, your customers are more likely to take advantage of upsales. It's also a thrilling experience, so the customers will be pumped up on adrenalin, and more likely to be sold apparel afterwards. Did Groupon customers fall in line with normal % of customers buying apparel or did they differ?

I can really see the value to both the customers and your business in running a Groupon. However, as a consumer, I'm not going to go skydiving once a day. I'm not going to go once a week. I'm probably not going to get into trying out these adventure activities with any substantial frequency. Groupon can't just load up on these things and still provide intriguing daily deals. It seems like they have to have a mix of businesses, and some of these businesses are either not capable of strategizing around a Groupon, doing the proper measuring and acting intelligently on it, or their business model simply doesn't mix with Groupon. It's these people that are going to be most vocal with their Groupon experience and drive the bad press. Without real data (which we'll never have) we can only speculate on anecdotal reports. Even so, I see much more value in your account than another person complaining about how Groupon screwed them, or someone just running with the assumption that Groupon is railroading every small business who will talk with them.

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This strategizing was done almost 100% on our end. We consulted with them and asked questions, asked for other skydiving facilities that ran Groupons, looked at them, called them and talked to them, etc.

We modified pretty much everything about our business around running the Groupons.

Still, I feel that our rep did a good job helping us out, much more so than another form of marketing would. Would you expect a billboard company to come to my business and tell me how to run my business more efficiently, make sure I can handle it?

We ran a radio promotion around the same time and they did ZERO insofar as making sure we'd be ok. It also cost us a lot of money.

Restaurants and coffee shops have more to overcome when running a Groupon, but that's their job, right? Pick a good marketing strategy, be successful, make good decisions, etc.

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This is unrelated, but how many accidents have you had since you opened? Or, generally, is it a risky sport?

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People say it's safer than driving, etc. In 26 years I know 0 people that have been injured or killed driving.

In 3 years jumping I've seen some pretty gruesome stuff. Don't believe the stats, you're exposing your body to lots of kinetic energy and we're pretty fragile. No nightmares or PTSD, but, let's just say I've seen the helicopter land more than I'd like.

The injury rate for first time jumpers doing tandems is near zero. Its all people hurting themselves, similar to someone buying a fast car and getting in a car accident while pushing 120mph. It happens and you think "Well... At least we all warned him to take it easy a bunch before his accident."

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That's very informative, thanks. It sounds like you'll be fine if you're cautious, though.

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http://adventure.howstuffworks.com/skydiving8.htm

>The big question is always, "How dangerous is skydiving?" Each year, about 30 people die in parachuting accidents in the United States, or roughly one person per 100,000 jumps. Look at the US Skydiving Incident Reports to get an idea of the types of problems that lead to fatalities. If you make one jump in a year, your chance of dying is 1 in 100,000.

http://www.uspa.org/safety/incident.htm

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There are significant differences based on type of jump too. Most first timers do tandem jumps with an instructor on your back. Those jumps have a fatality rate around 1 in 140,000 where static line jumps are closer 1 in 50,000. And the injury (not fatality) rate for static line jumps is around 1 in 200.

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At the rates they do jumps, there appears to be about a 1-2% annual chance of a fatality. Would such an event end the business? If so, this would change the expected value and the true cost of a jump.

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And "injury" probably runs the gamut from sprained ankle to "oh look, my femur is poking through my pants"

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Ah, those odds sound better than driving, thanks.

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Isn't that only relevant if you skydive instead of driving? :)

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My daily commute is 18k ft - ground, you wouldn't believe how much I spend on gas.

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Aren't you skydiving instead of driving when you are skydiving?

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I'm subscribed to several Groupon-like services, and it seems that maybe 75% of the offerings I get are similar to this - skydiving, drive a Ferrari, race car driving course, spend a night at a fancy castle and drink champagne for breakfast, those type of things.

I guess there's a market for them, but I wonder why those types of products are so prominent in the offerings here in the Netherlands.

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That said, I feel that all of the Groupon horror stories floating around are from businesses that would be in trouble regardless.

