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Comment by retube | Hacker News Reader

Yeah, insane. When I first heard about Groupon, I assumed their cut would be ~10% mark. I couldn't believe it was 50% - and that's on top of a 50% discount! So the retailer is only getting 25% of normal income.

What kind of business has advertising overheads of 75%? I can't see how this could work for anyone. And you can't cap the number sold? wtf??

I feel really sorry for her. She got sold the deal by Groupon, against her better judgement. I know how that feels, we've all done it. She wont make that mistake again.

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Two factors that mitigate the 75%:

1. They are betting people will spend above their groupon value. So if you have a $30 that give you a $60, they are hoping you will buy $90 worth of food.

2. They are trying to get loyal customers that will come back every month and have a greater life time value than that first sale.

For many businesses, betting that people will spend a percentage above their discount is a reasonably safe bet. For a coffee shop though, I can't remember the last time I spent more than 20 dollars for a couple cups of coffee and a sandwich over an evening hacking in the corner. For this shop to bet that most people would spend 20+ dollars with 13 of that being the 6 they spent on groupon is insane. If your average sales are $50 or more, than this particular deal might have been viable, but it seemed that many were walking out the door having spent only 6 to groupon for their entire purchase.

I feel for the business, however. I've had to turn down customers that I know aren't going to be repeats, and it is difficult. But at the same time, I would never ever agree to a 75% reduction to my sales. My repetition period for returning customers about 4 years due to the nature of my business, so maybe I don't have the market for that kind of thing though.

1. Yes sure - but this is a big bet. And in this case it didn't happen.

2. Understood. But the aggressive discounting is going to encourage a lot of people who just want to get something on the cheap, and will never go there again. As point 1, you've no idea how much repeat business you're going to get.

I would never do this unless I could cap or trial it first, so I could get a proper assessment of what the deal is worth.

Groupon lets you cap the maximum number sold.

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