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Is Groupon a Good Deal for Salons?

I’ve been fielding many calls recently from salon owners who are wondering whether “deal” sites like Groupon, Living Social, Buy With Me, Gilt City, etc are something that they should do.  It’s sort of funny how the “mainstream” is just now picking up on these social media tools for businesses. 

I actually wrote about Groupon in particular back in July 2009 (see  http://www.hairmaxsalonsoftware.com/the-tremendous-power-of-social-media/).  Now, there are over two thousand of these “deal” sites all over the Internet.  Oh yeah, that’s not a misprint…over 2,000! 

The big question is…Are they worth it to salons?  I mean, almost daily you see another salon “deal” on one of these sites…they must be working…right? 

Well, I’ve actually done the legwork on this one and the results are pretty staggering.  In fact, I don’t think the reps from any of these sites would like to hear what I have to say.  But it’s real data…and you can see the results right here. 

The difference here is that I’m giving you an objective opinion…unlike the “statistics” the sales reps from these companies are throwing around.  So here goes… 

First off, when you sign up for one of these deals…you’re instructed to give at least 50% off a service or a group of services.  Hmm…ok…I’m still listening.  Then the company itself, whether it’s Groupon or Living Social, etc, is going to get between 30% and 60% of the amount paid. 

Hello, that means if you sell a $100 service, you’re discounting it to $50 (right off the bat) and then you’ll be receiving about $25 of the amount the client actually paid (using 50% as the average that most of these deal sites skim off the top).   So, you’re giving away a $100 service for $25. 

Now…you have to pay your employee “something” for doing the service…right?  So, lets cut the $25 in half again…we’re now at $12.50 of profit for a $100 service!  That doesn’t sound like a good deal to me.  In fact, there are only two people getting the good deal…the client and more importantly Groupon. 

Look, its not any wonder why these “social media” sites have been valued at…hold your breath…$8 billion dollars.  That’s right…Google was trying to buy Groupon a few months ago for $4 Billion and Groupon decided it was “grossly undervaluing” the company’s worth. 

Why?  Because these guys are “printing money”! 

They walk into a business and show them that 1200 people bought into a salon “deal” at $40 apiece right down the street.  And the poor salon owner…who has cash flow problems as it is…does the math and thinks…“hmm a check for $24,000 would be really nice right about now”.  It’s like asking a child if they want more candy. 

But then the fun begins.  The check goes into the bank account and the onslaught of  “clients” come thru the door.  Now, I’m putting the word “clients” in quotes because these are exactly the type of clients YOU DON’T WANT. 

They represent an army of discount happy shoppers.  That’s right.  Theses “social media” sites have created a group of clients that have zero loyalty and are always on the hunt for the next daily deal.  And I can’t blame them.  

Just ask the Laser Hair Removal industry.  These guys are going out of business left and right because they’ve inadvertently “commoditized” their own business.  I hear it all the time from women who get laser hair removal.  They say “I’m waiting for the next 3 visit laser deal on Buy with Me for $99…I’m not paying full price”. 

In fact, I did 4 different studies of salons that did these “Daily Deals” and found that the retention of clients after the first visit is less than 10%!   Forget about the second visit.  

And, not to mention the headache you’re creating with your own staff.  How long to you think it is before they start bitching in the back room about doing another “Buy with Me” client.  Believe me…it is not long. 

So, the moral of the story is this…don’t get sucked in by the lure of the big check.  I was positive back in July 2009 on Groupon when it was first out.  Now that the real numbers are coming thru…and the masses have picked up on it…it’s a good deal for everyone but the salon owner. 

Do yourself a favor and take a pass. 

Best Regards, Steve Sampson 

HairMax Salon Software is a product designed to be the best investment your salon has ever made.  It is not only the easiest and most powerful salon software on the market.  It is from a company dedicated to becoming the ultimate VALUE source to the industry.