I would love to find out that your experience is more typical for Groupon customers, but it strikes me that there is a bit of selection bias at play here. The fact that you are posting this on HN, with 3 years/700+ karma here, suggests you might take a more analytical approach to assessing the Groupon opportunity and building a business model to make it work for you. I doubt this is typical of the small B&M business owner that Groupon sells to.

Congratulations, though, on your success and thanks for the write-up.

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My karma was around 550 before this post :)

I went into this management position with zero management experience. If I am at the top end of small business management then we're all doomed. I honestly feel that every single one of these Groupon horror stories are from careless, dare I say stupid, business owners. You see them all the time. How many buildings have you seen cycle through restaurants every 8 months?

One of these businesses happens to run a Groupon and then it's Groupon's fault they went out of business.

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I went into this management position with zero management experience. If I am at the top end of small business management then we're all doomed.

I think you might be conflating experience with ability. There are people with a lifetime of management experience whose ability remains modest at best.

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That's a good point. Groupon might be rough on restaurants, but then it seems everything is pretty rough on restaurants.

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I think you're both right -- you in that joe is definitely an atypical small business owner, if my experience is anything to go by, but he's right in that a lot of the businesses that get crushed by Groupon aren't being run real well to begin with.

We do a lot of one-on-one B2B work. I really, truly, dearly love our clients. However, it's definitely true that most (nearly all) of them handle their business as though it's a 9-to-5 job. They come in, open up the shop, place orders, deal with whatever needs attention, and practice their trade for the day.

And that's fine! There's nothing wrong with that. They're happy, it's great all 'round. But, then they often get wind of the "next big thing", and they ask us how to get involved with that, without really thinking through whether or not it's the right fit for their business. They aren't maintaining the kind of customer tracking they should be, or follow-ups, or the kind of cross-promotions that joe described.

(We aren't yet, either, which is the only reason we haven't run a Groupon of our own. I'd love to, but we're not ready for it yet.)

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I am glad it worked out for you, but I find the practice of raising prices so you can claim a discount to be abhorrent - I hope businesses don't do it to me more than I think. This is the same scam that happens in every mall jewelry store.

I guess the big question is did you make the price increase "to all customers" permanent, or is that part of the Groupon song and dance? If you just do it during Groupons, then while it may work, it's deceptive. You're not helping any customer in any way by perpetrating your "discount." It might be good for the bottom line, but the tactic is all about fleecing the sheep.

This is another business tale that I'll chalk up as an argument against Groupon. At least it tells me I need to get dirty to use Groupon effectively. I think Rocky over at TechCrunch is spot on - Groupon isn't run by evil people, but it's set up to be gray and shady by nature. It's Conway's Law brought to life.

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The 10k is still $169, is in effect for all customers, and is advertised as such on our site.

We wanted to boost T-Shirt sales so we raised shirt prices $5 and then gave everyone a $5 off coupon. It worked like a charm, and nothing is nefarious about that, is it?

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I think if the overall price increase is permanent then it is indeed not deceptive on your part... totally fine by me at least.

On the other hand, if that's what it takes for a business to use Groupon effectively, then that makes me question Groupon's long-term value to consumers.

EDIT: Here, I made a picture. Is this good for me as a buyer of things? http://i.imgur.com/zJrxw.jpg

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Its nothing new to Groupon. Its a classic retail strategy - have sales or discounts on a continuous basis. In effect, many people do not pay the high-margin MSRP price.

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So maybe the $99 jump is as big of a deal as it sounds like - but assuming they go into the funnel that we want them to:

-buy a $99 weekday only 10k jump -reserve a weekend, upgrade to 15k for an additional $30

they are getting a $199 product for $129. still a GREAT deal.

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Curiously, do you ever sell any shirts w/o a coupon? I mean literally, not figuratively, have you sold 1 w/o a coupon?

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The prices listed on everything is inflated $5, but we don't even bother 'redeeming' the coupons, the prices are just $5 lower in the computer. We really don't care, we just want people to feel like they're getting a deal and to think harder about looking at the shirts and buying one.

We also spent a lot of time and money making them cool, attractive and well made.

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>we just want people to feel like they're getting a deal and to think harder about looking at the shirts and buying one.

