Generating business with group buy vouchers

[jim_p]

I've been really busy lately, and one of the main reasons is because of deals I have run on "group buy" websites. These are sites like groupon.com, buywithme.com, and livingsocial.com that advertise and promote "group buy" specials for their members. The idea (to encourage participation in the offers) is that a certain number of people have to "buy in" in order for the offer to be good. Typical offers are "$99 for three spa treatments" or "$15 for $30 to spend at XXX Restaurant".

I have run two deals so far, one of which is still ongoing. Back in October I ran "$40 for $100 worth of framing" at livingsocial.com. On 11/24 I started running "$50 for $125 worth of framing" at buywithme.com. The first one ran for one day and I sold 47 vouchers to 30 distinct customers. The second one will run through November 30 and so far I've sold 48 vouchers to 31 distinct customers (customers can buy more than one voucher, but merchants can set limits on how many they can use per order or visit or whatnot).

The sites do take a commission, anywhere from 25 to 50%, but that is ALL you pay. There are no initial fees or setup fees or anything like that; you pay only for results. Commisions are often negotiable. (PM me for details of my deals if you'd like)

Different sites have slightly different setups and rules: livingsocial.com only runs the offer for one day... I had at least one disappointed potential customer who'd heard about the deal too late. Buywithme.com runs the deal for a whole week, so there's time for people to get in on it.

I have been getting quite a few calls from people looking for quick quotes because they want to know how much of a job a voucher will cover and how many vouchers they should buy.

One advantage of this is that it's a flat-dollar discount rather than a percentage; any portion of the bill over $100 or $125 comes in at full price. We have found that the vouchers really leverage the upsell; we've sold more museum glass in the past week than we have in the past six months! Customers tend to forget the $50 they paid for the voucher and they see it as $125 worth of free money...

The websites typically pay you your money, net of commission, within ten business days... which can be a real shot of cash (basically I'm taking $50 deposits from customers I may not see for a long time).

You do have to do your homework, look at your pricing structure, and determine if you can make this kind of deal work for you. For me, I determined that I would not *lose* money if a $50 customer came in and spent exactly $125, and if they spent more I'd be doing okay. I consider the $75 to be the cost of customer acquisition. Many of my voucher customers say they have more stuff to frame; I'll let you know how that works out.

[PaulSF]

So let me see if I understand how this works. The customer goes to one of these websites, and pays them $50 for a voucher that is good for up to $125 worth of framing in your store. The website takes a commission, say $5, and sends you the remaining $45. So if the customer never actually comes in, you've made $45? And if the customer does come in, they get a $125 framing job for that $50 voucher. And if they get a $300 framing job, for example, they pay you $175 plus the voucher?

[jim_p]

Originally Posted by PaulSF

So let me see if I understand how this works. The customer goes to one of these websites, and pays them $50 for a voucher that is good for up to $125 worth of framing in your store. The website takes a commission, say $5, and sends you the remaining $45. So if the customer never actually comes in, you've made $45? And if the customer does come in, they get a $125 framing job for that $50 voucher. And if they get a $300 framing job, for example, they pay you $175 plus the voucher?

Yes, that's exactly how it works.

[PaulSF]

Me likee. I'm going to try it as soon as I get back. I especially like the part about it not activating until a set number of people respond. I'm so tired of sending out 20,000 valpaks, at a cost of $500 or more, only to get one response.

So do you set the minimum number of responses to activate it, and if so, what have you set? Ten? Also, how do you handle the expiration date? Is it like, x people must respond by November 20, and the coupon expires November 25?

[jim_p]

Originally Posted by PaulSF

Me likee. I'm going to try it as soon as I get back. I especially like the part about it not activating until a set number of people respond. I'm so tired of sending out 20,000 valpaks, at a cost of $500 or more, only to get one response.

So do you set the minimum number of responses to activate it, and if so, what have you set? Ten? Also, how do you handle the expiration date? Is it like, x people must respond by November 20, and the coupon expires November 25?

These can all be negotiated with the site; I set a minimum of 15 responses to activate, and no maximum. The "x people must respond by" varies by site, and is either a single day (livingsocial) or one week (buywithme).

My vouchers are good for one year. They'll recommend an expiration date more than five days off, and with good reason... you DON'T want everyone descending on your shop at once to redeem them!

I should add that these voucher sites only operate in selected cities; Boston is particularly well-served. groupon.com operates in San Francisco, but I don't recommend them -- their commission structure is really bad. buywithme.com is trying to get going in San Francisco, you may be the first on your block there Livingsocial only operates in Boston, NYC, Washington DC, and Atlanta. There may be others I don't know about...

[Ron L]

We did Groupon a few weeks ago and have had good results. Our offer was an $80 certificate for $40. The tipping point for the deal to be valid was 20. We ended up selling 70. Of the 70, only 7 were previous customers.

So far only a few have been trying to get something framed for $80. Several have had more than one piece framed and used higher end materials. We're very pleased with the results. Especially with the prospect of getting more than 60 new customers in the the shop for framing.

[FrameMakers]

I understand how this works, but I don't understand how this would be profitable for you. I could see it if it was say $50 voucher for $25 with a limit of 1 voucher per job and make up for it on a higher ticket. But $50 for a $125 voucher seems to me that many average jobs will be done with a 60% discount.

[jim_p]

Originally Posted by FrameMakers

I understand how this works, but I don't understand how this would be profitable for you. I could see it if it was say $50 voucher for $25 with a limit of 1 voucher per job and make up for it on a higher ticket. But $50 for a $125 voucher seems to me that many average jobs will be done with a 60% discount.

First, I consider this a customer-acquisition thing more than anything else. So far, everyone who's cashed in a voucher has been a brand-new face. Several of them have indicated that they'll come back for more, and one even gave me my first ever (positive!) review on yelp.com.

Second, we try to ensure that voucher jobs are above average As I said, I've found it much easier to sell more elaborate frames and museum glass to voucher customers, and anything above the voucher value gets billed at full price... so the percentage of discount goes down.

Finally, I get my money for all the vouchers at once, whereas I redeem them in dribs and drabs... time value of money and all that. I don't know how many vouchers will *actually* get redeemed. People get distracted, they forget, etc. While I'm prepared to honor every single voucher I've sold, I'm curious to see what my actual redemption rate is.

[PaulSF]

Dave, I think you need to set your own pricing based on your average ticket size. Also, I would exclude using the voucher for any value package or poster package, which are already heavily discounted. And then, upsell like crazy with the fillets, museum glass, fabric mats, etc.

[FrameMakers]

Paul, the thing is most of the time customers with a voucher or certificate don't present it till after the design & pricing is done.

I don't believe in up-selling for the purpose of making more profit. If it enhances the item, fine. Putting fabric mats & fillets on a poster that the customers tells you they want done cheaply is an insult to them.

ZI did look up LivingSocial.com and they are coming to Columbus. I will keep my eye out on this, but I see a lot of caution needed to avoid lossing money on this.