Understanding the Groupon style business model

[DZ1.]

Hi,

I'm looking for a better understand of how GRoupon and similar companies make their money. How do they have products at such discount rates? Pre-arranges deals with companies/suppliers? If so how does this arrangement work? What chunk of sale price will go to Groupon and what to the supplier r brand where the product originates?

 

[JamieM]

Generally they require at least 50% discount for the deal and 50% commission of the sales price. This is somewhat negotiable of course, more so now due to the declining performance of the business model.

 

[Ali-v-8]

I dont know about "declining" - IMO its just a version of voucher codes.
The idea is to generate increase popularity by closing down the profit margin.
Sell more volume for less profit can sometimes generate more in the long run.

 

[Bartek]

A lot of those products/services had the original price raised x 2 before putting them on Groupon.

 

[SBlundell]

If so how does this arrangement work?quote]

Obvious specifics differ but broadly:

You go to Groupon with your Widgets which you usually sell for £100
You agree with them that you're going to sell 500 for a 50% discount on Groupon, which they list etc.
Their terms are 50% of sale price (ignoring VAT / listing fees etc).
You sell 500 Widgets through their website.

You earn £25 per Widget sold. They earn £25 per Widget sold.

But your £25 (hopefully just about) pays for the production cost of the Widgets, the staff overheads, running your office & delivery. Their £25 is a contribution to their own office (which is running massive economies of scale) & of course hosting their website.

Net position - you're running your 500 Widgets probably at a loss, but they're receiving half the proceeds of all your products at nearly 100% profit (because you're such a small part of their huge operation).

Pretty nifty business model huh?

 

[Paul_Rosser]

Pretty nifty business model huh?

Would be if it actually worked

Need some deep pockets to manage $52m losses!

http://www.guardian.co.uk/technology/2012/nov/09/groupon-shares-plunge

9th November 2012

"Shares in struggling online voucher firm Groupon have plummeted more than 27% to a new low after it reported worse-than-expected results on Thursday.

Having traded at $20 a share when first floated less than a year ago, the shares were languishing at $2.85, down 27% on the day.

Sales in the three months to the end of September were up 32% on the same period last year to $568m (£355m). But revenues were flat compared with the previous three months. Losses were $3m compared with $54.2m last year."

 

[SBlundell]

Doh! Should pay more attention to the news.....