Opinions Wanted Groupon

[Jeff Rodier]

What was your offer Paul.

 

[PaulSF]

66, and I just took in my first order from a groupon, which technically is not kosher. Half down today, we'll deal with the groupon at time of pickup. Total order before Groupon: $297.

 

[jim_p]

By the way, it only took 12 hours for me to get 25 people to sign up for this thing and activate it. The friggin' ballet got there faster than me.

Probably this was because you were listed as a side deal. For the main deal of the day Groupon sends out an email blast to all the subscribers for that city, which drives interested users to the site. Not so for the side deal... you basically get that subset of the main-deal folks who decide to check you out.

Groupon runs something as a "side deal" if they feel it's not up to the level of interest of a main deal. As I said, when I was in negotiations with Groupon they at first said that my deal wasn't "compelling enough" and that it could probably run as a side deal but it might be quite some time before they would run it as a main deal. I pushed back pretty hard, making the case that there's a lot of pent-up demand for framing and that Groupon often gets such folks off the dime. My sales rep recently had stuff framed so he "got it", but he had to convince the Boston planning team that mine was a worthwhile deal.

In cities where Groupon doesn't have much of a presence, they likely have fewer deals in the pipeline and will run just about anything so as to have SOMETHING to offer. In cities where Groupon is well-established, they can pick and choose which deals they think will sell zillions (deals in Boston routinely go well over 1000 Groupons).

Paul, for a first-time Groupon deal 66 is not a bad total. It will give you practical experience with what it is like to service the influx of new Groupon customers. Prepare for a businer-than-usual weekend

 

[jim_p]

66, and I just took in my first order from a groupon, which technically is not kosher. Half down today, we'll deal with the groupon at time of pickup. Total order before Groupon: $297.

Nice! I took several Groupon orders the first day under the same circumstances. I told them that when they come pick up they'll need either the Groupon or a payment of $125.

 

[PaulSF]

A busier than usual weekend would be 1 customer.

My offer was a $45 voucher, good for $100 worth of framing.

 

[Jeff Rodier]

I hope you are forced to work late taking in orders Paul.

 

[PaulSF]

Me too!!

 

[Framar]

Good luck, Paul - may you have a lot of groupies!!!

What, what else would you call people who use Groupons?

 

[FramerDave]

He ended up with 72!

 

[FrameMakers]

I hope it goes well for you Paul. I trust that you will be keeping close watch on these orders to see if it worked, or will put you under.

 

[PaulSF]

I don't really understand how this will put me under. I just got 70 new customers without spending a penny out of pocket. In fact, I'll be getting more than $1500 just as my cut of the vouchers. And my average ticket is more than $220, so I really don't anticipate a bunch of people coming in to get $100 frame jobs. It's pretty darn hard to get something framed nicely for $100. If they do want $100 frame jobs, we'll be using $0.50/foot box moulding and clear glass, and my material costs will be covered. Easily.

 

[annaluna]

Way to go Paul.

Maybe I'll just wait for my market to grow a bit and try again.
Seattle's been in for a long time, but it hasn't yet been 2 months for Tacoma.

 

[Jay H]

If your current COG's were the suggested average of around 30%, they will be around 40% with an average ticket of 220. That would be tough for me to pull off but I suspect I would survive that and maybe manage to pocket a buck or two. Now if your average ticket drops to a mere $200 then your hovering close to 50% COG. I'm certain that I wouldn't weather 72 of those. I suspect that everybody would be willing to spend slightly over $100 as they don't want to leave money unspent. Let's hope so because at $100 your cogs would be around 120%. The increase in volume won't help at that rate.

It seems that keeping your average ticket as high as humanly possible would be the only way to make this at all successful. I'd expect this type of aggressive advertising to draw out more price sensitive clients. It could be difficult to keep your averages up but that's the goal.

Good luck!

 

[PaulSF]

Why would my cost of goods increase as the average ticket goes down? That would imply that mats, moulding and glass that costs less at retail costs more wholesale than the more expensive (at retail) mats, moulding & glass.

I understand that if my average ticket is $220 and my average cost of goods on that is $60, when I reduce the ticket revenue to $150 because of the promotion, that $60 COGS is a higher percentage of the revenue. But it is not exceeding the revenue from the job, and here's what you naysayers continue to overlook: That $150 in revenue is from a new customer who probably wasn't going to come in. That's $150 in revenue I wasn't going to get. And some of these people will be bringing in multiple pieces, all of which will be full price.

