Groupon: Can you really count on the ROI?

Forget the IPO. Do Groupon’s ROI calculations even make sense for most retailers?

Will Groupon survive?

My answer is found in the immortal words of Kip from Napoleon Dynamite, “Like anyone can even know that.”

Questions are being raised about Groupon‘s management decisions, accounting practices, burn rate, even its overall financial viability.

But let’s stay at the merchant level right now. Do the ROI calculations even make sense?

I’m not here to say Groupon will fail. If you’re opening the doors to a new restaurant or other retail establishment, it may be smart to benefit from the marketing exposure Groupon will give you. You may not even have to pray for low redemption rates. It’s all new business when you’re new.

But if you’re established, can or should you count on Groupon’s ROI numbers shared at the NRA show? While walking you through their ROI calculation, they project that 5% of those who redeem will return, and then, if those 5% return once per month for the next year, and spend just slightly more than your original deal, you’ve got a 3:1 return. (And, hey, what if they bring friends?!)

A restaurant marketing panel member said during one of the sessions I attended at the recent National Restaurant Association show in Chicago that her aim was to get more regular customers who pay full price.

Will that ever happen if you’re relying on Groupon as your acquisition marketing partner?

Five percent is not a big percentage. Especially if they were all drawn to your location in the first place by a massive discount. And counting on them spending “slightly more” than the original deal was for is a reach, isn’t it?

And heck, returning once per month for the next year? What’s that metric based on? And can you even predict that? These are deal-seeking-and-redeeming consumers we’re talking about here. And what about the possibility that those seeing your deal are just too far away? A recent deal for my Groupon area (dubbed the Inland Empire in southern California), was 73.6 miles away. I’m not driving 73.6 miles to pay just $10 for $20 worth of pizza. And…and…and…and…

Groupon has work to do. There’s a super smart CPA who did some good thinking on this well before the question marks starting popping up about Groupon. Check his stuff out.

The point here is that retailers (most notably restaurants) have to really do their homework to make certain a “daily deal” is the right thing for their business.

Don’t end up like Posie’s Bakery & Cafe. And don’t be too quick to sign up for the Rex Kwon Do $300 eight-week program.

UPDATE:

A few related articles that don’t paint the best picture. But it sounds like some folks are worrying less about Groupon as an instant revenue-generator…instead seeing it as a advertising vehicle to get their company’s name out into the marketplace.

UPDATE 2:

  • That Posie’s Bakery & Cafe story I linked to above? It has hit TechCrunch…with video. It’s not a happy story.

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