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How Does Groupon Make Money? Groupon Business Model In A Nutshell

Groupon business model is a two-sided marketplace where local consumers meet deals from local merchants. The company makes money by selling local and travel services and goods. 

Its value proposition based on attracting local customers to local merchants is quite compelling. Local consumers instead get savings and discounts that they would not get elsewhere. 

The company measures its financial success in gross billings and revenues growth . Groupon generated over $2.8 billion in 2017, by selling its goods and services directly via its websites and mobile app, and indirectly via third-party affiliate sites, who get a commission for each sale.

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Table of Contents

Groupon business snapshot

Groupon business model is based on a local e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount. Groupon in part replaces the traditional media that local businesses have used over the years to generate sales at a local level. This includes: 

• yellow pages
• direct mail
• and online advertisements

The value proposition is quite simple: Groupon attracts customers to merchants, which otherwise would have missed. Consumers get savings and discounts that they would usually not get elsewhere.

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Those offers are primarily run on groupon.com sites in many countries, and mobile applications.

The offerings are organized into three primary categories:

• Local (service): revenues  are primarily generated through Groupon relationships with local and national merchants
• Goods (product): direct revenues from transactions in which Groupon sell merchandise inventory directly to customers, and third-party revenues
• and Travel (service): Groupon features travel offers at both discounted and market rates

Distribution strategy and marketing mix: a two-sided marketplace needs both marketing and sales capabilities

When deciding whether to allocate marketing vs. sales resources , it is critical to understand the value of a lead and potential customer on the one hand.

Thus, if a company sells expensive products made for a specific and limited target business development and sales  are the key ingredient for its success.

Yet if the company sells a low-priced product that is well-suited for a mass market or consumers, then marketing will be the best option available.

On the other hand, when it comes to the acquisition and distribution process of a two-sided marketplace , it is essential to consider the acquisition process from two perspectives. For instance, the two principal partners Groupon has to create value for are:

• local merchants willing to offer discounts in exchange for qualified local customers
• and local consumers ready to buy from local merchants

This also implies a two-sided distribution strategy , where each of those key players will be drawn to the platform with either sales or marketing .

The value of a merchant brought to Groupon is intrinsically higher than the value of a local consumer. Therefore, Groupon will use sales processes and support to nurture the relationships with those local merchants.

Instead, to acquire local consumers, Groupon uses a marketing mix made of several marketing activities to keep the platform appealing for its local consumers which can find the offer they need.

The two ways of access to the platform are:

• the website groupon.com
• and the mobile app

Let’s now look in detail at Groupon marketing and sales activities to draw local consumers and local merchants to the platform.

Marketing as the primary driver of the acquisition of local consumers

Groupon uses a variety of marketing channels with a direct to customers’ business model by making deal offerings available through its marketplaces.

The primary driver for consumers’ access is the Groupon mobile application. Indeed, in the fourth quarter of 2017, over 69% of Groupon global transactions happened on mobile devices.

This makes marketing a critical ingredient of the Groupon growth strategy  and an essential component of its distribution strategy . To have some context in 2017 Groupon spent 31% of its revenues in marketing (over $400 million).

What marketing mix does Groupon use?

Search engine optimization.

For a platform like Groupon that highly depends on visibility from local consumers across the globe, there is no better way to reach them than through search engines. Indeed, search engines present two key advantage:

• consumers can be targeted based on specific keywords  (like, “best SPA deals”)
• consumers can also be targeted based on local keywords (like, “best SPA deals in LA”)

Therefore, an SEO (search engine optimization)  can have a massive ROI for a company and platform like Groupon. Via third-party search engines, consumers across the globe can access to Groupon deals. SEO has the advantage of being organic. In short, consumers get to Groupon based on organic rankings the platform has gained over the years.

Search engine marketing

Customers can access the Groupon platform also via paid listings on search engines based on bidding keywords. For instance, Google allows through its advertising network  to bid on specific keywords that have specific commercial intent.

Thus, companies that look for those keywords will probably end up purchasing Groupon deals. This is called search engine marketing or SEM.

Email and push notifications.

Another key ingredient of the Groupon marketing mix is comprised of direct access to consumers via an email list made of subscribers that voluntarily sign up and of push notifications ( notification service to send updates on mobile devices). 

That system allows Groupon a higher control over what offerings to show directly to its consumers and subscribers. 

Affiliate channels.

Another important marketing distribution strategy is based on affiliate marketing.  In short, affiliates that send consumers to Groupon offerings via links on their websites get rewarded with a commission.

Social and display.

