Tell HN: Our experience with Groupon
10k: Weekdays only, $159. Low margin, low volume. We were planning to phase this product out.
15k: 7 days a week, $199. Good margin, high volume. Discounts available, custs usually end up paying $179.
18k: 7 days a week, $259. Ridiculous margin, low volume. Discounts available, custs usually end up paying $239.
All of these skydives cost pretty much the same thing to produce, about $80. The cost goes up about $5-10 for every level. So a 18k might cost around $90 to $100.
We chose to run a 10k for $99. The standard Groupon cut is 50-60% of revenue, so based on this standard we would get around $50-60 for each Groupon (the TOS precludes us from talking details, so I am not going to say what our margin was). In advance of the Groupon we raised our 10k price to $169 so that the discount percentage was higher - the price was raised for all customers, not just Groupons.
Our first promotion sold 700 in March 2010. It was insane, the phone rang off the hook and we were slammed with customers. They weren't the best customers, but there were a lot of them. Skydiving is seasonal, in winter we do anywhere from 15-50 tandem jumps per month, 100% on the weekends. In the heat of summer we did about 200 jumps per month, Friday through Monday.
We saw an immediate uptick in business. While our volume was increasing, our net was slowly decreasing. We ran another promotion in August that sold 950 Groupons. That August we did 400 jumps, by far a record for us. Then in March of 2011 we ran our third promotion, selling 1350 Groupons.
We felt the Groupon crunch. Right after the promotion our books were full, 2-3 phone lines constantly ringing, 80-90% of customers on weekends were Groupons. We did what we could to keep things in check and have weathered the storm. This last March we did more jumps than in any month, ever. March is historically a slow month, usually about 20% as many jumps as a busy summer month.
How we made it work for us:
-Apparel: We sell at lot of cool shirts and hoodies at a great margin. We didn't really have enough volume before for this to really make sense.
-Cross sales: We sell Video packages a pretty good margin to about 60% of customers. We also offer a 'Same Day Special', allowing customers to buy another jump at 50% the same day they have skydived. Sometimes upwards of 40% of customers purchase this product.
-Up sales: If people want to jump on a weekend they need to upgrade to a higher altitude. $30 to 15k gets them twice as much freefall time, and $90 to go to 18k is a fairly popular option.
-Post experience contact: We post their videos to Youtube, encourage them to check-in and like us on Facebook, and add them to an email list where we run our own promotions on tandem skydives and solo training.
-Breakage: It hovers around 30%. This directly boosts the effective payout of each Groupon. Also, many people take close to a year to use their jump, turning their Groupon into a business loan which we use to invest in maintenance, marketing and equipment purchases.
-Scheduling: Unlike a coffee shop, we can control how many customers come in our doors. If we're booked up we can tell them so, rather than have a line out the door.
Why it is kind of painful:
-The people: Lets face it, they are kind of stingy and leave a higher ratio of bad reviews. The bad reviews have been a great incentive for us to make the business more efficient.
-The cost: Groupon is expensive. If someone buys a Groupon and jumps without buying anything else, (with a standard Groupon margin) we'd lose about $20. About 30% of Grouponers fit into this category.
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107 comments
[ 3.3 ms ] story [ 160 ms ] threadEdit to add value: "Same-day" special + email list of people with confirmed willingness to pay money and get pushed out of a perfectly good airplane = a win. Presumably your costs are pretty much fixed after making the decision to do a jump, so you could hit that mailing list with a special promotion multiple times per year. It's a Tuesday, congratulations, have 20% off if we push you out of an airplane, etc.
It looks like Grouponomics applies to Groupon itself!
How much did you pay for AFF? You're going to be pretty sad when you hear that we do AFF for $999 :)
All of which probably means that Groupon (at least the daily version) isn't that good for business that can't scale appropriately (ie, restaurants) or schedule the delivery of service/goods.
Once the timed-deal market really matures, we'll likely see weekly, daily, and even multi-daily (Amazon goldbox?) coupons by various Groupon-like entities.
I just went skydiving for the first time last week and used a Groupon. It was fun but I wasn't immediately hooked and wanting to go again.