Comments

15 Responses to “Is Groupon a Good Deal for Salons?”

  1. ROBERT BERBERIAN on April 25th, 2011 11:35 am

    We have done and are still doing a lot of coupons, mostly evesave , groupon , homerun, there are many of them, as you know. I think it is a good way to get new clients, some are just coupon shoppers, but we have retained some high-end clients. The new hairdressers get booked the clients that are being paid $12 per hour, plus their tips, they have to up-sell with retail. I think if a cient comes in the salon and leaves the salon satisified with the work and has a pleasant exp. they will come back, people talk. I agree it is a # game, I have the staff to handle it, no commission is paid on these coupons. I will continue doing it. We just sold 78 coupons for a $39 p-foil and Blow dry, next time I said it has to be $75 not $39, instead of having 3 assistants not busy they now have a chance to get exp. and build, which they are , But again you need the staff. Regards Robert

  2. Marie on April 25th, 2011 2:59 pm

    My salon is under construction and I was counted on Groupon to start with a group of new clients.
    We will be ready to open next month, and now I am discouraged by your message which I beleive says the truth. What do I do now?
    Marie

  3. Angelique on April 25th, 2011 4:40 pm

    Right on!!! I completely agree with this. Such a rip off and cheapening of our profession. These Clients are never loyal. As soon as the next deal comes along they move on.

  4. sharon costin on April 25th, 2011 7:27 pm

    Hi Steve,
    I hear and understand what you are saying about discount sites like “Groupon” and agree with the negatives..
    however, we have found some positives and worked it into dong a Living Social Promotion.
    We have 3 stylists/assistants who work on an hourly wage. 99% of the “clients” who came in through Living Social were booked with them mostly during down time. So it gave the stylists the opportunity to “work their trade” on a regular basis, brought 200 new people through the door who got to learn about Lumina, tell other people about Lumina and a small percentage would become regular clients with stylists who didn’t have a folowing yet. We combined our cut with a manicure (nail tech also gets paid hourly, so once again didn’t effect our pockets).
    So, the feeling is if you use it to your benefit and insist on certain conditions (like saying “new clients only”)
    and book clients during times when you are not slammed, with stylists who are not on commission, it can be used as a great marketing tool.
    just felt like sharing my thoughts on it.
    sharon

  5. Michelle on April 25th, 2011 7:43 pm

    I’ve been thinking about the same thing…there is definitely the groupon professional but it hasn’t been long enough for me to look at my retention of them to decide….but I feel that it will be more than 10% that we will retain….and what did we have to loose…time if the girls didn’t have anyone anyway at that time… I know the bitching in the back room….they have the choice to not do them too…but for the most part the girls have appreciated the help with building there clientele and a lot of them got add ons… so as far as the bitching(at my shop that’s 1 girl) and she doesn’t have a full book and still want’s them…so for the girls on commission we both didn’t make much but when I look at the #’s (year at a glance) and comare last year to this year we Feb we are up $2000 the deal went up feb 16th March we are up $5000 and April with this week we’ll be up probably about $5000 or $6000 this week we had a few groupon come back for a second time that I know of. So we sold Just over $12000 of which I get $6000 I think we are still up. There is also something to be said for the buzz of a busy phone and clients in the chairs when the groupon person is there. It’s telling everyone there this place is busy I like fell comfortable and like it here. I know with your reserch you believe that the client that has been in the salon is the ones we should be advertising to…shouldn’t we be thinking like that we got them once(with groupon 279 clients we DIDN’T know…wow is how I feel about that) let’s WOW them maybe intise to come back with a offer…Which is what we did we offered $15 dollars off a haircut for the next time if they bought it on the spot…Almost all the clients that I rung out did that…so there’s a second chance to WoW them..plus we’ll have them in our system for the future if they weren’t convinced we where great the first 2 times ..we’ve redemed 170 of the 279…I’ll be watching the #’s! I think you can over expose your self with this kind of advertising and my thought was maybe make you look like your always discounting you services ( the client might think why) but it’s the future or atleast until it runs it course. I think I would still do it once or twice a year. I love your feed back and I’m glad your talking about this new adversing medium.

    Thanks,

    Michelle

  6. bill leary on April 25th, 2011 9:28 pm

    Hi Steve and thanks for shedding some light on this subject. I have spent many hours trying to do the numbers for Groupon and they never seemed to work out for us. Many of my staff have asked me to try it but have been reluctant. I am not interested in developing a client base that is always looking for the discount. They will just bounce from salon to salon looking for a deal. I am relieved that your research has proven my gut right. thanks again.

