Socially Local Series: 1. What Is The Deal With Group-Buying Deals?
Group-buying deals and the art of money getting
This is a small series I prepared for our clients at Rock&Social. It is not necessarily news but it might help you get some insights.
WE WANT LOCAL
Everybody and their brother wants to go local. Small local businesses are under extreme pressures from various marketing and software companies.
WHO IS CALLING YOU?
So, you have a small local business and suddenly you start receiving dozens of calls / emails / letters a week . Who’s calling you?
- Group deal companies (Groupon, LivingSocial, etc)
- Yellowpages – They are constantly expanding their services to keep control of the local business niche
- Social software companies: Automatic lead-generation + some social media: tool detecting local conversation and presence via social networks (à la Twitter, Foursquare, FB Places)
- Social media consultants – freelancers – set up your Facebook page, start a contest, etc.
- Marketing agencies (traditional, digital, social media)
- PR agencies
- Other snake oil salesmen
GROUP BUYING: SOME BASICS
The group buying companies come at you with a very interesting deal: “Give us an agressive discount and we’ll use our network to sell hundreds and even thousands of your products. We’ll split the revenu and cut you a check.”
Exemples: Groupon, Living social
What are they offering? To sell thousands of your discounted products or services in exchange for a percentage of the order (15 – 50%)
What’s in it for you?: Get a cheque of a couple thousand $, get a bunch (couple hundred to 1-2 thousands) of new customers
WHAT TYPE OF CLIENTS A GROUP BUYING DEAL BRINGS YOU?
1. Consumers who are only looking for deals and don’t really care about the quality. These clients will likely not come back.
2. A few of will also be current clients who just already appreciate your business. However a bad review or experience outscores a good one. So, always give your customers the best experience. How can you be on your best game when you know you are not really making money?
Nobody ever likes to pay full price once they paid 50% off. The experience must be exquisite and the client must really be in love with your brand in order to have a repeat sale.
A SIMPLE BUSINESS CASE
Let’s do some analysis in order to determine what’s the worth of a group buying deal.
Say you sell a service for $20.
Give group-buying deal: 50% discount
Your deal sels 1.000 items for $10 = $10.000
Your group buying partner gets 30% = $3.000.
You receive a cheque for $7.000 and a 1.000 pending orders.
Service industries are notorious for having razor thin profit margins. But let’s assume your business makes 20% net profit on a $20 service.
Regular pricing:
Sale of $20 / item => Profit: $4 per item => $4.000 profit per 1.000 items (service at-cost all expenses included = $16)
After group deal:
Sale of $7 / item => Loss: $9 per item = ($9.000) loss per 1.000 items.
You just invested $9k. Of course having the fast cash has its benefits and it could be an operational lifeline. Nevertheless, at the end of the exercice you put extreme strain on your business and employees and you dealt with an unprecedented number of clients. You could also see this investment as a marketing cost. However, there might be better ways to spend $9k marketing budget.
Of course, you can play with the numbers and get an appropriate estimation for your business.
Stay tuned for the next article in this series. Socially Local Series: 2. Do And Donts When You Are Getting A Group-Buying Deal For Your Local Business
Lead generation business must ensure that these people are competent to allow your program a success.