So you get them to commit to spending the full amount, come to the till cash-in-hand and then you let them walk away with the extra $5?

What do you do with them then? Is there a "reserve your next discount drop for only $5" deal or something?

It looks like you did price differentiation then failed to complete on those that can afford the higher price.

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They get the coupon before they buy the shirts but after they jump, in their diploma packet. more people buy shirts because of it.

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> I hope businesses don't do it to me more than I think.

If you pay close attention, you'll notice that this is exactly Safeway's entire business model.

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Free market. If someone thinks x isn't worth $169, but it is worth $169 after 20% off, that's just savvy business. You'll find in marketing, perception is nearly always more important than reality.

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This is very interesting. I think you had a small benefit because in skydiving there is a lot of things to upsell. Skydiving is such a huge, scary and adrenaline filled event in most people's lives that even the cheapest coupon hunter will have a desire to buy something to commemorate it and show it to his friends.

BTW what is breakage? Is that when people get scared and refuse to jump?

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Breakage is when someone buys a groupon but doesn't use it. The facility gets the money anyway.

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Thanks for writing this up. Not much positive coming from the Groupon front of late. That said:

> In advance of the Groupon we raised our 10k price to $169 so that the discount percentage was higher.

I think most people assumed this was happening, but to have it said in plain English is a bit disturbing. It's deliberately deceiving the customer, and is accepted as a strategy. Is that sustainable?

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It's not deliberately deceiving anyone. We raised our price and then offered a discount. The price was raised for all customers. It is entirely different than forcing Groupon customers to order from a separate menu with similar products and higher prices, or funneling them through a website with an online store with the same products and higher prices. We just modified our pricing in advance of changing our business plan.

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Eh, whatever. As a customer, that sort of thing doesn't bother me half as much as when products are cheapened in order to avoid price hikes. (filler ingredients, subtle shrinking of container sizes, etc.)

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It seems the direct result of groupon can cripple you, much like a the slashdot/digg/reddit/HN effect for a website, but if you know how to harness the instant surge and spread it around to cross sell other products and peripheral promotions, you can ride the wave successfully.

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As mentioned in the write-up, Skydiving is much different than, say, fast food, in that the groupon customer must schedule the jump (scheduled fast food ... isn't).

All of which probably means that Groupon (at least the daily version) isn't that good for business that can't scale appropriately (ie, restaurants) or schedule the delivery of service/goods.

Once the timed-deal market really matures, we'll likely see weekly, daily, and even multi-daily (Amazon goldbox?) coupons by various Groupon-like entities.

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Exactly my point. And unlike the 'Digg Effect' you get to opt in and have plenty of notice when the wave is coming.

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Groupon (and their clones) have created a brand new style of sales. This new sales niche hasn't been properly researched, tested or evaluated. Groupon simply went full out, launched and is learning as they go.

I would be very interested in a category-by-category analysis of the effect that Groupons have.

With this data, we could figure out what types of businesses and specifically what types of deals work best for those businesses. Then, we could expand on this knowledge by creating new products, services and perhaps even entire businesses around this model.

Until we have this data and these conclusions, stories like this are anecdotal and even entertaining, but they don't represent an understanding of this new niche.

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Very interesting. Most of the Groupon customer stories I have read thus far are from lower-margin merchants such as restaurants. Since Groupon customers likely skip the upsells (wine, appetizers and desserts), restaurants seem to be less positive about their experience in general. They need to focus more on converting Groupons into returning (full price) customers to generate positive returns.

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It baffles me. I went through Trubates the other day. Bought two $8 coupons for $20 of food, limit two per table (!).

Spent $16 for a feast. Why would I upgrade? However, had it been limit 1 per table, only applied to appetizers, had a 1 drink minimum, or was only available weekdays, it would've worked out better for the merchant.

As it was they structured the deal so there was NO WAY I'd upgrade.

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Restaurants have very high gross margins (food is only about 30% of a restaurant's costs) which is why Groupons can actually be really good for them. It is absolutely critical for restaurants to fill seats.