The virality of social media is also essential to allow the sharing of dealings from Groupon. Groupon also promotes its offerings using display advertising on websites.

Television and other offline.

Groupon also started to invest more in offline marketing , such as television advertising, print, and radio.

Sales operations as the primary driver of the acquisition of local merchants

The relationship with the millions of local merchants on Groupon is critical for the long-term success of the business. Those relationships indeed are an essential part of long-term business success.

That’s also why Groupon, in 2017, had 2,400 merchant sales representatives and sales support staff. They had the role of nurturing merchant relationships and provide local expertise.

Beyond merchant sales, Groupon also leverages on deal managers to provide support in areas such as:

• deal managers
• merchant services
• customer service
• merchandising and logistics

Deal managers and sales teams work together to optimize the deal structure, pricing, discount, and geographic mix of deals in respective markets.

The editorial department creates written and visual content on the deals offered on the platform.

Merchant services representatives help merchants optimize their strategy when deals are offered. And customer service answers customer inquiries in several areas.

The technology focuses on the design and development of new features and products, maintenance of the site and mobile platform, and improvement of the internal system.

While merchandising and logistics are responsible for managing inventory and the flow of products from suppliers to customers.

In 2017 Groupon spent over $994 million to support this infrastructure.

How does Groupon make money?

Source : Groupon 2017 Annual Report

Groupon makes money primarily by selling its deals offerings to local consumers based on two primary channels:

• third-party and other

Cost of Direct revenues

The Company generates direct revenue from the merchandise of sale inventory through its Goods category. That is also the reason why the cost of revenues for immediate is way higher than third-party revenues which are recorded on a net basis.

Direct revenues also include a cost of inventory , shipping, fulfillment costs, and inventory markdowns.

Third-party and other revenue

For the third-party merchant, revenue is recorded on a net basis and is presented within third-party revenue .

For third-party revenue transactions, the cost of revenue includes estimated refunds. The mechanism allows those third-party to earn commissions when customers make purchases using digital coupons via their websites and applications.

Key financial metrics

Each business’s financial success is measured according to a set of internal metrics the company uses to assess its growth .

At the same time, those metrics are communicated to outside investors to assess the state of advancement of the company.

Groupon looks at five key metrics:

• gross billings
• gross profit
• adjusted EBITDA
• free cash flow 

A glance at Groupon digital marketing strategy

Groupon has a massive reach, with its website alone has over fifty million visits according to Similar Web estimates (this is an estimate and not to be taken as an actual number):

Also according to Similar Web Groupon is the first site in the US for Coupons, within the Shopping category.

Still, according to Similar Web estimates, the marketing mix is skewed toward two primary channels:

• and organic traffic (via SEO )

Those two sources of traffic are critical as on the one hand it points Groupon strong brand and at the same time authoritativeness. Other channels like social, mail, and display also play a crucial role.

Key Highlights of Groupon’s Business Model and Strategy:

• Business Model : Groupon operates as a two-sided marketplace, connecting local consumers with deals from local merchants. The company generates revenue by selling local and travel services and goods.
• Value Proposition : Groupon offers a compelling value proposition by attracting local customers to local merchants, allowing consumers to access savings and discounts they wouldn’t find elsewhere.
• Financial Metrics : Groupon measures its financial success through metrics such as gross billings, revenue growth , gross profit, adjusted EBITDA, and free cash flow. In 2017, the company generated over $2.8 billion in revenue.
• Categories of Offerings : Groupon’s offerings are primarily organized into three categories: Local (services), Goods (products), and Travel (services).
• Distribution Strategy : Groupon employs a two-sided distribution strategy , using both marketing and sales capabilities. The choice between marketing and sales depends on the value of the lead and potential customer. Sales efforts are focused on nurturing relationships with local merchants, while marketing is used to attract local consumers.
• Marketing Mix : Groupon utilizes various marketing channels, including search engine optimization (SEO), search engine marketing (SEM), email and push notifications, affiliate marketing , social media, display advertising, and offline marketing like television, print, and radio.
• Mobile Dominance : The Groupon mobile application is a key driver of consumer access, with over 69% of global transactions happening on mobile devices in the fourth quarter of 2017.
• Sales Operations : Groupon maintains relationships with local merchants through a network of merchant sales representatives and sales support staff. These teams optimize deal structures, pricing, and geographic mix of deals.
• Cost Structure : Groupon’s cost structure includes expenses related to inventory , shipping, fulfillment, inventory markdowns, and estimated refunds, depending on the revenue source (direct or third-party).
• Key Financial Metrics : Groupon tracks metrics such as gross billings, revenue, gross profit, adjusted EBITDA, and free cash flow to assess its financial performance.
• Digital Marketing Strategy : Groupon’s digital marketing strategy includes direct traffic, organic traffic through SEO, social media, email marketing , display advertising, and other online channels to reach a wide audience.
• Strong Market Presence : Groupon boasts a significant online presence, with millions of visits to its website, making it a dominant player in the coupon and deals industry.
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Groupon Financials

