How Does Groupon Make Money?
Groupon makes money by selling coupons and gift certificates for local businesses. The revenue they make is split with the business which offers the deal. The easiest way to understand how Groupon makes money is through an example.
Suppose Groupon sells 100 coupons to a coffee shop in your town. The coffee shop and Groupon have determined that at least 50 of the coupons must be sold in order for the coupons to be redeemable. Assume that all 100 coupons sell and the deal is on. The coupons are for $5.00 off a popular type of coffee drink, which normally sells for $10.00. So who pays what, and who gets what?
You pay $5.00 for the coupon, go down to the coffee shop, and redeem it for a tasty coffee.
Groupon and the coffee shop split the $5.00, each taking $2.50.
These numbers are pure estimates and used only as an example. But why would the coffee shop essentially want to pay Groupon just for the right to sell their drinks for less than they are worth?
The answer is customers. This is why a certain number of coupons must be sold each day for the deal to be valid. The value for the coffee shop is getting lots of customers in the door, many of whom will likely return at some point and buy drinks at full price. But unless a certain number of customers buy the coupons, it is not worth it for the coffee shop. In a way, it's almost like advertising. Groupon just facilitates it....very well.
Wrong, its the same as advertisements. Groupon makes no deals, they just go after companies that want more visibility by offering discounts on products or services, just like in your local paper or magazine. The companies pay Groupon for advertisement space for the coupon ad basically, maybe $500 to advertise (Purely a guess here). Those who pay more get top billing on the page. There is no other deal. Very simple model here.
As a business owner who has used Groupon multiple times for promotions, I can tell you, that you sir, are wrong.
Groupon takes a cut of every deal they do with the actual business. For instance, my business which provides home and business services offers a deal for $100, which would normally cost $200, as they would advertise it. For every sale of the "Groupon", I as the business owner get $50, and they get $50.
Occasionally you can negotiate a better cut of the split as the business owner, especially if you have a business with high labor costs or low margins.
A couple of flaws with this model:
1) "many of whom will likely return at some point and buy drinks at full price"
Does any independent research support this? Our companies experience does not.
2) What you lay out above is a high margin business. There is not much growth left in this business because of #1 above. Look closely at where their growth is when they release earnings. It will be in groupon goods. The low-margin, me too business.