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I think it varies greatly... I've heard from at least two restaurant-manager friends that the margins are actually quite low. (I suspect this varies quite a bit based on the "tier" of establishment).

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For every $100 of food you sell in a Groupon deal for $50, Groupon gives you $25. At 30% margin, the food costs $30. Every Groupon deal a restaurant does puts them deeper in the hole at those margins.

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But then you only have to get to $110 to break-even.

Regarding margins, it's the gross margins that are high. That's correct that overall profit margins are thin but gross margins are more important when discussing incremental business.

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Perhaps you're misunderstanding. Let's say there's a Groupon "$100 of food at ABC Restaurant for $50". You pay $50 for the deal to Groupon. Groupon takes half of that as their commission, leaving the restaurant with $25. Now the restaurant has to provide you with $100 of food for the $25 that Groupon gave them.

If the cost of goods are 30%, that $100 in food costs them $30. They're only getting $25 for it. My slide rule tells me that's a $5 loss per customer. The restaurant hopes to make it up on drinks and such, but that $5 loss is only cost of goods and doesn't include staff, rent, and other overhead. It also doesn't factor in the fact that people who came to your restaurant only because they could get cheap food don't tend to be big spenders.

I'm sure you've seen this: http://posiescafe.com/wp/?p=316

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I'm not misunderstanding. You said there'd be a $5 loss on a $100 order. I said a $110 order would thus break even. It's irrelevant to look at all the fixed costs when considering incremental revenue. Those would have been spent regardless. The Posie's owner has only been in business less than 2 years and did not seem particularly business savvy. In agree that you probably gt adverse selection but also not relevant in this thread.

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Thanks for the clarification... I wasn't seeing where you came up with the $110 figure.

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Or let's assume they lost $5. They just paid $5 for the opportunity to impress 4 people and gain 4 regular customers. $1.25 to bring a human into your business isn't that expensive, especially if they actually showed up. If you divided the cost of a billboard into how many people walked in the door, it may cost you much more.

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Huh? Restaurants typically have razor thin margins. And that's including front of house staff who are mostly paid directly by the customer!

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Amen to hear a voice of reason among all the complainers. Groupon is just another tool available to business owners and when properly used can contribute to the bottom line. No one ever said running a business was easy. No one ever said your vendors should do all your work for you. And it's completely insane that people are now complaining about too many customers? Holy cow what is this world coming to!

That said, I think the jury is still out on how much longevity the daily deals have. I suspect they will eventually take their place next to Sunday coupons as an important but not overwhelming tool for certain types of businesses.

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A restaurant etc has a different model from most - they have an absolutely limited possible customer capacity. If popular, they want to work on customer quality, not quantity.

A quality restaurant customer is: part of the right-sized party (comes as a party of 4); orders specials or expensive dishes; raves about the food to friends; has a regular habit; other things I don't know.

Coupons can easily backfire for restaurants, because they pack in low-margin customers, possibly displacing quality customers!

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The complainers are getting alot of attention because the company itself is a scam.

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This fall exactly into my thinking about Groupon Economics.

#1 this is not a commodity business like say food #2 customers that purchase because it's a discount wouldn't be likely to purchase otherwise, and it's hard for them to find another supplier #3 treating groupon as a way to bag 1st time customers and then treating them specifically as customers that _need_ upsell is the way to create repeat business

Since people are paying for entertainment, specifically something non-typical and hobby-like it works. Especially because this business took the effort to create conversion and up-sell opportunities.

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How high was cannibalization, i.e. existing customers using the Groupon deal instead of paying full price?

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Disturbingly high. Repeat customers were also kind of scary.

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What do you mean by scary?

I can understand if you don't want to disclose exact figures on cannibalization, but can you provide any indication?

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Since when is it a bad idea to give discounts to existing customers?

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It's a bad idea to give a discount to someone who was already going to buy your product at full price. It's an even worse idea to sell them a product and get 25% the revenue you would otherwise.

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I agree that it's better to be more thoughtful in how you handle existing customers and it's even worse spending 75% to give a 50% discount, however I don't think it's necessary to hide Groupons from existing customers. We encouraged all our customers to participate in our daily deals and spread the word. The customers appreciate it and we get more business.