I paid $109 for a 15k jump that is normally $209. I bought it about a year ago (Used it because Groupon was about to expire). The facility was so packed that I had to reserve my time far in advance. (They sold 4,500 groupons the day I bought)
They tried some upselling, in the form of a video and a 2nd jump at a discounted price. The video was an additional $90, which I declined, and the 2nd jump was a "discounted" $125. This seemed kind of silly to me, as I'd only paid $109 the first time around. In the end, I wasn't upsold, so I'm presuming they lost some money on me. They also didn't collect my email address or anything. I think in the end the value you derive from a daily deal is very dependent on your ability to be smart about it (via upsells, social media, etc.).
Can you share a bit about the economics of a skydiving facility? I got the impression that the skydivers were paid per jump.
One other thought is that if I were to do it again - I've seen several Groupons for other skydiving facilities... I'd probably just buy another Groupon for another place... new view, etc. Maybe I'm in the minority but I think getting people to come back is tough when there is so much pressure from other deals.
Depending on aircraft it generally costs around $12-20 per seat in the plane. The equipment costs around $15k to buy new is fairly expensive to maintain. Instructors earn anywhere from $25-85 per jump, depending on facility, the weight of the student and whether or not the student bought a handcam video. Also, it generally costs about $10 to pack the parachute after the jump. So you're looking at around $60-120 in cost for each tandem jump.
Outside video (a videographer) costs 1 seat and pays around $40-70 to the videographer. It pays more because they have to buy their own parachute and camera helmet ($2k-3k and $1k-2 respectively). They also have to pack for themselves. They also do less work, so it's harder to keep them around.
The aircraft generally cost around $1 million to purchase, give or take a couple hundred grand (Otters, Porters and PACs). Smaller, less efficient aircraft are available for $35-50k (Cessna 182 and 206s). To lease an aircraft costs about $600-1000 per hour for a large one (like an Otter), $150-200 for a smaller one (like a Cessna), both prices including gas. You can get a flight up in about .2-.3 hours for the larger planes, .4-.5 for the smaller ones.
The larger planes will get 12-24 people in them, the smaller ones 4-6.
Q: How to do make a small fortune skydiving? A: Start with a large one.
I wanted to send an email to thank you instead of cluttering this thread but it was not in your profile.
Thanks again. :)
(why I reply to this comment is entirely random)
Sorry for another OT, but I think it would be great and would reduce clutter on HN if there was a check box on each post that would make that post only show up for the person that is being replied to. Would be a perfect 'thank you' post system, and I wouldn't feel bad about voting down 'thank you' posts (which by themselves are meant well but impose a tax on others).
Was the 30% breakage specific to your business, or was that quoted by Groupon reps as an average? I'd have to think that a Groupon for something that requires specific scheduling and booking would have higher breakage than something like food coupon.
I haven't spent too much time thinking about how Groupon effects small business, but it seems like businesses like yours are in the best position to really benefit. Jumping out of a plane is an experience, and one you're probably not used to doing. Seeing that show up in your email may spark the idea of jumping out of a plane. Since it's somewhat novel, your customers are more likely to take advantage of upsales. It's also a thrilling experience, so the customers will be pumped up on adrenalin, and more likely to be sold apparel afterwards. Did Groupon customers fall in line with normal % of customers buying apparel or did they differ?
I can really see the value to both the customers and your business in running a Groupon. However, as a consumer, I'm not going to go skydiving once a day. I'm not going to go once a week. I'm probably not going to get into trying out these adventure activities with any substantial frequency. Groupon can't just load up on these things and still provide intriguing daily deals. It seems like they have to have a mix of businesses, and some of these businesses are either not capable of strategizing around a Groupon, doing the proper measuring and acting intelligently on it, or their business model simply doesn't mix with Groupon. It's these people that are going to be most vocal with their Groupon experience and drive the bad press. Without real data (which we'll never have) we can only speculate on anecdotal reports. Even so, I see much more value in your account than another person complaining about how Groupon screwed them, or someone just running with the assumption that Groupon is railroading every small business who will talk with them.
We modified pretty much everything about our business around running the Groupons.
Still, I feel that our rep did a good job helping us out, much more so than another form of marketing would. Would you expect a billboard company to come to my business and tell me how to run my business more efficiently, make sure I can handle it?
