I have a four-room massage studio off the 805 in San Diego. I have been running it for nine years. We do mostly therapeutic and prenatal work, with a small percentage of spa-style massages for date nights and the occasional gift card. Three years ago I ran my first Groupon. Two years ago I ran my third and last one. Here is what I should have known before signing the contract.
The pitch that got me
A Groupon rep called me on a Tuesday afternoon. She was sharp, friendly, and asked exactly the right questions. She said her team had analyzed my zip code and that a 60-minute massage at $39 (down from $110) would do somewhere between 200 and 400 redemptions in the first month. She said I would get half: roughly $19.50 per massage. I would lose money on every single one, but I would 'fill my book' and convert them into regulars.
I asked her what percentage of Groupon customers typically convert. She said studies show 'around 20 to 30 percent'. I did the math on the back of a receipt. If 300 people redeemed and 25 percent converted, I would have 75 new regulars paying $110 going forward. The lifetime value math seemed obviously worth losing $30 a head in the short term.
What actually happened on deal one
We sold 287 vouchers in the first nine days. Redemptions started the next week. The studio was booked solid for two months. My therapists were exhausted. The customers were, almost without exception, people I had never seen before and would never see again.
- 287 vouchers redeemed.
- Customers who rebooked at full price within 12 months: 19.
- Conversion rate: 6.6 percent. Not 25 percent.
- Customers who left a one-star or two-star review: 11.
- Net loss on the deal once you subtract therapist pay, supplies, and Groupon's cut: roughly $4,200.
The reviews were the worst part. Several Groupon customers showed up late, expected to be served past the end of their slot, and got upset when we charged them for the upgrade tier they had not pre-paid for. A two-star review on Yelp that said 'feels like a discount factory' lived on my profile for two years.
Why I tried it twice more
Sunk cost is a hell of a drug. I told myself the first deal was a learning experience and that I knew how to run the second one better.
Deal two: I narrowed the offer to a 90-minute deep tissue at $69, hoping a higher-ticket deal would attract a more serious customer. Result: 81 redemptions, 7 rebooked, similar review damage. Deal three, six months later: I tried a 'first-time client' restriction. Same result. The Groupon customer is a specific kind of customer. Discount-hunters are not converting into regulars no matter how I frame the offer.
What I learned about the math nobody tells you
The Groupon math only works if you have spare capacity that would otherwise sit empty. I did not. I was already running at 70 percent capacity at full price. Every Groupon slot I gave away was a slot a full-price customer could not book. The opportunity cost made the actual loss closer to $7,000 per deal, not $4,200.
The other thing nobody mentioned is what happens to your full-price customers when they find out you ran a Groupon. Three of my best regulars asked if they could get the Groupon price. Two of them stopped coming after I said no. That is several thousand dollars a year of recurring revenue, gone, because I had advertised a 65-percent-off price to the world.
What I do instead now
I run a referral perk program. Existing clients get $20 off their next session for every new client they send who books and shows up. The new client gets $20 off their first session. The two of them combined cost me $40, which is less than the $60 I was losing on each Groupon redemption. And the customers who come in are pre-qualified by someone who already trusts the studio. The conversion rate from referral first-visit to regular is north of 50 percent. The Groupon rate was 6.6.
If I had to do it again I would never have signed the first contract. The 'fill your book with new customers' pitch is technically true. It just leaves out which customers, at what cost, and what they do to the rest of your business.