• Groupon's Business Segments
• Groupon's Recent Developments
• Groupon FAQs

The Bottom Line

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How Groupon Makes Money

Connecting customers to local businesses through direct sales and commissions

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Many local businesses offer discount vouchers and coupons for their goods and services. Groupon finds these deals, negotiates with the businesses, and makes the offers available for consumers on an online platform. Groupon makes money from fees paid by merchants whose customers use their coupons, and the businesses gain attention and patronage from consumers.

Groupon isn't the only company that offers this service—it competes with RetailMeNot, Rakuten, Slickdeals, DealPlus, and many others. Here's how it makes money, along with a breakdown of its financial and operational circumstances.

Key Takeaways

• Groupon generates money by selling vouchers and card-linked deals, which connect consumers with local businesses.
• Groupon faces many challenges in the years ahead after experiencing decreasing revenue, operating cash, free cash flows, and active customers.
• The company plans to implement team changes, address marketing and sales issues, and position itself to be more efficient and profitable.
• Groupon appointed an interim CEO in March 2023, Dušan Šenkypl, who intends to guide the company back to growth.

Groupon divides its revenues into two categories, gross billings and revenue. The company also uses non-GAAP metrics, like free cash flow and adjusted EBITDA, to measure and report performance internally and to shareholders. However, regulators don't recognize these non-GAAP measures, so it reports GAAP-compliant measures on its mandatory filings. These are the metrics used here.

For the quarter ending March 31, 2023, Groupon reported $121.6 million in revenue. According to its quarterly report, the company had an active customer base of 18.2 million, down from 18.8 million the previous quarter.

Groupon was the first company to act as a middle-man providing coupons between local merchants and consumers.

The company experienced a net loss for the quarter of $29.1 million and a operational loss of $30.57 million.

Groupon's Business Segments

Currently, Groupon finds and presents coupon and savings opportunities to consumers worldwide. It has divided its revenue-generating operations into two segments, North America and International.

Each segment reports the same metrics to measure its financial and operational performance.

North America

As the name suggests, the North American segment operates in the U.S. and Canada. The company's platform gathers coupons and deals from across the country and consolidates them for consumers, working to make it easier for them to save. Groupon also sells third-party products on its platform.

The segment lost significant active customers and revenues in the first quarter. Groupon attributes the loss of customers to a decline in engagement on its platform, which led to recent losses, including the first quarter of 2023.

Groupon uses marketing to acquire customers, who access its services through a marketplace online via mobile applications or a website.

In the first quarter 0f 2023, Groupon's North America segment generated $89.3 million in revenues.

International

Groupon offers its services internationally in:

• United Kingdom
• Netherlands

Its services remain the same internationally, but as with the U.S. and Canada, it focuses on the area it operates in. In the first quarter of 2023, Groupon's International segment generated $32.4 million in revenues.

Previously, Groupon sold some products directly but discontinued the practice in 2020 (North America) and 2021 (Internationally).

Groupon's Recent Developments

Groupon has been experiencing difficulties maintaining its position in the market. Revenues, profits, and active customers have been declining steadily since 2018. The company began a restructuring plan in 2020 and, as of June 2023, has nearly completed a transition to a model it believes will bring back its competitive edge.

Dušan Šenkypl, appointed as interim CEO in March 2023, addressed shareholders in his first quarterly letter, outlining his strategy to revamp how the company markets itself, grow its merchant base, and focus on geographical demand to target customers in the appropriate areas.

How Does Groupon Work?

Consumers can go to Groupon.com to claim free deals, like coupons, for local goods and services at a discount. Or, they can use a Groupon Gift Card to get Groupon deals. Businesses can use Groupon as an advertising and marketing service. Payments for Groupon deals go to Groupon, which deducts a fee off the top and then sends the rest to the merchant.

Does Anyone Still Use Groupon?

According to its latest quarterly filing, Groupon is still used by more than 18 million consumers worldwide.

What Is Groupon Used For?

Groupon collects coupon and deal information and coordinates with merchants to offer these deals through its platform to customers in one convenient place.

Groupon became a favorite of deal-hungry consumers. Cashing in is as easy as signing up and purchasing a voucher for the best deal possible. But increased competition and shifting consumer trends have dented the company's bottom line.

