So, this whole discussion has got me to thinking.

Considering the business most of us are in- custom cakes/cupcakes/cookies and the like- what would be a good deal for this type of business to make something like Groupon or Living Social work for us?

How would you try to retain some of these people who take the initial deal?

There are mistakes that can be made but possibly this is a good tool if used correctly; let's talk about that.

I apologize if I came off as a jerk (I certainly didn't mean to), I was just interested in getting more information about Groupon from a different viewpoint, since you seem to have formed a different opinion based on your own research. The tools you used in your own research would be helpful for me and everyone else reading this thread, so I hope you'll reconsider and share them.

That's kinda what I was thinking. More like add value vs. discounting; I like that.

I think someone else had suggested offering something small for a lower price so you still get some cash in order to cover the cost.

Wykdgud and jason_kraft,

I think you both have good things to contribute, but I think you both love to get under each other's skin. While I'm sure you'll never be the best of friends, can we call a truce so we can focus on the topics at hand??

Pretty please?

I am the type of Groupon user that businesses don't want, and because I know plenty of people like me, I wouldn't use Groupon for my business.

I buy a Groupon for items or places that I can't normally afford, or normally think are too expensive, or can't justify in my budget unless it's a really great deal. I've bought bouncy place admissions (normally too much $$ for both kids), massages (that I would never ever never ever pay full price for), restaurant deals (at places we can't normally afford), etc. And I have never gone back to those places even if I liked them because I can't/won't pay full price there.

I just spent well over an hour reading about Groupon and its effects. It's very fascinating to me as a small business owner and as a business student. I caught words here and there that tell why it doesn't always work for everyone. For example "neighborhood business." If you are a neighborhood business, your market is your immediate neighborhood. It is not far flung and is therefore a warning sign against using something like Groupon. Also, figuring in only your food costs and forgetting about your overhead (which I see so often here when pricing is discussed) is a huge mistake.

There are some very good lessons for us in all of this. It's why I feel so strongly that business knowledge is so very valuable for cake artists. Sure, you can create a great product, but you need to be able to run the business side of it so you can make money to stay in business so you can continue following your passion of making great cakes.

Groupon has hit me up several times, so has Living Social, Yelp, Travel Zoo, and several others that I don't remember. They are very specific on the deals they want you to offer, and they won't let you do a "value added" type thing. They want 50% off of an item, they keep 50% of the profit, they keep the money for any Groupon not redeemed, and they auto refund anyone that complains about you. I buy Groupons, I once bought one for a massage at a place I had never heard of and had such a horrible experience I'll never do that again, I don't care how inexpensive it was. Now I only get them for restaurants I've already been to, hardware stores and big chain clothing stores.

A friend of mine that makes custom cupcakes her in the city has done several Groupons. Every time I see her deals I am floored - so I asked her how the heck she was pulling it off because she was selling them in batches of 2,000. I can't share her secret because I might do it myself one day (with her blessing!) but if you are smart, it can be done without you loosing your butt in the process. Smoke and mirrors, people. Make people believe they are getting something for nothing without actually giving them anything.

Jen

I own liquor/wine shops. We just did a Groupon for a wine tasting. We did a $20 casual tasting for 2 on a designated night of the week for 12 weeks. We sold 250 Groupons which was the limit we put on it. The Groupon cost the customer $10. Of that Groupon gets $5 and we get $5. We are totally prepeared to do the tasting for $5. Lots of didtributors give us a sample bottle for tastings. For us the cost to us isn't the concern.

We aren't having people call to make a reservation, which was explicitly stated in the ad. I don't have a clue what we are going to do if the coupons are ready to expire and everyone calls at once to redeem. We can only handle 30 people max at a tasting. So far only about 10 people have called to schedule.

I am NOT happy with the results. The lady who set ours up told us that 95% of coupons are redeemed. Our ad ran 3 weeks ago. Never again. I

Very interesting thread! I am nowhere near opening a business, so not a current concern to me at this point. I have to say I am appauled at customers that don't tip accordingly and what not. Whenever we have used a groupon for a resteraunt/service- we always tip on what the actual price would have been- not on what the couponed price is?

To Jason and WykdGud- though some of it got off topic a bit...your conversations cracked me up. And until you pointed it out...I didn't see it as Jason picking on any person inparticular..just more of some sarcastic backtalk But it wasn't my post, so I guess I wouldn't have taken it personally.