    Bill

  7. stella on December 27th, 2011 8:34 pm

    We’ve done it very recently. just opened a brand new place and all the stylists had some of their own following.
    We charged the full ala carte price for the services (most stylists give discounts on services added to a chemical), then added a treatment to the service to increase the value a bit.
    After the 50% deduction the client still paid a decent amount for the service and the salon only took a few bucks to cover costs of product. The rest went to the stylist to get THEM busy and keep them happy durring the transition of moving and losing clients (which happens everytime when you move) and the tips were good for them.
    Most of the clients we’ve had were great and I feel good about saying that my stylists are good enough to bring them back.
    Not enough time has gone by to see any of them again, but EVEN IF THEY DONT, I didn’t actually LOSE any money, bored stylists got to make some money and if they don’t get any return clients, then we just wont do it again…that simple.
    BUT, you have to really believe that your salon, stylists, concept, atmosphere and work will speak for itself and bring them back, AND you have to be careful with the deals/packages that you offer.

  8. R on February 8th, 2012 9:27 pm

    What have your experiences with the newly popularized Groupon Now been?
    I feel like there is a decent sized (and growing) percentage of the population who will, when they need a haircut, check Groupon Now for a nearby deal and take whatever is best at that time. If salons aren’t making money on Groupon Now, and the Groupon Now customers only go to a salon that is offering a Groupon Now deal, then the only people benefiting are the customer and Groupon. I know a salon that hasn’t been able to turn a profit the last couple months and I believe this may be the issue. Their walk-in traffic has decreased a ton.
    How do salons combat this issue?

  9. Steve Sampson on February 8th, 2012 10:11 pm

    Hi Ryan, Groupon Now clients are exactly the wrong clients that you want to have. For the very reason that they almost immediately commoditize your services and attract “price shoppers”. Read my post in January 2012 Newsletter under the “News” link at the top of this site. It’s all about price and how to charge premium prices… You don’t want to start off by using “Price” as your magnet to attract new clients. Bad move. And as far as your friend is concerned…take 19 minutes and watch the FREE webinar that I have on Facebook and you will see why 95% of salons today are just struggling to get by. Learn what the other 5% know. Here is the link to the FREE Facebook webinar https://apps.facebook.com/salon_growth_expert

  10. I am out of business, Lesson Learned on March 9th, 2012 11:00 pm

    I own a small boutique Day Spa in Brooklyn. The focus has been to treat clients on a personal level and build a membership. I am going out of business and last thing I am seeing is groupon customers. My experience with the clients were positive in some cases,however I knew from them even though they enjoyed the service they would not repeat. Why is that you may ask. Well people were 1. coming from insane distances to redeem their groupon! That alone was a clear indicator that they were not going to return. 2. Most said that they love using groupons! Some said they would stop purchasing groupons because of the way they were treated by some business especially the ones in the service industry.

    I have to take full responsibility for the decision. I was convinced that it would bring us new clients. What it actually did was alienate my current clientele because they began waiting for the same deal to be given to them. It harmed my brand. Most did not want to leave gratuity citing that they did not know, even saying that if they had money for gratuity they would not be doing Groupon. Eventually I had to insist that a 20% gratuity was included for the services received. That was what was used as payment for the staff, They were basically working for tips.

    Groupon collects the funds puts the cost of the credit card fees on the merchant, takes 50% of a deeply discounted service, refuses to put a cap on the amount sold, saying that it would make no sense to do so, then pays you over a 3 month period, send you a 1099K for the entire amount for what they collected. Making you responsible for paying taxes on the full amount collected. Now I am being told by groupon either I service all the groupon clients that purchase or I need to send them the money back for the groupon clients I did not redeem. I am unable to do neither of those things since I am unable to pay the rent for the space to service the clients. Go figure… you live and you learn. Groupon is not operating from a place of integrity, but the final decision was of course mine.

    We all have our experiences. We make decisions and we learn from the effects they produce. I will advise any service business that has a cash flow issue, or stuggling without working capital, or that you boot strapped your business to get it started. Steer clear of the deal sites it is not in your best interest. I found out to late that I could create my own deal page and send my clients deals that look just like groupon! My one regret is that I am unable to service all of the clients who purchased our groupon.

    But life is for the living right:-)

  11. Steve Sampson on March 10th, 2012 5:45 pm

    As you know I am not a big fan of any of these deal sites. It’s unfortunate that you got wrapped up into this mess when you were at such a poor cash flow position. These sites are never the answer! Keep up the positive attitude and you will land on your feet and succeed. Everyone in business has had failures…it just goes with the territory. Good luck and keep the faith!!