Listen folks, this is pretty basic prospecting. It's prospecting for new customers. It's giving new customers an incentive to come in with their artwork. And when you get them in the door with their artwork, which is THE HARDEST THING TO DO, you have the opportunity to obtain a continuing revenue stream from them over time.

You make zero dollars from the customers that never come in, regardless of whether you charge them full price.

 

[Jay H]

The average cog doesn't go down. It stays consistant. However the percentage of the discount increases as the full retail decreases effecting COGs. That is why at 220 your cogs is 40%ish and at $100 over 100%.

 

[PaulSF]

Jay, 40% of $220 is $88. Last I checked, $88 is not more than $100.

 

[Jay H]

I'm not sure what you mean or why your so defensive.

That is why at 220 your cogs is 40%ish and at $100 over 100%.

If the total ticket is $100 then your cogs will be in the $30 range. You sold that certificate for $45 and pocketed around 1/2. Does that sound right? If you take 100 and subtract $30 (cogs) then another $75 ish, we are into negative territory. Again I'm not sure how likely that will be and you seem confident that it won't happen often. All I'm pointing out is that keeping your tickets well north of $100 is critical.

But I'm sure you have already carefully considered these types of sceneros and figures before making the offer.

Carry on.

 

[PaulSF]

Jay, your assumptions are really faulty.

First of all, the COGS on a $100 job are way below 30 or 40%. We're talking about a $7 sheet of clear glass, and maybe 10-12 feet of black moulding that I bought at 50 cents/foot, a $4 sheet of speedmount, and a couple dollars worth of paper, atg, and hanging hardware. So at most, $20 material cost, which is 20%. The $19/foot LJ and Roma mouldings that I sell on the $220 jobs are not the kinds of moulding I use on the $100 jobs. The $100 jobs almost always involve clear glass, in-stock mouldings, and maybe a single mat.

The second faulty assumption is that the overwhelming majority of those 70 new customers will come in and want a $100 framing job. If you ask anyone who has done this promo before, you will learn that very few do that. Most spend more than the voucher value.

The third faulty assumption is that none of these new customers will bring in more than one item. Again, if you talk to people who have done this promo before, you will learn that many of the new customers bring in multiple pieces. And since the voucher is only good for up to $100, these additional pieces are all full price.

The fourth faulty assumption (two assumptions, actually) is that these people would be coming in anyway and paying full price. I won't even bother to say more about that.

 

[Jay H]

The only assumption I have made is that in general cogs hover in the 30% range at a typical frameshop. If for some reason you operate well out side of that rather typical target then my figures are completely skewed. I doubt they are off much. In your example of a $100 frame you list about $20 worth of materials not counting the mat. At $5 more for the mat your in the 25% cog range and dancing all around $0.00 profit.

I made no assumption as to how much they will spend, how many items they will bring in, or if they come in at all.

You seem unsure and overly defensive and I'm not sure why. Again my only point (and assumption) is that it will be rather important to make certian that sales stay well north of a C-note. Good luck in your venture. Enjoy the ride!

 

[PaulSF]

Whatever, Jay. You started out with COGS on a $100 frame job being in the 40% range, and now you're at 25%, and you only get there by throwing in a mat.

 

[Jay H]

No sir. If I did it was only in error. I have to meet with my trig professor tomorrow and I'm rushing to finish up assignments I should already have done. Numbers are bouncing around in my head and this thread is only irritating my calculator even more.

In every single case I figured the cogs exactly 30%. In post #63 I said "...at $100 your cogs would be around 120%." COG was a incorrect word but the math is accurate (I think). If you sold a frame for $100 a typical shops cogs would be in the ballpark of $30. If you discount that $100 to $25 (about what you have been paid via groupon) then you are selling that frame at a loss. "COG" wasn't what I meant but I did my math based on 30%. Using your own examples you are in the $25 (or 25% cogs) range return on your own $100 frames. If I had known that such a simple observation would raise so much ire, I would have been much more careful with my terminology.

 

[Classic Art Bob]

Jay, I understand what you mean. If I am correct you bundled the price of advertising with groupon in with the cogs. I agree with you as it is a cost of buisness (yet not a cost of goods).

$75.00 of the $100.00 seems like quite a bit to give away and I have been sitting here wondering with anticipation how these deals will work out.

My hope is that it brings in many new customers and that some of those become regulars. It could be short term pain for long term gain.

