Groupon: Need it? No. Buying it? Yes.

Between my friends and I think we have used the phrase, “if it wasn’t for Groupon, I would have so much more money”, probably 50 times.  While I certainly had great intention to go to the gym that I bought a one month Groupon pass to, but somehow it expired unused.  This is actually the case for about 15% of all Groupons which for a company that had over $500 million in revenue accounts for way to much wasted money.  The real question is, if you didn’t get a notification on your iPhone for todays latest deals, would you have spent the money on whatever you bought? Did you need it or want it prior to seeing the deal? Also, yes you might have spent $10 for a $20 credit, but will you have to actually spend $40+ to get what you wanted? This might sound like a lot of thought for what is supposed to be a simple purchase, but before any purchase, thinking about it and having a plan is strongly to your benefit.  You would be surprised how good you can be at talking yourself out of buying something.

There is another side to the Groupon business.  Is it beneficial to the business itself.  While there is mixed evidence and reviews on this according to Pragmatic Pricing the below example breaks down the business side of Groupon very well

Assume you sell a $20 Groupon.  That means the customer paid $10 and you received $5.  Let’s also assume that your variable costs are 75% of your normal price (50% food cost, 25% labor).  This means for each $20 Groupon, you put $5 in your pocket but paid out $15 in costs for a net loss of $10 per Groupon.

You need to sell an additional $40 in product at normal prices to make $10 in profit to offset this $10 loss.  So, if you believe each Groupon will generate additional regular price business at 2 times the Groupon value, then you will break even, not make money, break even.

In this example, if you only have 25% gross margin (75% variable costs) you need to have incremental sales at least 2 times the Groupon value to justify it.  However, if you have 50% gross margin, the math works out that you only have to sell half the Groupon value incrementally.  The lower your variable costs, the more likely Groupon will be valuable to you.

Page 5 of “The Uniform System of Accounts for Restaurants, 8th edition” says that “A prime cost (cost of sales plus labor) of 65% or less in a full-service operation generally offers a restaurant the potential to earn an adequate bottom-line profit …” If you have variable costs of 65%, your breakeven point for Groupon is selling an additional $1.15 at regular price for every $1 of Groupon.

How often do you buy group deals? There are many out there aside from Groupon and many local/regional sites as well. Keep in mind, most if not all have the policy that the paid value never expires, so if you paid $10 for $20, you will always have the $10.  It really seems to come down to self discipline.  If you see it, while it may look and sound like a great deal, do you need it? Is it a great deal for you? $5 for $10 worth of pizza is great, but you might have a few frozen pizza’s already in your kitchen; they are paid for.

Options on what to do with expiring Groupons:

  • Sell it! I have done this once. I fell victim to an early summer Groupon for a 50% off admission to a local zoo. A few weeks before expiring, I knew I was going to get to go, so I put it on Craigslist and one day later I got my money back, minus $1. There are many sites such as DealsGoRound.com that have sprung up around this business, but Craigslist or your Facebook/Twitter might be an easy way as well
  • Trade it! Similar to above, you could trade it with someone else who has a deal they dont want or wont use
  • Donate it! Maybe you have a deal for admission to an event and can donate it to a local Boys and Girls club or Big Brother Big Sister program
Edgar @ Degrees and Debt

AuthorEdgar @ Degrees and Debt

Founder of Degrees and Debt. Edgar just wrapped up his MS in Project Management with a focus on Information Security Management. Battling back to even from student loans, mortgage and credit card debt is an art Edgar is learning to master. This is his journey.