Last week, Groupon Chicago had a laundromat featured as one of the day’s side deals. $10 for $20 worth of drop off service or $7 for comforter cleaning (up to $15 value).
While everyone knows of Groupon’s popularity among consumers, many small business owners are unsure if this is actually a cost effective strategy to attract new customers. Now that the initial numbers are in for this laundromat’s promotion let’s run through the costs, benefits, and what to keep in mind to ensure these advertising campaigns work successfully for your small business.
For this example, all the numbers will be based on the $10 for $20 worth of drop off service. Here’s how they break down for last week’s deal:
Groupon’s purchased: 292
292 x $10 = $2920
$2920/2 = $1460 (It’s a 50/50 split with Groupon. You receive a check for $1460)
If you estimate the cost to your business being $5 per Groupon with a 90% redemption rate that is a total cost of $1315.
So far your laundry is profiting $145 on what began as an advertising expense. The owner’s of this example’s Groupon wisely offered a 50% discount, which is roughly the cost of running the promotion.
Some key points to address before signing up for a similar promo:
1. Groupon is an advertising expense.
While there are no up-front costs for running this type of promotion, it is not a magical way to create a spike in revenue. Groupon gets people in the door to try your business. You must have a marketing strategy in place to retain those people and turn them into loyal customers.
Take advantage of the Word of Mouth marketing opportunity that hundreds of new customers presents. If you’re on Facebook and Twitter, have the signs in the store to tell your customers to like and follow your business. Advertise that you’re on Yelp, and ask the customers to review your laundromat and services. Does your laundry use email marketing (e.g. Constant Contact)? Collect email addresses of all new drop off customers. The point is to get new customers in the door, get them talking, listen to what they’re saying, and join in when appropriate.
2. Are you prepared to handle an immediate surge in business?
This is an important point because it affects not only all of the new customers, but also the loyal customers you’ve already earned. If your competitive edge is customer service or a quick turnaround time and you and your staff cannot handle the demand, you will fail to retain first-time customers and disappoint your already loyal core.
3. Cap the promotion
Groupon allows businesses to cap the promo at a certain number of coupons sold. Honestly assess your capabilities and only offer what your business can handle. Word of Mouth will backfire if you can’t impress your customers because you’re overwhelmed with demand.
4. Profit Potential
Make it your goal to get every person redeeming a Groupon to spend more money than the offer is worth. Laundry bags, soap, additional drop off services, dry cleaning, vending, etc. are all opportunities to showcase your products and services and turn an ad expense into a profit. Perhaps even offer an incentive to your attendants if they sell additional products or services – they’ll already be working extra hard and will appreciate the opportunity to share in the success.
5. Track your results
To properly gauge the success of your promotion you’ll want to track information such as the average total sale with a Groupon redemption, percentage of redemptions by new customers, percentage of redemptions by existing customers, number of Groupon’s redeemed, etc.. All of this is quickly collected with either a short form for the customer to fill out, or by having your attendant ask the questions.
Use these numbers to learn how much it costs your business to acquire a new customer. When compared to your other forms of advertising, you will learn where your marketing/advertising dollars are best spent.
With proper planning, Groupon is a great way to generate both new business and word of mouth.
I’m hoping to talk with the owner of the laundromat that ran the Groupon promotion here in Chicago to get a first hand account, and some further laundry industry specific insight. I’ll keep you posted on that.
In the meantime, if you have any questions or want to discuss the opportunities mentioned above in greater detail leave me a comment below.