 

[Jeff Rodier]

Bob, since Jay does not have access to Paul's basic cost structure he used some basic assumptions. Here is where he went:

If the cost for materials was 30% on the job, a $100 job would cost Paul $30 to complete. The coupon only netted Paul $22.50 (Paul later stated it netted $25). Now Jay was stating that if a customer completed a $100 order paul would net a negative $7.50 ($30 cost of materials used for $22.50 cash payment). The higher the ticket price the less negative cash flow and eventually postive cash flow. A $500 order would relate to a 15% discount so no big deal. A $100 order would relate to a 75% discount which is not sustainable.

 

[jim_p]

One other thing to consider with this sort of thing is the redemption rate: not every voucher gets redeemed. A number of people buy these things on impulse and never get around to using them. While this is not something to bank on, it does lessen the financial hit.

Another thing is the "time value" of money. I get the money for the groupons pretty much right away (actually in three installments over sixty days), but redeem them over the course of a year. Money today is worth more than money tomorrow ("I'll pay you Tuesday for a hamburger today").

 

[PaulSF]

One final consideration: every single purchaser of the 72 groupons is a new customer. I checked the list against my database, and they are all new.

 

[Framar]

Whoo hoo!!! Paul has 72 new groupies!!!

Way to go, Paul - you da man!!!!!

 

[Kirstie]

Paul, it will be really interesting to see if the customers who redeem thier coupons become regular customers. I hope you are flagging them in your POS for future research. Groupon called me again today but I was too busy to take the call. The timing of this deal is important, but I assume there is no control over that. I have an employee on vacation and if 72 new customers came in this weekend we would be more than swamped. Interesting topic.

 

[jim_p]

Groupon called me again today but I was too busy to take the call. The timing of this deal is important, but I assume there is no control over that. I have an employee on vacation and if 72 new customers came in this weekend we would be more than swamped. Interesting topic.

Yeah. As luck would have it, my Groupon ran just *as* I was going on vacation. Fortunately, I'd planned to be back for the Saturday-after, which was good. I'd *hoped* that we'd get fewer Groupon customers during the week I was going to be away, and that my assistant could handle them by herself.

 

[PaulSF]

Paul, it will be really interesting to see if the customers who redeem thier coupons become regular customers. I hope you are flagging them in your POS for future research. Groupon called me again today but I was too busy to take the call. The timing of this deal is important, but I assume there is no control over that. I have an employee on vacation and if 72 new customers came in this weekend we would be more than swamped. Interesting topic.

Well, the good thing is, every one of these voucher holders is a "sure thing," to borrow Julia Roberts' line from Pretty Woman. If someone has to wait, they will do so because they are already invested in the voucher. They aren't going to throw away $45 and go up the street to another place.

My plan for this weekend (hope springs eternal) is to bring in some sodas, water, and cookies, so if I should double my normal intake of customers (meaning, if two people come in), they can snack if they have to wait around.

 

[jim_p]

Well, the good thing is, every one of these voucher holders is a "sure thing," to borrow Julia Roberts' line from Pretty Woman. If someone has to wait, they will do so because they are already invested in the voucher. They aren't going to throw away $45 and go up the street to another place.

My plan for this weekend (hope springs eternal) is to bring in some sodas, water, and cookies, so if I should double my normal intake of customers (meaning, if two people come in), they can snack if they have to wait around.

If you don't already have this, make sure you have a few boxes of crayons and some scratch pads to give the kids something to do while the parents are waiting. This is a good idea even if you're not running a groupon...

 

[PaulSF]

Jim, I'm betting this is going to be a younger, kidless crowd. If any kids do come in, they can amuse themselves with the broken glass receptacle.

 

[jim_p]

Jim, I'm betting this is going to be a younger, kidless crowd. If any kids do come in, they can amuse themselves with the broken glass receptacle.

I speak from experience, though things may be different in your part of the country. Around here the "young" demographic includes young families with kids under 5. After one experience with a bored kidlet my assistant strongly suggested getting some crayons. It's worked very nicely (one of the kids even *gave* me one of the pictures she drew, which I promptly framed up as an example of kids' art)

 

[FramerDave]

One other thing to consider with this sort of thing is the redemption rate: not every voucher gets redeemed. A number of people buy these things on impulse and never get around to using them. While this is not something to bank on, it does lessen the financial hit.

Groupon has something like a 95% redemption rate. Paul stands a very good chance of having nearly every one redeemed. That's quite a return.

If you don't already have this, make sure you have a few boxes of crayons and some scratch pads to give the kids something to do while the parents are waiting. This is a good idea even if you're not running a groupon...

Also a good idea to have something to clean the crayon off the walls once the little ankle biters get bored and decide to find a new canvas.

