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Merchants Need To Pay Attention To Profits Of Daily Deals, Not Their Commission Rate

commissionMany restaurants contemplate whether running a Groupon daily deal is actually worth as much money and effort  that is put into it. According to a recent article by InsideScoopSF, the vantage point for most restaurants who run a daily promotion is to aggressively negotiate the commission. Most merchants will even increase the price of their offer, to $20 off of $40 instead of $15 off of $30, to get a better rate on commission.

However, this strategy only supports Groupon’s stock price.

When Groupon sells a $10 for $20 voucher, the company tends to keep around 40% of the $10 voucher. Where restaurants really make their money is the remaining 60% of the voucher, as well as, when guest order and excess of their voucher’s dollar amount. According to InsideScoopSF, restaurant operators dedicate most of their negotiating energy on getting the commission down an extra 5-10%.

Copilot has tracked almost 100 daily deal promotions across many different types of restaurants, their findings discovered the main factor in making a daily deal profitable isn’t the commission, it’s the set price of the deal itself. For the majority of restaurants across the U.S., setting a lower dollar amount ($10 for $20 instead of $25 off of $50) that is closer to the average ticket price, will encourage overspending.

For deals that tend to turn over the most profits, overspending makes up 81% of their profits and the voucher sale only contributes 19%. Breaking this down, commission does not affect the profitability of the promotion whereas  a change in the price is the difference between a profitable deal and one that barley makes the restaurant any money.

Any smart daily deal company recognizes that the smartest way to increase their own profits is to increase the overall price of the promotion, not worry about the commission rate.

Source: InsideScoopSF


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