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You give regulars perks, not cash. If you give them a discount on something, it should be a discount that can convert to additional spending.

If you run Groupons often, you're like one of those restaurants that put a 20% off coupon in those coupon magazines.... you're reducing the customer's spending expectations by 20%!

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I like this post. A lot of businesses complain about groupon saying they take a lot of money. But groupon isn't so much about making money in that sense. It's about advertising. I've seen businesses say they lost $1500 on a groupon deal or whatever, well that is the cost of advertising. It just varies from business to business. You do hope customers return though, and if you have a good business i don't see a problem with that. I rarely buy groupons, i only buy when i want to try a business out. I am a customer that is willing to return my business if your business is good to me.

I do understand there are a lot of bad customers too, but you just have to deal with it. Too bad groupon doesn't have a way to flag customers or at least have the right to refuse their groupon and just give them a refund.

Sounds like you used groupon the way it was supposed to be used. So good for you. Can you say what your business is? I'd like to try to skydive, so i'd be willing to support you. I live in arizona, so i know there are a lot of skydiving places here.

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Thanks for sharing your story! Great to hears different business owners experiences with Groupon.

One of our clients who operates a semi-private golf course ran a Groupon earlier this season and had great experience with it. It definitely generated a different type of a customer, or at least not the type of clientele they generally experience.

Basically, as a result Groupon allowed them to draw and market their golf course to a completely different target market. The only catch is, trying to convert the one time Groupon customer into a long term returning player or even try to up-sell them with Club Membership.

Groupon can be very costly, especially if your business model isn't a good fit for it. But just like any other marketing, running a proper business and cost analysis can determine if Groupon is the right fit. Otherwise you might become another example of Groupon disaster story.

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I'm clearly in the minority, but I'm not sure I would really be that attracted discounted sky-diving. If I ever try it, I want it to be with some delta force or SAS guy who is VERY well paid.

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They're all pretty similar. In fact, the lower price ones are probably safer because they've been doing it longer and have built an economy of scale. The small time guys doing beach jumps out of Cessna for $250 from 11k certainly aren't supertrained SAS guys :)

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Thanks for sharing your experience :)

In my view, ability to connect with your customers post-experience was a home run!

From what I have read most small businesses do not have the necessary infrastructure to do that. Curious to know what technologies did you use to capture that?

Also, did you have cases where customers tried to reuse their groupons?

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Everyone signs a waiver, so we collect their email address from that and add them to an email promotion list. So I guess the technology would be the mighty pen :)

We did have a few cases where we caught people... We just called them out and they paid. We are lucky because we have everyone's contact info and keep good records.

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>>...so based on this standard we would get around $50-60 for each Groupon (the TOS precludes us from talking details, so I am not going to say what our margin was)....The cost: Groupon is expensive. If someone buys a Groupon and jumps without buying anything else, we lose about $20...

Well that settles what your margin is...

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Awesome detailed write-up. Any chance I could ask you a question about this offline? My email is browser411 at yahoo. Thanks!

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From the way you have described your business it seems like you are one of the high-markup enterprises that will (always) benefit from getting large numbers of customers through the door, even at a much lower price than you normally charge.

(I'm not making a judgement on your pricing, just pointing out the obvious.)

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It really sounds like Groupon is no magic bullet. You still have to run your business. Everything you did in response to the Groupon experience (higher traffic looking for a loss leading offer) is what any solid business would (should) do in response to a loss leading promotion.

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So Groupon has been good for you, and so far you've been good for Groupon. I'm wondering what you think your long-term relationship with Groupon is going to look like.

A lot of the negative press over Groupon lately has been that they aren't building a moat and that all this money that they're spending to build a customer base is being wasted. Now that you've had a few positive experiences with them, do you expect to continue doing business with them? Is it safe to assume you'll be running another promotion at the end of this summer?

I'm also curious about how much loyalty they've gained. If another group buying site came along with a better offer (taking customer-base and margins into account), would you hesitate to switch?

