Groupon.com is a great concept whereby users receive a daily offer within their city, known as a Groupon. Discounts are significant, and the offer is only valid if the minimum number of buyers purchase the Groupon within a 24-hour period.
Presuming your offer in Groupon is $200 of cleaning for only $100? Groupon takes $50, and you receive $50…making the $50 only 25% of your original $200 in cleaning.
Here are the issues to think about with Groupon, let’s consider that 200 people pay for the $200 cleaning at $100 price offer:
• You have to be willing to serve the entire geographic area for the city you are listing under (perhaps you can give the leads that are way too far out of your service area to a trusted other company presuming they understand the finances.)
• This is a wonderful way to get inside people’s homes who have paid money upfront for your service—potentially a great pool of prospects, all brought to you in 24 hours—good to possibly incredible.
• This is a marketing investment in the future potential of converting these leads into regular customers, etc.
• One thing to consider is, of the 200 people that pay for the offer, how many will actually book appointments for cleaning? 20%, 40%, 60%…in other words it will never be 100%, and I would bet that it is probably more like 40%-60% of these people follow through. Translation, of the 40%, for example only, of the 200 who paid but never utilize it, you will have 80 people (40% of 200) who paid you $50 but never used the offer—resulting in $4000 coming to you from 80 people who never use the coupon offer. Therefore you add this $4000 to the money you received from the other 120 people (60% used the coupon–$6000), ($4000 + $6000= $10,000). Now let’s assume you do in fact do the cleaning of the 120 people’s homes. Divide $10,000 by 120 and you get $83.33 per cleaning, actual figure based upon the total dollars you received from Groupon, and the total number of homes you actually cleaned.
• So what is the real cost to you of cleaning these 120 homes? $200 of cleaning at $35/hour is 5.7 hours of cleaning, so 120 homes times 5.7 hours is 684 hours in cleaning for 120 homes. (Based upon $35/hour billable, labor rate all in at 48%, your cost per labor hour is $16.80) If you add fixed costs (average of all fixed costs, administration, marketing, sales, etc.) of $7/hour (20% of billable), you end up with an hourly cost of $23.80. So $23.80 times 684 equals $16,279 in actual expense to clean 120 homes at 5.7 hours of cleaning each.
• The next issue is what percentage of the 120 people who bought the Groupon offer and use it, do you think you can persuade to upgrade to Top to Bottom Deluxe Cleaning, or additional services carpets, windows, etc. ? Conservatively let’s say 10% of the 120 people upgrade to Top to Bottom Deluxe Cleaning at $350 each. This results in $150 revenue above the $200 Groupon coupon for each of these 12 homes, which is $150 x 12 equals $1800.
• So conservatively, let’s say that you only convert 20% of these 120 cleaning clients into regular, bi-weekly clients at $2600/year ($100 per cleaning for 26 cleanings in one year), that’s 24 clients. 24 clients times $2600 for one year, presuming 100% retention, equals $62,400 in new business (one year) from one 24 hour period on Groupon.
• So if $200 of cleaning is sold for $100 on Groupon, and you receive only $50 of this $100, the question is, is it worth it? First, you receive $10,000 from Groupon when 200 people buy the offer. Yet with our calculations of conversion above, this will only be 120 homes to clean or less. Your total labor and fixed costs for cleaning 120 homes will cost you $16,279 minus the $10,000 cash you received from Groupon, which equals $6,279 out of pocket cash expense for your business.
• So if 12 people out of 120 upgrade to Top to Bottom $1800 in revenue, 24 out of 120 clients convert to regular bi-weekly customers $62,400 in annual revenue, plus only 12 of the 120 take you up on one additional service (carpets, windows, etc. at $400 each) $4800 in revenue, you will have added $69,000 in revenue in one year. So is the $6,279 cash paid out for labor for 120 cleanings worth it to receive $69,000 in revenue, 1000% return on your “investment”—based upon this conservative calculation of 60% of Groupon buyers (120) actually use your service, 10% of these upgrade to Top to Bottom, 20% convert to regular bi-weekly clients, and 10% add one additional service. That’s $69,000 in first year revenue only, not adding in the revenue from these regular customers in year 2 and 3 (at your current client retention rate).
• Next is the intangible aspect of doing Groupon. That is, exposure to your marketplace from the initial offer, and the fact that your offer even after it is closed will pop up when users go to Groupon in your city and search for maid service—again promoting your company.
So the questions you have to ask yourself are:
a. Can you cash flow the $6,279 in labor costs, over however many months?
b. Do you believe you can convert these minimum percentage rates listed in this example above, or can you beat them? 10% upgrade to Top to Bottom; 20% convert to regulars; 10% take one additional service;
c. Once you have the 120 clients who used you in your database, how confident are you that you can advertise effectively to them in the future (perhaps you will get the contact info for all 200 from Groupon?),
d. Is there another marketing effort that you can do that would generate the same amount of revenue potential in just 24 hours?
e. Do I have the office staff well trained in terms of scripting and sales skills to leverage this opportunity?
f. How many of these new Clients can I book each week to control cash flow?
The other strategy to leverage on this would be to offer other home services to these clients through my One Phone Call Does It All process which would generate commissions for you based upon the services that were used by these clients.
To learn more about how Groupon works, go to www.grouponworks.com
Check out more great info from Steven Rowell at www.retiremenowsteven.com
Today I entered my local Hallmark Greeting Cards Store in search of a variety of boxed notecards. After selecting $60 worth of cards, I went to the register and asked the 3 ladies working behind the counter to kindly direct me toward their writing pens. The eldest woman quickly responded, “We don’t sell pens. Go to Staples.” I paused, holding back my outburst of laughter and amazement. I then simply said, “Oh, thank you.” Bewildered as to the reality that my local Hallmark Card Store sells paper note cards yet sells no pens, I could not help reminiscing over the recent news articles and stories which touted the desperate attempts at survival by the note card industry. Seems as though e-letters and services such as SendOutCards.com have completely replaced the handwritten note card for millions of Americans amongst select generations. Nonetheless, my local franchisee seems to prefer promoting Staples rather than serve one of her customers or even attempt to gain my business. So without hesitation, I wandered back to the notecard section, placed my $60 in notecards back on the shelf and quickly departed the Hallmark Store, headed directly for Staples just steps away in the same parking lot!