We ran a radio promotion around the same time and they did ZERO insofar as making sure we'd be ok. It also cost us a lot of money.
Restaurants and coffee shops have more to overcome when running a Groupon, but that's their job, right? Pick a good marketing strategy, be successful, make good decisions, etc.
>The big question is always, "How dangerous is skydiving?" Each year, about 30 people die in parachuting accidents in the United States, or roughly one person per 100,000 jumps. Look at the US Skydiving Incident Reports to get an idea of the types of problems that lead to fatalities. If you make one jump in a year, your chance of dying is 1 in 100,000.
http://www.uspa.org/safety/incident.htm
In 3 years jumping I've seen some pretty gruesome stuff. Don't believe the stats, you're exposing your body to lots of kinetic energy and we're pretty fragile. No nightmares or PTSD, but, let's just say I've seen the helicopter land more than I'd like.
The injury rate for first time jumpers doing tandems is near zero. Its all people hurting themselves, similar to someone buying a fast car and getting in a car accident while pushing 120mph. It happens and you think "Well... At least we all warned him to take it easy a bunch before his accident."
I guess there's a market for them, but I wonder why those types of products are so prominent in the offerings here in the Netherlands.
BTW what is breakage? Is that when people get scared and refuse to jump?
First, you had it right in the sentence prior to this one. Your experience is enough of an outlier that it doesn't apply to most Groupon experiences. Second, isn't Groupon supposed to help businesses that are in trouble?
I've wondered whether the businesses that can fare better with Groupon tend to be those where labor is a greater part of their expense, and where the business owners -- especially for a small business -- can effectively trade their own labor at lower compensation -- as a hourly rate or absolutely -- in return for the increased business that Groupon generates (which then provides, they must hope, a longer term marketing payoff).
Also, where expenses are variable and there is not a large fixed overhead that must be met, regardless.
Once you introduce staff labor and physical products with hard margins as larger components in the equation, it seems to me that there's less buffer with which to adapt for a mis-calculation of the effects that a Groupon or similar experience will create.
And fixed expenses have to be covered, regardless, leaving thin margins perhaps insufficient.
As you mention, you also have significant additional revenue from add-ons. And your experience, inherently, probably generates a tremendous emotional boost that in turn helps to move those.
I appreciate your detailed description and explanation of how it has worked for you. It provides some good food for thought.
I can understand if you don't want to disclose exact figures on cannibalization, but can you provide any indication?
If you run Groupons often, you're like one of those restaurants that put a 20% off coupon in those coupon magazines.... you're reducing the customer's spending expectations by 20%!
> In advance of the Groupon we raised our 10k price to $169 so that the discount percentage was higher.
I think most people assumed this was happening, but to have it said in plain English is a bit disturbing. It's deliberately deceiving the customer, and is accepted as a strategy. Is that sustainable?
I would be very interested in a category-by-category analysis of the effect that Groupons have.
With this data, we could figure out what types of businesses and specifically what types of deals work best for those businesses. Then, we could expand on this knowledge by creating new products, services and perhaps even entire businesses around this model.
Until we have this data and these conclusions, stories like this are anecdotal and even entertaining, but they don't represent an understanding of this new niche.
I guess the big question is did you make the price increase "to all customers" permanent, or is that part of the Groupon song and dance? If you just do it during Groupons, then while it may work, it's deceptive. You're not helping any customer in any way by perpetrating your "discount." It might be good for the bottom line, but the tactic is all about fleecing the sheep.
This is another business tale that I'll chalk up as an argument against Groupon. At least it tells me I need to get dirty to use Groupon effectively. I think Rocky over at TechCrunch is spot on - Groupon isn't run by evil people, but it's set up to be gray and shady by nature. It's Conway's Law brought to life.
We wanted to boost T-Shirt sales so we raised shirt prices $5 and then gave everyone a $5 off coupon. It worked like a charm, and nothing is nefarious about that, is it?
On the other hand, if that's what it takes for a business to use Groupon effectively, then that makes me question Groupon's long-term value to consumers.
EDIT: Here, I made a picture. Is this good for me as a buyer of things? http://i.imgur.com/zJrxw.jpg
-buy a $99 weekday only 10k jump -reserve a weekend, upgrade to 15k for an additional $30
they are getting a $199 product for $129. still a GREAT deal.
