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.