Ozdachs

Can your business handle 1500 new sales in 24 hours?

That’s what happened to our go-to neighborhood restaurant when they were featured in the San Francisco edition of Groupon.

Groupon? What’s that?

Groupon is an Internet promotion site that features a business local to you every day.  That business offers Groupon subscribers a deal, typically 50% off.  In the case of our local restaurant, they offered $50 of food and beverage for  $25.

Groupon encourages people to share the deal with their social networking friends.  In fact , a lot of the deals aren’t effective unless a certain number of people, say 100, buy.

When you join Groupon, every day you receive email about that day’s deal.  If you like how it sounds, you click to the Groupon page and buy the deal.  Your credit card is charged that day, and each Groupon deal has its own expiration date (usually a few weeks to a year in the future).   There’s no charge to be a Groupon member.  You pay only when you make the decision to buy a deal.

Recent San Francisco Groupon deals have included $50 of restaurant food for $25, 1/2 off city tours, $28 of seafood from a fish market for $14, professional teeth whitening for $200, two one-hour tourist airplane flights around San Francisco for $150, and $50 of Nordstrom’s Rack clothes for $25.

If you haven’t checked out Groupon as a consumer, I recommend signing up for their email.  They offer Groupons in all major cities, and in a lot of mid-sized places, too!

(Go ahead, sign up!)

Now, if you’re a business… It’s a real deal!

The owner of the restaurant said that they sold 1,500 2-for-1 Groupons the one day their place was featured.  If Groupon took 50% of the coupon’s cost as its fee (that’s the percentage mentioned in some online accounts), then the restaurant quickly gets $18,750 in cash for which it has to deliver $75,000 in list-price food and drink during the next six months (the expiration period for this deal).

I think it’s a great deal for both the restaurant and its patrons.  Of course, the final results will depend upon the mix of customers and what they order.  But even using us as an example of established customers, I think the restaurant is on solid financial ground.  Our bill before tip is generally about $80, and at least 1/3 of that is high-margin alcohol.  So, when we go with our Groupon, we’ll pay $30 above the Groupon value, and much of the total is high margin stuff.  So the restaurant is taking in $42.50 ($30+$12.50) which should be greater than its marginal cost to serve us.

And, we are the worst possible buyers of Groups — we’re established customers who would have gone to the restaurant anyway.

On the other hand, some number of the Groupons were bought by people who have never walked in the door before.  These folks are going to keep going back (because the restaurant is wonderful).    For these people, the restaurant is gaining new revenue from new clients who will keep generating income over the years. I am guessing that other ways of acquiring new clients is greater than the $37.50 ($50 – $12.50) the restaurant is paying for its Groupon experience. In any event, the restaurant is going to make money if the clients spend more than $50 at dinner or when they come back in the future.

So, do you want 1500 sales in the next day?  Can you handle that much business?

For me, the only question is do you have a service or product that has mass consumer appeal (my accountants and attorney clients don’t have services that make deals possible)?

If you do have a Groupon-able product, let’s get creative.  Let’s think how your business can be Groupon featured deal of the day!