Groupon Business Model | How Groupon Makes Money?

Groupon is an e-commerce platform where people buy merchandise and services at a discount. 

Local merchants can advertise their bargains, goods, and services online worldwide and reach a global audience. 

There are more than 20 nations served by the platform, with access available via an Android or Apple mobile app or desktop websites.

The system’s advantages are that it allows you, as a client, to save 70% or more on all your purchases using Groupon’s virtual discounts, which can apply to anything. 

Groupon will tell you whether you’re near a store, as well as what promotions and prices are being offered, so you may utilize and redeem the vouchers you receive even before purchasing. 

If you choose, you can even locate and check out these bargains by yourself. No stress is involved in these purchases, which may be made on the internet.

Groupon is an American e-commerce platform launched in 2008 by Andrew Mason, Eric Lefkofsky, and Brad Keywell, which connects merchants with customers via online coupons. 

The platform can locate any person who wants to find a service, and it gives items, travel, or any activity that one would desire. 

The platform is available in 15 countries in America, Asia, Europe, and Africa through mobile apps for Android and Apple and their desktop sites.

Platform revenues are obtained through the commission paid by businesses for the added attention their services gain. 

Groupon’s net worth has been estimated at $1.7 billion for the next year. The company’s revenue fell to $1.4 billion for the year 2020. 

However, the company has not sold to Google despite being offered a large sum despite annual sales fluctuations.

Groupon business model involves promoting local merchants’ deals and connecting local consumers. Services and products related to local travel and tourism provide the company with revenue. 

The residents of the town enjoy experiencing local merchants, making its overall premise rather interesting. It’s locals who benefit from the savings and special deals that aren’t available anywhere else.

The firm evaluates its financial performance based on gross sales and revenue generation. 

Groupon made over $2.8 billion in 2017 from its Groupon-owned websites and apps, which provided direct access to its products and services and affiliate websites that collected commissions on every sale.

What is Groupon?

Groupon is a service that offers daily discounts on products and services to local citizens.

Groupon was founded by Andrew Mason and developed from a discount company into an e-commerce corporation.

Over a decade ago, Groupon was instrumental in popularizing its group deals, offering incredible discounts. How’s it doing after all the troubles it’s been through? 

Groupon Business Model

Groupon, which started in 2008, has become popular and acquired users worldwide by offering up to 70% off coupons and vouchers for products and services, mostly restaurants and shops.

Groupon’s concept involves one essential task: taking the middleman role. While the firm may have had some rough times, Groupon’s statistics are encouraging. 

The company has had over 200 million downloads, 38 million active users, and over 1.5 billion sold vouchers in the past year.

Company NameGroupon
Company TypePrivate
FoundersAndrew Mason, Brad Keywell, Eric Lefkofsky
Producte-commerce marketplace
Founded DateNovember 2008
HeadquarterChicago, IL
WebsiteVisit Website

How Does Groupon Work?

Groupon’s main focus is providing its local customer base. Businesses can utilize Groupon to make their services and products available to new clients at a generous discount. 

Groupon is simply a middleman that would like to help you connect with potential customers for your services and products, as more sales for you means more profit for Groupon.

It’s been very easy in the past: Create a Groupon deal, put it on their website, and maybe mention it in Groupon emails. 

Your customers buy your bargain, and the business collects your money for you. You get to keep everything unless Groupon sees fit to take some of it first. 

The company is shifting away from its current method of drastically discounted vouchers to one where the goal is to build continuing connections with vendors and customers.

Your business will sell more goods when you use Groupon since more buyers will see your goods. 

When people visit Groupon, they are more likely to buy something rather than search for general information instead of using search engines like Google.

You shouldn’t rely on Google to publicize your small business since you are placing faith in Google’s algorithms, which change regularly, and your website is only likely to appear on the first page of search results if you pay to advertise. 

Groupon shows its customers every available option on its site, unlike its competitors. Your deal will show if your business matches what Groupon shoppers are looking for.

Groupon For Customers

Groupon offers consumers savings on goods and services from local companies, using a platform of weekly free deals. 

The platform’s tailored emails and targeted advertisements allow users to save money while experiencing an improved user experience.

Customers use electronic coupons to buy bargains and discounts: coupons that can be redeemed online or in-store.

Groupon is trying to get people who are open to new things, have a lot of money, and are women with college degrees.

Groupon For Sellers

Groupon not only helps their businesses acquire more customers but also charges a commission for the privilege.

Groupon states that it provides merchants with more clients and a higher return rate when they work with the company since the customers recommended to the company through Groupon are likely to return.

More than 1 million retailers have worked with the company so far.

Groupon Business Model

Groupon business model has changed dramatically over time. The company operates similarly to Amazon and Alibaba, but it does something entirely different from the conventional market.

Groupon is a marketplace that offers bargains. A company capitalizes on the scarcity principle as a marketing tool by emphasizing how reduced their product prices.

Groupon offers huge discounts on things in several categories, including apparel, vacations, spa treatments, restaurant gift certificates, and restaurant and bar gift certificates. 