The internet-based company has undergone significant changes in recent years. Though revenues declined throughout its recent history, Groupon is committed to changing to better serve customers and businesses alike.

Groupon. " Form 10-K ," Page 42.

Edgar Online. " Groupon. Inc. | Form 10-Q ."

Groupon. " Groupon Reports First Quarter 2023 Results ," Page 12.

Groupon. " Form 10-Q, " Page 28

Groupon. " Form 10-Q ," Page 22.

Groupon. " Buying Groupons Outside of the U.S. and Canada ."

Groupon. " Groupon Annual 2021 Report ," Page 5.

Groupon. " Groupon 2019 Annual Report ," Page 37.

Groupon. " Letter to Shareholders Q1 2023 ."

Groupon. " Form 10-Q ," Page 25.

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Groupon’s Business Model: Unveiling Their Profitable Path

Numerous local businesses provide discount vouchers and coupons to attract customers. Groupon takes these deals, negotiates with the businesses, and presents them to consumers through an online platform.

Its revenue comes from fees paid by merchants when customers redeem their coupons, while businesses benefit from increased visibility and customer engagement.

While Groupon faces competition from companies like RetailMeNot, Rakuten, Slickdeals, and DealPlus, it continues to thrive. Here is an exploration of Groupon’s revenue streams, financial standing, and operational dynamics.

What is Groupon?

A brief history of groupon, north america segment, international segment, how groupon works, how groupon makes money, groupon strategy, competition, groupon’s value propositions, swot analysis.

Groupon is an online platform that operates on a hyperlocal level, connecting customers with local businesses through discounted deals. Initially focusing on group discounts, the company, founded by Andrew Mason, transformed into an e-commerce marketplace.

It facilitates the interaction and engagement between local businesses and customers, allowing them to discover and take advantage of enticing offers.

Groupon traces its origins back to founder Andrew Mason, who launched the company during his time at the University of Chicago. Originally called The Point, it aimed to revolutionize online fundraising with the concept of a “tipping point” for campaigns to become active. Amidst The Point’s challenges, group deals emerged as a promising avenue.

The team began offering daily deals, or “Groupons,” requiring a minimum number of buyers for activation. This innovative approach benefited vendors, customers, and the company.

In 2008, The Point transformed into Groupon, focusing on time-limited deals to promote local businesses. Rapid expansion followed, with Groupon reaching 28 cities in the U.S. and expanding to European markets. Notably, Groupon declined a $6 billion acquisition offer from Google in 2010.

Today, Groupon boasts 26+ million active customers and has sold over 1.5 billion Groupons. It has evolved into a leading platform connecting consumers with enticing deals from local businesses.

Groupon’s Revenue-Generating Segments: A Closer Look

Groupon, the global coupon and savings platform, operates with two distinct revenue-generating segments: North America and International. These segments provide insights into Groupon’s financial and operational performance.

The North American segment encompasses Groupon’s operations in the United States and Canada. The platform aggregates coupons and deals from across the region, making it convenient for consumers to access savings. Additionally, Groupon sells third-party products through its platform.

In the first quarter of 2023, the North America segment experienced a significant decline in active customers and revenues. Groupon attributes this decline to reduced engagement on its platform, resulting in overall losses.

To acquire customers, the online platform relies on marketing efforts and offers online access to its services through mobile applications and a website. The North America segment generated $89.3 million in revenues during this period.

Groupon extends its services to several countries worldwide, including Australia, the United Kingdom, Belgium, France, Germany, the UAE, Ireland, Italy, Poland, the Netherlands, Spain, and Quebec. While the services offered remain consistent across these international markets, Groupon tailors its focus to each specific region.

In the first quarter of 2023, the International segment generated $32.4 million in revenues. These revenue segments highlight Groupon’s global presence and its efforts to cater to both local and international markets, all while adapting to the unique dynamics of each region.

Groupon operates on a loss-leader model, luring customers with discount coupons. These reduced-price offers aim to attract and engage customers, leading to increased spending and loyalty. Groupon’s focus extends beyond essential needs, targeting young individuals eager to explore their cities affordably.

Restaurants, pubs, bars, hotels, spas, fitness activities, beauty care, cosmetic procedures, laundry services, classes, and local retailers are among the businesses featured on Groupon. Coupons typically have expiration dates, often limited to first-time customers.

Redemption periods range from 6 to 12 months, with some businesses imposing restrictions on product or service selection and coupon usage per table.