We also spent a lot of time and money making them cool, attractive and well made.
So you get them to commit to spending the full amount, come to the till cash-in-hand and then you let them walk away with the extra $5?
What do you do with them then? Is there a "reserve your next discount drop for only $5" deal or something?
It looks like you did price differentiation then failed to complete on those that can afford the higher price.
If you pay close attention, you'll notice that this is exactly Safeway's entire business model.
I would love to find out that your experience is more typical for Groupon customers, but it strikes me that there is a bit of selection bias at play here. The fact that you are posting this on HN, with 3 years/700+ karma here, suggests you might take a more analytical approach to assessing the Groupon opportunity and building a business model to make it work for you. I doubt this is typical of the small B&M business owner that Groupon sells to.
Congratulations, though, on your success and thanks for the write-up.
I went into this management position with zero management experience. If I am at the top end of small business management then we're all doomed. I honestly feel that every single one of these Groupon horror stories are from careless, dare I say stupid, business owners. You see them all the time. How many buildings have you seen cycle through restaurants every 8 months?
One of these businesses happens to run a Groupon and then it's Groupon's fault they went out of business.
I think you might be conflating experience with ability. There are people with a lifetime of management experience whose ability remains modest at best.
We do a lot of one-on-one B2B work. I really, truly, dearly love our clients. However, it's definitely true that most (nearly all) of them handle their business as though it's a 9-to-5 job. They come in, open up the shop, place orders, deal with whatever needs attention, and practice their trade for the day.
And that's fine! There's nothing wrong with that. They're happy, it's great all 'round. But, then they often get wind of the "next big thing", and they ask us how to get involved with that, without really thinking through whether or not it's the right fit for their business. They aren't maintaining the kind of customer tracking they should be, or follow-ups, or the kind of cross-promotions that joe described.
(We aren't yet, either, which is the only reason we haven't run a Groupon of our own. I'd love to, but we're not ready for it yet.)
Spent $16 for a feast. Why would I upgrade? However, had it been limit 1 per table, only applied to appetizers, had a 1 drink minimum, or was only available weekdays, it would've worked out better for the merchant.
As it was they structured the deal so there was NO WAY I'd upgrade.
Regarding margins, it's the gross margins that are high. That's correct that overall profit margins are thin but gross margins are more important when discussing incremental business.
If the cost of goods are 30%, that $100 in food costs them $30. They're only getting $25 for it. My slide rule tells me that's a $5 loss per customer. The restaurant hopes to make it up on drinks and such, but that $5 loss is only cost of goods and doesn't include staff, rent, and other overhead. It also doesn't factor in the fact that people who came to your restaurant only because they could get cheap food don't tend to be big spenders.
I'm sure you've seen this: http://posiescafe.com/wp/?p=316
Well that settles what your margin is...
I maintain that it doesn't work for restaurants though.
No one is making them run Groupons and no one is lying about what to expect when you run a Groupon.
#1 this is not a commodity business like say food #2 customers that purchase because it's a discount wouldn't be likely to purchase otherwise, and it's hard for them to find another supplier #3 treating groupon as a way to bag 1st time customers and then treating them specifically as customers that _need_ upsell is the way to create repeat business
Since people are paying for entertainment, specifically something non-typical and hobby-like it works. Especially because this business took the effort to create conversion and up-sell opportunities.
That said, I think the jury is still out on how much longevity the daily deals have. I suspect they will eventually take their place next to Sunday coupons as an important but not overwhelming tool for certain types of businesses.
A quality restaurant customer is: part of the right-sized party (comes as a party of 4); orders specials or expensive dishes; raves about the food to friends; has a regular habit; other things I don't know.
Coupons can easily backfire for restaurants, because they pack in low-margin customers, possibly displacing quality customers!
(I'm not making a judgement on your pricing, just pointing out the obvious.)
In my view, ability to connect with your customers post-experience was a home run!
From what I have read most small businesses do not have the necessary infrastructure to do that. Curious to know what technologies did you use to capture that?
Also, did you have cases where customers tried to reuse their groupons?
We did have a few cases where we caught people... We just called them out and they paid. We are lucky because we have everyone's contact info and keep good records.