The results of our “Are Group Deals Worth it?” survey are in! Our theory before running the survey was that there would be a negative bias against group deals. Our theory was confirmed but not as strongly as we anticipated. It seems group deals can be used to generate a profit if they’re used carefully. Here are the results:
Number of Providers
Of the businesses who participated in our survey, 65% had only used a single group deal provider and 35% had used two or more providers.
Provider Popularity
Groupon is obviously the most popular of the group deal providers, followed by Living Social, and then DealOn. A large percentage of businesses have also worked with a group deal provider that wasn’t listed in our survey. These are most likely local companies such as newspapers who only sell local group deals.
Recency of Group Deal
Group deals have recently exploded in popularity. More than two thirds of the businesses in our survey had ran a group deal in the last six months.
Number of Deals Sold
Half of group sales generated fewer than 500 sales. However sales of over 2,000 are possible. This is largely dependent on the popularity of the group deal vendor, the size of the local market, and the value offered by the deal.
Are group Deals Profitable?
This chart makes it clear that there are risks involved when selling group deals and businesses should be careful before signing up to sell a deal. Over a third of bars or restaurants end up losing money after selling a group deal. Close to another third end up breaking even after all expenses are considered. The final third of businesses were able to utilize the group deals to generate a profit.
Group Deal Sentiment
Considering that very few businesses were able to turn their group deal into a profit it’s not surprising that only 23% of businesses say they had a positive experience. The remaining 77% of businesses who had a neutral or negative experience correlates fairly well with the number of businesses who say they broke even on their deal or lost money.
Did the Group Deal Generate Repeat Customers?
This is the kicker. Group deal providers market their services as an alternative to traditional advertising allowing businesses to advertise their business and generate new return customers. It turns out only 15% of businesses saw a sustained lift in business after the group deal ended. Unfortunately the remaining 85% of businesses didn’t receive the benefit of new customers after the group deal. It seems the group deal customers are only showing up for the discount and are not likely to return without receiving another deep discount.
Will You Sell Another Group Deal
In the end it seems most business are unlikely to sell another group deal. This chart correlates nicely with the percentage of businesses who generated a profit or not. The few businesses who profited are likely to sell another deal, but the businesses who broke even or lost money will probably not sell another group deal.
Conclusion
It takes a lot of effort to sell a group deal. A business needs to generate extra profit to compensate for the additional work. Some businesses have found a way to use group deals to successfully generate a profit but most have not. We recommend taking caution when considering the pros and cons of selling a group deal.
Several businesses provided additional feedback with the survey. Here is what they said:
“I did this for a while. The problem is a lot of people who use these kind of deals do it just to get a deal. Most of these programs want you to give a 50 % discount on the advertisement, then you give them 50% of what they charge, which leaves you with only 25% of the check. If this is a $100.00 check I am left with only $25.00. On top of losing money most of these people do not tip on the original amount of the check. I can offer current clients a deal and not lose money. If I can get my customers to come in 1 -2 more time a month I’m much better off than trying to get new people from further away to become regular customers.”
“Groupon is the demise of small business in America. These deal hounds are the worst, most demanding, unrealistic customers. Out of 900 groupons sold, we have about 7 return customers. At the same time, we lost about 50 regulars so the numbers aren’t very good. Groupon customers were unwilling to read the restrictions on the coupons and if you enforced rules that you laid down, they would simply mouth off on Yelp. Groupon was such a bad experience, i was prompted to launch www.boycottgroupon.org. I actually broke even on the original deal but the aftermath of these website may cause me to close my business down. What is the worth of working for free?”
“Majority of these people that buy these discount promotions are spending the bare amount to meet their minimum to spend…thus you are then lucky if you break even on them. I did have approx 25% of the promotions that did not get redeemed by the end of the 6 month promotion, which made the promotion worthwhile in the end. Otherwise I would have just barely broke even, but hopefully we will get some repeat business. I will do it again in our slow season to help bring in more business.”
“I’m under the impression that I created an environment in which a significant percentage of my regular guests will wait for an “offer” to use what used to be one of their favorite restaurants.”
“I went with The Denver Post group deal and it was wonderful. I know a lot of business that say Groupon and Living Social are TERRIBLE. As a result, I would never deal with them.”
“Group deals work great, provided that the restaurant is well prepared for the crowds. It is extremely important to listen to what the group buying company has to say about preparation and follow their instructions to the letter. “
“We redeemed 375 of 511 sold and signed up 110 into our rewards program. We made $2000 from first time sales. You might want to include a question or two about rewards. I would not have done Groupon without a way to capture information from as many redeemers as possible. The key is getting them back.”
Stefan Bachofner
As a marketing tool to promote your establishment they work to bring in some new customers, but you can’t prevent of getting regulars to have coupons as well.
As to make money of it, not really. You are bearly able to cover the food cost.
It is hard to sell over the limit of the coupon and the tips are not good either.
Nor am I convinced, that you earn realy new customers, I thing they go to the next place with a coupon and will only return with an other coupon…
Toni
Thank you for sending us an extremely important survey!