We have a similar service here called WagJag. There are some businesses in the beginning that did not set limits (ie) 1 per customer. So for example one woman did a $40 spa package in which she received 20 dollars, no cap though. I bought four for gifts. She said she would never do it again as no one purchased anything or became repeat business.

I think it depends, you can work it's system if you know how to get around it, but all in all, they push for a super cheap deal in which you make nothing. I can't say I would want to utilize their service, much cheaper/free ways of marketing yourself creatively to bring in business.

I use groupons quite a bit, but usually, I use them as gifts for my kids and their families to go to restaurants or other places that they can't afford to go to. Almost all of them have been to places that I have gone to and enjoyed and paid full price for. But if I see them offered at a cheaper rate, why wouldn't I buy them? Doesn't mean I won't go back when I don't have a coupon. And I always tip on full price.

I gave them a groupon for Christmas for a laser tag place. They enjoyed it so much that they scheduled a birthday party for their son there. So yes, they would.

you are actually discounting your item 75%. that's crazy!!!! I wonder if it would be cheaper to just advertize on print, tv, or radio.

I did a groupon twice for my business (twice because I was the inaugural groupon in my area and they only had a distribution list of 10,000 then 6 months later [after the first one expired] I did it again and was able to expose myself to the additional 80,000 subscribers they had gained). The first one was for 6 cupcakes and I found that most people just got their 6 cupcakes. Definitely some people came back later and paid full price and I even got one wedding cake off of it. We sold 151 and had 95ish redeemed. Groupon pays me my cut whether they are redeemed or not so that is a bonus on my side (I have no way to contact the unredeemed people but I did post about them ending soon on Facebook. I was not trying to scam anyone, but unredeemed groupons are a fact of life and they do make the bottom line better)

The next groupon was for $20 worth of any product and I am seeing most people spending $2-5 more and probably 20% spending $15+ more so this was a far better deal for us. We set our cap at 500 and sold out by 2pm.

Radio commercials in my area run $35ish EACH. I'll gladly "spend" $16.50 once (Groupon sold for $10, I get $4.50 of that after fees - which covers my costs as they run about 25%) to guarantee a butt in my shop. Once they are in it's MY job to make sure they come back.

Groupon is not for every business but they work great for lots of them. You just have to think it through and run the right deal for you.

True, my food cost runs about 25%. If you add in labor, credit card fees, and utilities it's 43%. I'm not including rent in this as the rent is going to be paid whether or not we are selling groupons. (Even with the rent, it's still only 55%)

So I sell 5 cupcakes for $20 and get paid $4.50 by groupon. My cost on those cupcakes at the 43% is $8.60, meaning I actually lose $4.10 on each groupon x 500 = $2050. Truly though, only 80% of these groupons are going to be redeemed, meaning x400=$1640 lost. But then when you calculate that groupon still paid me $4.50 for those missing 100: $1640 lost less $410 paid extra = $1230 lost. And if they buy anything over the $20 those profits offset that cost as well. So I pay $1230 to get 400 separate butts (not to mention their friends that tag along) in my door (it's about $3 a person). WAY better than the results I had with radio

You can't count the profits not received (the difference between the cost and the retail value) as a loss. The only actual loss is the difference between the product cost and what groupon pays me. If that person only came in (this time) because they had a groupon then I wouldn't have had their profits anyway.

There are fixed expenses and variable expenses... and cake has a fixed ingredient and labor cost. You can't factor rent and other fixed expenses into the cost to make each cake, because that number will change every month.

I really don't understand how rent even factors into such things... but then, what do I know? Heh.

(BTW, of course you need to pay your rent and price your goods to ensure you meet your expenses, but trying to figure out what portion of your rent you will assign to each cupcake, cake or cookie is asinine)

For me, the bottom line is that Groupon is a great tool - IF you know to use it. The problems arise when people get greedy, don't think their offers through, don't plan (or limit their offer to a reasonable number) or expect too much.

There are many people who have success with these offers (I know of a couple in the bakery business) - so if you are smart, you can get more than your money's worth - or at the very least, not have spent anything out of pocket for the advertising.

Restaurants and bakeries typically have net profit margins in the 5-10% range. A 20% net profit margin would be considered excellent.

A 45% gross margin is certainly feasible, but the gross margin ignores non-COGS operating expenses like rent and payroll.