 

[Emibub]

This groupon thing sounds very encouraging. I'd have loved to have something like this when I was in business. Advertising dollars were so randomly responded to. This seems like such a sure thing.

 

[Bill C]

Paul, How was Saturday for you? Did you get the groupon customers. Inquiring minds want to know.

 

[jim_p]

Paul, How was Saturday for you? Did you get the groupon customers. Inquiring minds want to know.

Hopefully he's so busy handling customers that he can't come to the computer

 

[PaulSF]

Not a soul. I had one browser, and a homeless guy, and that was my day. Not a single penny.

 

[Kirstie]

The weather here was gorgeous this last weekend and we were very slow. I'd give this some time Keep us posted.

 

[Kirstie]

.

Groupon runs something as a "side deal" if they feel it's not up to the level of interest of a main deal.

They also run side deals in areas that are outside main cities. San Mateo is not in San Francisco. Jim, were you in the Boston mailer?
The SF Bay area is split into sections.

 

[jim_p]

They also run side deals in areas that are outside main cities. San Mateo is not in San Francisco. Jim, were you in the Boston mailer?
The SF Bay area is split into sections.

I'm in Natick, a town 15 miles outside of Boston. I was listed on the Boston main site and my offer did get the email blast. Unlike SF, the Boston site is not split up into sections.

I actually visited San Mateo once, back in 2002. The company I was working for at the time (Akamai) had a branch office there where the rest of my team worked.

 

[PaulSF]

Funny you should mention Akamai. There was just an article in a local paper yesterday that they are expanding here, adding 50 or so jobs over the next few months.

 

[jim_p]

Funny you should mention Akamai. There was just an article in a local paper yesterday that they are expanding here, adding 50 or so jobs over the next few months.

Interesting... they seem to go through phases of expansion and contraction. I was caught up in a major (30%) RIF in late 2002. Only time in my life (so far) that I ever left a job involuntarily...

 

[Classic Art Bob]

For anyone who wants to know. Earlier I stated that I was going to try an inhouse coupon. Buy a $100.00 coupon, but pay only $70.00. Someone here wanted to know how it worked. I didn't sell any! Weird, even paying customers who had nothing to lose didn't do it.

 

[PaulSF]

Today's deal is a kids photography promotion. For $50, you get a session, 4 prints, and an image CD. Regular price for this package would be $295. Now there's a studio that is telling people it's wickedly overpriced.

 

[Kirstie]

For anyone who wants to know. Earlier I stated that I was going to try an inhouse coupon. Buy a $100.00 coupon, but pay only $70.00. Someone here wanted to know how it worked. I didn't sell any! Weird, even paying customers who had nothing to lose didn't do it.

It is timing. Last December I ran a two week similar special to my newsletter members for $75. and sold over 20 of them. I offered larger options as well.

 

[tjwinfield]

Encouraged by this thread, we decided to give Groupon a try - fairly new in the Albuquerque area. Ours runs tomorrow $40 for $100 worth of framing. We'll see . . .

 

[jim_p]

Encouraged by this thread, we decided to give Groupon a try - fairly new in the Albuquerque area. Ours runs tomorrow $40 for $100 worth of framing. We'll see . . .

Good luck! If you sell more than 100 or so, be prepared for a busy shop the Saturday after it runs. I had myself, my assistant, AND my wife (who doesn't usually work the shop), and we barely kept up...

 

[PaulSF]

Good luck with it! It will bring you new customers. Some of them will try to spend no more than the value of the Groupon. The smarter ones will spend a good amount, using the groupon to get things they might not otherwise afford. I think you'll be very pleased.

And remember, it costs you nothing up front.

 

[FrameMakers]

Paul, I was wondering with the shop closing, what does that mean for those with your groupon vouchers?

 

[CWG]

Don't forget to mention the cupcakes if you want a big response.

Is Groupon or Cupcakes the answer ?

"Groupon offers can overwhelm unprepared small businesses
San Francisco bakery Mission Minis was hit with 72,000 cupcake orders after offering a coupon on Groupon, an increasingly popular online service that offers a daily deal at local businesses in more than 140 cities. Mission Minis' bakers couldn't keep up with the onslaught, and some customers became angry. But the deal did increase orders overall, said owner Brandon Arnovick, and taught employees how to work under pressure. "It was fun," says Arnovick. "Kind of." Groupon said it plans to begin offering online marketing seminars in the coming months to better prepare small-business owners. Bloomberg Businessweek (6/10)" NFIB SmartBrief 6/14/10