    Steve

  12. Sarah on April 2nd, 2012 12:19 am

    I agree with everyone who had some negative to say about Groupon. It is the worst thing we ever did. The people that I work for only saw dollar signs and sold a Shit load of these. The result was, WAY too many were sold, we didn’t/dont have the staff to accommodate the clients. We did Massage, Facial and Nails, no Hair, THANK GOD.

    We have had significant turnover with Massage Therapists due to this because they are making no money on them. Then the clients get pissed when they call and can’t get an appointment for 3 weeks or more, because we simply dont have the staff to accommodate how many sold. Its a vicious circle.

    To boot, these ARE NOT THE CLIENTS YOU WANT, they are snakes. Looking for deals, complaining about every minor detail, they constantly try to substitute services for others, abuse Groupon rules for 1 per person etc. AND they tip horribly or not at all, and when he said in the article that your staff will be in the back-room complaining about “Groupons” (((yes, thats what we refer to the clients with groupons, we simply call them “Groupons”))) HES RIGHT!!! And its awful, it turned our industry into something nasty. This industry is about customer service, no client should be treated differently than an other, but unfortunately it has happened.

    Then the last part is that all these people go online and write reviews. People only write reviews if they are extremely satisfied or extremely dissatisfied. You hope to make everyone happy, but in the end, we couldn’t accommodate, people were dissatisfied, wrote poor reviews, and reputation is all you have in this industry.

    Theres something to be said for not discounting your services. When you discount it cheapens you. We have all worked so hard to be as talented as we are, and spent so much money getting there. I think clients actually think you’re better when you charge more. I know it’s true because its been said before by many others.

  13. Christina on April 18th, 2012 2:58 am

    I run my own salon business and have done a few of these deals. I totally disagree with this article. The decision to run a promotion must be done with forethought. If done with a deal that your business can afford to offer these can create loyal clienteles. I believe that the deal gets them in the door, but it’s my job to keep them coming back. I’ve had several of my “deal” clients tell me that I was the first stylist they had been to more than once. If you make yourself valuable to them they will come back. Customer service is all important and I think it often gets left out for these clients, which could account for low retention rates. I’ve heard many people say that they’ve been treated rudely while redeeming these kinds of coupons. Some people are just shooting themselves in the foot! I will continue to use these sites to promote my business. I recently ran a printed coupon ad for $550 and received no leads from the promotion, so what’s the real scam? At least this guarantees you the chance to earn a loyal client!

  14. Ziata on September 4th, 2013 2:42 am

    Wow.

    Finally some frankness about the current in the industry. What a tragedy for those who spent countless hours in school, ( I have spent hours in a search of a c.i. d.e.s.c. o )and research and practice in a field they feel passionately about and take seriously.Will they start to give offers to other types of doctor visits besides cosmetic? Where is the industry standard? What is the base value on the service?I will bet anything that if these services provided were given by people with graduate degrees, they would NEVER have agreed to such a lowering of standards in their related fields. When I started in the aesthetics/cosmetology field it was lucrative. And it was rewarding. You would come to know your clients as friends. Now they are taking that away as well. What a loss for everyone really. The client as well as the shop owner. So much for small business. The service industry’s success, has always been based on the relationship between the service provider and the customer/client/consumer. This essential element is missing in this new relationship.We are losing all the joy in this industry, and it is stripping us of our pride!
    So how do we right this wrong, before this predator/interloper is out of control?
    does anyone have any ideas? Is a union out of touch? Can we fight this take over of the service industry legally? Give me some ideas!!
    Otherwise, i am afraid, i will go down with the throng… If you can;’t beat ‘em-join ‘em..Good luck to those out there!!

  15. Jeffrey Martinous on April 5th, 2014 6:38 pm

    My thoughts on why Groupon, and other daily deal sites are really bad for your hair salon business. I have owned and operated, along with my wife, a very busy, successful hair salon located in metro Boston for eight years now. We have faced many challenges along the way, just like all salon owners do. We continue to grow and thrive. We will never run a groupon. I have done a ton of research on daily deals. All the information contained below is accurate. I don’t offer references, but can provide them if somebody wants one.