Groupon’s deals can be cheaper than the prices at retail stores, even though consumers get the same products at those stores as well. 

Groupon is like a mini advertising machine; it does the sales-generating and brand recognition-building work for a firm in exchange for money.

Businesses use Groupon to market their goods; however, they get a lower payback than usual. 

Groupon provides an immense network of potential customers, which merchants gain because they don’t have to give money upfront to fund the advertising. 

Instead, they distribute profits gained from Groupon, in which a percentage of each transaction is collected.

Groupon says it will bring in more customers and make sure a particular amount of money is earned. 

Businesses knew how many customers were coming in when Groupon started since the bargains weren’t redeemable until a specific amount of individuals signed up.

Groupon has gathered close to seven million credit cards with the help of card-linking promotions, which debuted in 2018. 

The new method is designed to appeal to customers by simplifying the process; people are more inclined to use several card-linked offerings instead of individual coupon vouchers. 

Card-linked discounts also offer customers the option to pay for goods at the service point and use the same voucher repeatedly. These benefits are unavailable with the traditional voucher system.

Groupon Business Model

Groupon bypasses the voucher procedure by selling products directly to customers via its Goods division. 

Groupon’s Travel department provides travel-related goods to clients, such as vouchers and hotels. 

Customers must redeem the certificates for travel goods later, and they can purchase select products directly from Groupon.

Groupon benefits companies. A major advantage is to have a bigger reach to new customers. 

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Let’s say those 30 customers had paid for their haircuts and manicures instead of using Groupon coupons. This would have generated an additional $3,000 in income for the salon. 

Nevertheless, it is probable that if the salon had not offered a discount, the deal-hunting clients would have never visited. Larger profit margins may be traded for a quick flood of new clients.

On top of that, many Groupon consumers end up spending more than they intended to. For instance, someone who uses the salon voucher (like the one listed above) may end up getting a pedicure because she will have more money to spend. 

Customers who purchase Groupon deals and those who come in because of them could become regulars if they supply great items and services.

How Does Groupon Make Money?

The website for Groupon sells promotions and business information to businesses and individuals. Hence, Groupon makes money by connecting clients to merchants while keeping a cut of the transaction.

However, this business model of Groupon is not as straightforward as it sounds.

A company will profit $50 per sale if an individual advertises his $100 service on Groupon and signs a revenue-sharing agreement with the company. XYZ gets $25 for every Groupon transaction, and Groupon gets $25 for every transaction.

Groupon shares the money merchants get from Groupon customers who visit their stores, but not the overall money generated via Groupon deals. It follows that just 70 bargains were claimed on Groupon, out of 100 sold.

XYZ makes 1750 for the 25 days.

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Groupon gets $3250 for their first group: 25 customers who make $70 and 50 customers who make $30.

Revenues from each transaction vary based on the amount of money invested in marketing and the ability to work out a fair distribution agreement. 

Marketing products, advertising, and placing sales notices on specific days of the week are just methods that small businesses might use.

Is Groupon profitable for businesses?

Groupon’s global revenue was $2.6 billion in 2018, according to Statista.com. This money is generated by Groupon’s affiliation with numerous small businesses that may or may not benefit from Groupon’s business model.

Businesses do not have to pay to list a deal on Groupon. Groupon has traditionally asked businesses to discount their products or services by at least 50%, sometimes by up to 90%. 

Groupon then retains half of the revenue generated when a customer purchases a deal. This fact bears repeating: Groupon takes 50% of every deal sold – not just once — regardless of how many you sell.

For instance, suppose you charge $100 per hour for a private horseback riding session. At 50% off your regular charge, you’d be selling your classes to Groupon customers for $50 a piece. 

However, you would not earn $50 per lesson sold; rather, you would get $25 per lesson sold due to Groupon’s 50% cut. If you offer to ride lessons on Groupon for a 90% discount, you will earn only $5 for each lesson.

If you want to recoup your expenses, you’ll need a lot of new clients. The Groupon website advertises that 91% of the people who purchase deals would return to the business in the future. However, other sources argue that many businesses that use Groupon complaint about one-shot clients.

Businesses operating under this approach run the risk of incurring losses. Businesses may earn insufficient revenue to cover their products or services costs after discounting their products through Groupon and granting Groupon a share. 

If the bargain does not generate enough repeat business, the merchant will be worse off than before working with Groupon. 

On the plus side, Groupon does not charge for pausing or canceling the service if you discover that you’re losing money.

Key Takeaways From Groupon Business Model

Groupon’s business model evolved from one that relied on economies of scale and networking. 

The discount was only available after a specific number of people signed up for it, to one that functions as a marketplace for buying and selling deals.

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This new business strategy benefits both the company and the merchant. Merchants gain more repeat customers (78 percent), and Groupon offers more and better deals.

Groupon earns money by selling coupons and card-linked discounts that connect consumers with local merchants.

A corporation may also sell directly to consumers under certain circumstances. Groupon has moved its emphasis to card-linked discounts to simplify the user experience.

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