How to avoid being a Groupon horror story

This post was prompted by the unfortunate experience of Back Alley Waffleswith Groupon, featured on July 23, 2012 by the Washington Post. Based on the account of the story, it’s hard to tell who is at fault. Creating a successful offer is the responsibility of both the business and Groupon. But if the deal goes wrong, the business feels most of the pain. 

Daily deal promotions can be powerful promotional tools for almost any business. Like any powerful tool, if wielded ineffectively they can have a devastating effect on your business. This is especially true for Groupon promotions, the largest daily deal service in almost every market.

When used effectively, these promotions can drive significant traffic. Even healthy businesses can see a 30% increase in number of customers during a 6-month redemption window. It’s important to craft the promotion to avoid the pitfalls that have affected merchants like Posies CafeNeed a Cake, and The Point.

Your Groupon account manager should cover these issues, but it’s always good to be informed when it comes to major business decisions. Any mistakes will hurt you more than they will hurt Groupon.

 1) Cap the offer to a number of vouchers you know you can support. 

Expect to see a significant rush during the first and final months of the promotion. Based on data from 30 daily deal promotions, redemption rates vary from 50% – 85% of purchased vouchers. Expect 20-50% of those redeemed in the first month and 20-50% redeemed in the final month.  Figure out the number of incremental parties you can support in a single month.  Multiply that number by two to get the voucher cap (this assumes you restrict redemption to 1 per party/table).

2) Know the payment terms.

Back Alley Waffles was stung by this one. The Groupon standard is two payments. The first is 80% of the revenue share and is sent within a week of the promotion close. The second is 20% of the revenue share and is sent about 2 months after the competition of the offer. You have the option to receive the payment via check or ACH. For Living Social, the standard is to receive the whole payment about 3 weeks after the close of the promotion. This data is based on a sample of 10 promotions, so the terms may be different for you. Be sure to read the agreement and ask your representative.

3) Plan for a drop in cash flow.

Many businesses run a daily deal promotion and use the up-front cash to remodel or make a big purchase. This can be a good decision as long as you do not relying on those funds to operate your business. The situation could be made worse if your promotion is structured to discourage over-spend. Expect low over-spend when  you set the voucher value to be close to your average check size. Make sure you have enough cash on hand to operate your business even if a significant portion of your transactions don’t contribute cash (just the use of the voucher).

If we missed anything that affected your business, give us some feedback in the comments.

This is republished from our blog:

Views: 497


You need to be a member of FohBoh to add comments!

Join FohBoh




Social Wine Club for Craft Wineries


Kids LiveWell atwitter over Twitter party

In its continuing effort to promote more nutritious and flavorful children's menu options, the NRA will hold a Twitter party  -More

Starbucks could become top on-premise wine seller in U.S.

Starbucks is planning to slowly expand its evening sales of wine, beer and small plates to thousands of selected stores throu -More

The evolving nature of snacks

Snacks have shifted from an after-school treat to a meal alternative as meal times become more fragmented.  -More


Posting a job or finding a job starts here at FohBoh. Call us about special $25 posting packages to syndicate across all major jobs boards.

National News

Wahlburgers Announces Expansion Plans Including Franchise Agreement in Philadelphia

Wahlburgers has signed a franchise agreement with Hingham Associates, LLC that will bring five Wahlburgers to the metropolitan Philadelphia area over the next several years. The franchise group is actively looking at sites and is targeting a late 2014-early 2015 opening for its first restaurant.

Chipotle Mexican Grill, Inc. First Quarter 2014 Revenue Up 24.4%

Comparable restaurant sales increased 13.4% - Restaurant level operating margin was 25.9%, a decrease of 40 basis points

Jamba Juice Announces Grand Opening of New St. Louis, MO Location

Jamba Juice Company announced the brand’s continued expansion in the St. Louis market with the opening of a Jamba Juice® store at 11477 Olive Blvd. on April 16, 2014.

Expert in Real Estate Analytics Joins Luna Grill

Luna Grill, the San Diego-based Mediterranean restaurant chain, is welcoming retail real estate industry veteran Greg Thorburn to its leadership team. Thorburn has been brought on board to fill the newly created position of Vice-President of Real Estate.

Rita's Italian Ice Awards Area Development Agreement for Kansas

Rita's Italian Ice has awarded franchise and area development agreements for Kansas and the Kansas City area, which extends to the Missouri side of the city, to franchisees and local residents Jay Miller, Jeff Miller and Pat Reilly.


If you are looking for capital to start or grow your restaurant, create the next 501c3, develop and launch the next app for the restaurant industry,or want to help your peers in some meaningful way, we want to know about it.


TED: Matthew Carter: My life in typefaces - Matthew Carter (2014)

Pick up a book, magazine or screen, and more than likely you'll come across some typography designed by Matthew Carter. In this charming talk, the man behind typefaces such as Verdana, Georgia and Bell Centennial (designed just for phone books -- remember them?), takes us on a spin through a career focused on the very last pixel of each letter of a font.

TED: Jeremy Kasdin: The flower-shaped starshade that might help us detect Earth-like planets - Jeremy Kasdin (2014)

Astronomers believe that every star in the galaxy has a planet, one fifth of which might harbor life. Only we haven't seen any of them -- yet. Jeremy Kasdin and his team are looking to change that with the design and engineering of an extraordinary piece of equipment: a flower petal-shaped "starshade" that allows a telescope to photograph planets from 50,000 kilometers away. It is, he says, the "coolest possible science."

TED: Norman Spack: How I help transgender teens become who they want to be - Norman Spack (2013)

Puberty is an awkward time for just about everybody, but for transgender teens it can be a nightmare, as they grow overnight into bodies they aren't comfortable with. In a heartfelt talk, endocrinologist Norman Spack tells a personal story of how he became one of the few doctors in the US to treat minors with hormone replacement therapy. By staving off the effects of puberty, Spack gives trans teens the time they need. (Filmed at TEDxBeaconStreet.)

TED: Jennifer Senior: For parents, happiness is a very high bar - Jennifer Senior (2014)

The parenting section of the bookstore is overwhelming—it's "a giant, candy-colored monument to our collective panic," as writer Jennifer Senior puts it. Why is parenthood filled with so much anxiety? Because the goal of modern, middle-class parents—to raise happy children—is so elusive. In this honest talk, she offers some kinder and more achievable aims.

© 2014   Created by FohBoh.

Badges  |  Report an Issue  |  Terms of Service