    Let me start off by saying that getting involved with any daily deal site like groupon, living social, etc. is no different than getting involved with a drug dealer or loan shark.
    So your salon needs money due to poor cash flow? You call groupon and the convincing, slick salesperson explains to you how groupon will get you a check for around $60,000 over the next 60 days. Here’s how the math works…

    1. Normally your salon charges $250.00 for a full foil + a haircut.
    2. The groupon rep. convinces you to offer a deal at 50% off for the full foil + haircut package.
    3. You agree. So groupon will now send out an e-mail to their thousands of customers in your area offering them a full foil + haircut for $125. Yes, groupon tracks which of their customers buy hair salon deals, and these customers are targeted each time a hair salon deal is offered in their area; do you really think these “grouponers” are going to come back to your salon for their next service and pay you the $250 full price when they just received another deal in their inbox at 6am for 50% off at your competitor right up the street? No way you are ever going to see 95% of these folks again.
    4. When the groupon customers buy a groupon deal, they pay groupon directly, not you, and because your salon’s deal is so good you sell 1000 deals (this is very likely to happen).
    5. So, 1000 (deals) x $125 per deal = $125,000 collected by groupon. Sounds like a lotta money, right? Well, it is.
    6. Now remember folks, your only gonna get half of this amount, or $62,500.00. But wait, remember, every single groupon client pays for their deal by credit card, and don’t think for a second that the sweet folks at groupon are gonna pay the credit card fees. Average fee is about 2.5%, so 2.5% of $125,000 is $3125.00. That comes out of your cut. Now your cut is down to …$62,500 – $3125 = $59,375.
    7. Now comes the good part. Your phone starts ringing off the hook. Your staff literally can’t keep up. The good news is over the next 60 days you’ll receive a few checks in the mail ( yes, paper checks via snail mail) totaling $59,375. Thank God, right?
    Your salon is swarmed (like locusts) by hundreds of “grouponers.” They infest your salon. They demands more for less. They take and take and never give. They don’t think you put enough foils in their hair. They want their hair flat ironed, but assume this is just part of the service, they are cheap, why else do you think they bought a groupon? They want their roots done for free. They rarely, if ever, tip. Your staff is exhausted. Working like dogs and making very little $. “Grouponers” tend to complain often at the front desk about any number of things, creating scenes in front of your clients (including your regulars).
    8. Hey, people talk and word gets around. Your regular clients catch wind that you’ve run a groupon for new clients only. They feel angry and unappreciated. They have been paying $250 and have been loyal to you for years. Now they find out the obnoxious, cheap “grouponers” are paying half that. How would you feel as a loyal client? I bet not that great.
    9. Now, over the next 6 months, you and your staff must do $250,000 worth of services, along with all the expenses that go along with this $250,000 in services, and you collected only $59,375 several months ago. Is that even enough to cover your product costs, overhead, taxes, insurance, payroll, rent, fees, supplies, repairs, advertising, etc., etc., etc. It is not enough, I assure you.
    10. Now comes the scary part. It’s been about 5 months since you’ve run the groupon and you’ve burned through most of the $59,375. You’ve had to pay all your bills right? Your salon was already struggling a bit or you likely wouldn’t have run a groupon to begin with. Loyal clients are less loyal now, and many have disappeared, further dragging down profitable sales. Sad. Now, your chairs are always full of nasty, cheap strangers whom you’ll never see again. You don’t collect any money from them as they leave. Remember, you got your puny little cut of the $250,000 long ago. So long ago you can barely remember receiving it. It’s all spent. You feel like all you do is free services all day. Your staff is becoming disenchanted, they are starting to view you as not a very savvy businessperson. Your financial situation is getting worse, not better like the groupon folks promised. You need money now. So what do you do? You need more money to stay is business and pay your staff. Like a junkie or gambling addict, you go back to your dealer/bookie… You go back to groupon (your loan shark) and run another deal, and the entire vicious cycle starts over again. Soon the groupon “locusts” will swarm you again, consume everything in site, and move on to the next salon to consume it too. I’d give you 6 months before you close your doors for good.
    Trying to build a business by running a groupon is like building a house of cards. Building a salon business by charging fair prices for excellent service is the only way to do it. Build your business on a solid foundation.
    No thanks groupon, I never much had any interest in trying crack.

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