It also helped that deals had an expiry date, typically 3 months. Groupon realised that a huge % of deals were never ‘redeemed.’ Meaning people bought a lot of coupons and just never used them, sort of deal fatigue.

The formula is: 500 x $100 x 50% = $25,000 to Groupon, and $25k to merchant… In fact it’s more complicated. The math for deals as most people presume is as follows: volume of deals sold x ticket price x groupon margin = total. In fact they started asking for 60% in order to negotiate down to 50%. There was big pressure to get 50% margin. So you didn’t go from 50% to 45%, you went from 50% to 49.7%. The sales guys needed to fight for every little point. A team with a high distribution were margins fighters, a team with a few lines of 25%, 35, 40, 50% meant they were margin takers. High distribution meant the sales teams were ‘margin fighters.’ This meant you fought for every basis point. They would make margin distribution charts to see the range of margins that were achieved. Globally, deal margins were weekly analysed. There was huge pressure to have high margins. Occasionally you would get Starbucks or other big names. A 75% discount on a brand name hotel was a good deal! Brandsīrands sell. Big discountsīig, attractive discounts get deals done. Once Groupon figured out that they could do deals in areas like travel, entire teams were set up just to do these. The same therefore applies to travel etc. If you sell these in volume you make good money. If you do healthcare related things like teeth whitening, IPL etc, you can easily get to 800, up to a few thousand. You used to solidly sell these, but you don’t get crazy money.

Big volume is dangerous as the supplier may not be able to deliver on the deal. To make money you need to either have massive volume, or decent volume and a high ticket price. So Groupon makes money from killer deals. The sales guys who figure out the great deals can do really well. The first one they did, to Ibiza I think, made them well over a million dollars. I remember a competitor to Groupon started doing travel deals. Most deals don’t make money – the big ones do very wellįirstly most of the money comes from epic, big discount, high price deals. Assuming we are talking about the original business model, not Groupon Goods, the short lived Groupon Now and whatever else they have been attempting to do with Breadcrumb etc, it’s more complicated than what people have hitherto posted, but it’s also genius.

Groupon merchant app