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Over time we ran a few promotions through other daily deal sites. In our latest promotion we sold 1350 Groupons. Some of the other guys we tried, their promotions struggled to sell 150.

Also, Groupon tried really hard to get exclusivity from it's merchants. They have more of a moat than people give them credit for...

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Out of curiosity, what percentage of people never redeemed their groupon purchase?

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around 25-30%

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Interesting to hear that you aren't the only DZ to experience this. hehe thanks for Groupon my final AFF jumps are harder to schedule at my local DZ (MB, Canada) due to all the Tandems generated from Groupon ;p

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Yea we actually lost a few funjumpers because we've been so busy. Used to send 1 flight an hour with 3 tandems with 5-8 solo jumpers. Now we send 2 flights an hour with 5-6 tandems on each flight and around 2-3 funjumpers... :/ It's not always that bad but it is more often than not.

How much did you pay for AFF? You're going to be pretty sad when you hear that we do AFF for $999 :)

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Well that isn't a cool, almost double that haha -- I'm just happy they resist the urge to over work their instructors, however temping in this in-demand situation. Blue Sky's and safety first :)

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Camera first, safety third ;)

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AFF for $999, eh? Which DZ are you / where are you based?

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http://www.1800funjump.com seems to have the same pricing and schedule, and an AFF for $999, so I'm guessing that's the one. A bunch of friends and I were planning to go there for a jump, actually.

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> That said, I feel that all of the Groupon horror stories floating around are from businesses that would be in trouble regardless.

First, you had it right in the sentence prior to this one. Your experience is enough of an outlier that it doesn't apply to most Groupon experiences. Second, isn't Groupon supposed to help businesses that are in trouble?

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Probably the opposite on both counts. Groupon is best for savvy business owners who know how to profit from an influx of customers. And there's no reason to suggest that successful Groupon usage is rare. We only hear about the complaints, not the thousands upon thousands of successes.

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Who said that it's supposed to help businesses that are in trouble? They are essentially a marketing company that sells small businesses lots of foot traffic...

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Does nobody here realize that while Groupon may work for a skydiving facility, the market size for something like this is tiny overall. It's literally a once in a lifetime activity, maybe a few times but certainly not regularly. Groupon's valuation is based on revenues from billions of dollars of restauarant and other unsustainable industries.

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Your business is perfect for the Groupon firehose attention.

I maintain that it doesn't work for restaurants though.

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I think it's a lot harder for restaurants to be successful with it and a lot easier for them to be buried by it. That said - it's no excuse for them to run Groupons, get pounded, and then point the finger at Groupon - any more so than they can blame their landlords for charging high rent, or their employees for being expensive, or for Comcast charging so much for TV ads.

No one is making them run Groupons and no one is lying about what to expect when you run a Groupon.

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Why not? Restaurant have high gross margins so incremental customers are gold. Every empty seat is lost revenue that can never be found. The chef, waiters, landlord, etc all get paid no matter how many diners walk in.

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great write-up! are you tracking how many groupons repeat after that first jump? i'd be curious what the repeat business looks like from this group

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I'm curious in the approximate breakdown of your expenses between other expenses and your own labor. Also, what portion of the former are fixed versus variable -- incurred "by the planeload", as it were.

I've wondered whether the businesses that can fare better with Groupon tend to be those where labor is a greater part of their expense, and where the business owners -- especially for a small business -- can effectively trade their own labor at lower compensation -- as a hourly rate or absolutely -- in return for the increased business that Groupon generates (which then provides, they must hope, a longer term marketing payoff).

Also, where expenses are variable and there is not a large fixed overhead that must be met, regardless.

Once you introduce staff labor and physical products with hard margins as larger components in the equation, it seems to me that there's less buffer with which to adapt for a mis-calculation of the effects that a Groupon or similar experience will create.

And fixed expenses have to be covered, regardless, leaving thin margins perhaps insufficient.

As you mention, you also have significant additional revenue from add-ons. And your experience, inherently, probably generates a tremendous emotional boost that in turn helps to move those.

I appreciate your detailed description and explanation of how it has worked for you. It provides some good food for thought.

