If you haven’t heard about Groupon and LivingSocial, pull up a chair. The power of group purchasing is changing shopping for both consumers and businesses and can be a fantastically affordable way for you to get additional traffic and exposure. What is group purchasing? It is the power of a large number of people buying from a single business as a group. In regards to Groupon and LivingSocial (there are other, lesser known companies), these generally involve purchasing up front a coupon for a minimum of half off a product or service. The consumer signs up on their website and gets a “daily deal” in their email inbox.

Here’s an example of a social purchasing success story:

I have a business acquaintance who worked for an upscale retail gift store in the Midwest. Sales were slumping due to the economy. They signed up with Groupon and set a minimum of 75 purchases for it to be valid-but no maximum. They were expecting about 350 people to purchase their “$25 for $50 worth of merchandise” Groupon in the 24 hour period the promotion runs. They sold over 1100. What were the fees?

Groupon charges about a 2% processing fee per order (around 50 cents in this case). That’s $550 for the 1100 Groupons sold. Then there is the “loss” they took on merchandise of $25 per purchase or $27,500 (BUT, keep in mind this is retail pricing-the wholesale was about $0) AND almost half of the people who came in purchased MORE than $50 worth of merchandise. Groupon took half of that $25 as their fee so the company made $13,750 and so did Groupon.

As a side note, Groupon had 70,000 subscribers in this business’s medium-sized city so, for approximately $1000, the retail business had about 700 customers come through the door AND 70,000 people got an email about their business with a link to their website.

Would they do it again? Yes. BUT they would set a limit on the number of Groupons.

Signing up with a social purchasing group is great if you are a retail or service business. Keep in mind, however, if you are a solo practitioner like a hair stylist or massage therapist, you must set a limit or you simply won’t be able to keep up with the volume.

Great exposure! Guaranteed customers! Limited costs! What’s not to love?


by Steven Schlagel