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I can assure you, a tandem has an enormous variable cost. It costs the business ~$80 in cash to put the tandem in the air. This does not include fixed costs such as office staff labor, marketing, the lights, building rent, equipment maintenance and purchase costs, etc.

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Thanks for this... really interesting.

I just went skydiving for the first time last week and used a Groupon. It was fun but I wasn't immediately hooked and wanting to go again.

I paid $109 for a 15k jump that is normally $209. I bought it about a year ago (Used it because Groupon was about to expire). The facility was so packed that I had to reserve my time far in advance. (They sold 4,500 groupons the day I bought)

They tried some upselling, in the form of a video and a 2nd jump at a discounted price. The video was an additional $90, which I declined, and the 2nd jump was a "discounted" $125. This seemed kind of silly to me, as I'd only paid $109 the first time around. In the end, I wasn't upsold, so I'm presuming they lost some money on me. They also didn't collect my email address or anything. I think in the end the value you derive from a daily deal is very dependent on your ability to be smart about it (via upsells, social media, etc.).

Can you share a bit about the economics of a skydiving facility? I got the impression that the skydivers were paid per jump.

One other thought is that if I were to do it again - I've seen several Groupons for other skydiving facilities... I'd probably just buy another Groupon for another place... new view, etc. Maybe I'm in the minority but I think getting people to come back is tough when there is so much pressure from other deals.

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All instructors (and everyone else, except front end staff) are paid per unit - industry wide.

Depending on aircraft it generally costs around $12-20 per seat in the plane. The equipment costs around $15k to buy new is fairly expensive to maintain. Instructors earn anywhere from $25-85 per jump, depending on facility, the weight of the student and whether or not the student bought a handcam video. Also, it generally costs about $10 to pack the parachute after the jump. So you're looking at around $60-120 in cost for each tandem jump.

Outside video (a videographer) costs 1 seat and pays around $40-70 to the videographer. It pays more because they have to buy their own parachute and camera helmet ($2k-3k and $1k-2 respectively). They also have to pack for themselves. They also do less work, so it's harder to keep them around.

The aircraft generally cost around $1 million to purchase, give or take a couple hundred grand (Otters, Porters and PACs). Smaller, less efficient aircraft are available for $35-50k (Cessna 182 and 206s). To lease an aircraft costs about $600-1000 per hour for a large one (like an Otter), $150-200 for a smaller one (like a Cessna), both prices including gas. You can get a flight up in about .2-.3 hours for the larger planes, .4-.5 for the smaller ones.

The larger planes will get 12-24 people in them, the smaller ones 4-6.

Q: How to do make a small fortune skydiving? A: Start with a large one.

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Curious - why does the weight of the student have a bearing on the amount paid to the instructor? Is it harder to work with super light (or super heavy?) people?

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For people over 200lbs its a big PITA, to the point that a lot of places won't take you if you're over 225. At that point it's hard on the instructor and hard on the gear. At around 250lbs, depending on the weight of the instructor, you come up on the max recommended exit weight. Most everything will still work fine, you just expose yourself to situations where the reserve might, say, explode if you do too many wrong things in a row. We just charge $1 per lbs to the student for everything over 200lbs and give it to the instructor. That way when a 250lbs 5' tall bowling ball of a woman walks in, everyone fights over her :)

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I just wanted to thank you for posting all of this, and more importantly all your comments in the thread. It was incredibly generous of you to share so much details about your business. Packaged up it really makes me feel like I get a better idea on how Groupon works for businesses like yours (and hey, I also learned a thing or three about skydiving!).

I wanted to send an email to thank you instead of cluttering this thread but it was not in your profile.

Thanks again. :)

(why I reply to this comment is entirely random)

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"I wanted to send an email to thank you instead of cluttering this thread but it was not in your profile."

Sorry for another OT, but I think it would be great and would reduce clutter on HN if there was a check box on each post that would make that post only show up for the person that is being replied to. Would be a perfect 'thank you' post system, and I wouldn't feel bad about voting down 'thank you' posts (which by themselves are meant well but impose a tax on others).

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Protip: if it floats, flies, or fucks, rent it.

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