Innovatively, Groupon also offers card-linked offers. By linking debit or credit cards to the app, users receive automatic cashback or discounts, eliminating the need for physical coupons or codes.

Through these strategies, Groupon facilitates cost-effective experiences, benefiting both businesses and customers, while fostering local community exploration.

Groupon primarily generates revenue by serving as a marketing and promotional platform for businesses on its website. Acting as a middleman, Groupon connects potential customers with merchants and charges a commission on each customer referred to the business.

However, the commission-based revenue model is more nuanced than it appears.

Let’s consider an example to illustrate this concept. Suppose a merchant named ‘XYZ’ collaborates with Groupon to offer a $100 service at a 50% discount, and they agree on a 50-50% revenue sharing contract. This means that for every deal sold on Groupon, XYZ earns $25, and Groupon also earns $25.

However, Groupon only shares the revenue from deals that are actually redeemed at the merchant’s store, not the total number of deals sold. To illustrate, let’s assume that out of 100 deals sold by Groupon, only 70 were redeemed:

XYZ earns: 70 * $25 = $1750

Groupon earns: (70 * $25) + (30 * $50) = $3250

The revenue sharing percentage depends on negotiations between Groupon and the merchant, as well as the specific marketing tools utilized. These tools may include product promotion, advertisements, deal of the day listings, and more.

Groupon employs an array of marketing channels and strategies to effectively reach and engage customers, ensuring awareness of its diverse offerings. Let’s delve into Groupon’s comprehensive marketing approach:

Groupon operates in a two-sided marketplace, where customers and merchants play crucial roles. To sustain its business model, Groupon faces competition from various players on both sides of the marketplace. In its area of business, Groupon encounters competition from companies that focus on specific verticals.

These competitors may possess a targeted user base, enabling them to leverage existing customers with lower acquisition costs or respond swiftly to emerging technologies and changing customer trends.

These rivals may allocate more resources to research and development, execute extensive marketing campaigns, and adopt aggressive pricing strategies. As a result, they may build a larger subscriber base or monetize their subscribers more effectively than Groupon.

Nonetheless, Groupon believes it can compete by leveraging its vast customer base and trusted brand. Additionally, the company is investing in self-service tools to empower merchants in managing demand, attracting and retaining customers effectively.

Groupon’s Business Model

Groupon operates as a multi-sided platform, serving two primary customer segments: merchants and consumers.

• Merchants: Groupon serves businesses that benefit from its services. They can be classified by factors like business size (national brands vs local businesses), business type (Food & Beverage, Health & Beauty, Home & Auto, etc.), and business properties (deal types, location, opening times, price, etc.);
• Consumers: Groupon caters to individuals who purchase its coupons. They can be segmented based on geodemographics, interests (especially related to the type of coupons acquired), and behaviors (browsing history, social network sharing, rating habits, search history, etc.).

Consumers benefit from:

• Saving money while discovering new things;
• Inspiration to try new experiences;
• Risk reduction in experimentation through the review system, price comparisons, and Groupon as a secure payment platform.

Merchants benefit from:

• Free marketing and advertising;
• Access to customer information;
• Marketing and editorial assistance;
• Revenue from unredeemed coupons.
• Mobile applications and app stores;
• Merchant portal and app;
• E-mail offers;
• Push notifications;
• Card-linked offers;
• AI voice assistant;
• Customer support;
• Search engines;
• Social media;
• Merchant tools;
• Advertising means;
• Development team.

Customer Relationships:

• Marketing and promotion;
• Collaboration with merchant development;
• Review system;
• Offering a wide variety of options;
• Reliable brand management.

Revenue Streams:

• Groupon’s revenue streams primarily rely on commissions earned from all platform sales.

Key Resources:

• A diverse selection of deals and discounts;
• Relationships with local businesses and national brands;
• A large user base;
• Branding and intellectual property;
• The platform itself (website and app);
• Consumer data;
• Human resources.

Key Activities:

• Growing the marketplace by attracting consumers and adding merchants;
• Marketing and customer engagement;
• Expansion to new cities;
• Enhancement of merchant tools;
• Advertising and promotion;
• Customer experience management;
• Support and maintenance.

Key Partners:

• Local businesses (prioritized partners);
• National brands;
• Search engines and social media platforms (for advertising);
• Payment providers (especially credit card companies for card-linked offers);
• Affiliate networks;
• Tech companies, regulators, investors, and lobby groups.

Cost Structure:

• Credit card and processing fees;
• Technology maintenance;
• Web hosting;
• Online and offline marketing;
• Sales commissions;
• Team salaries;
• General and administrative expenses.
• Skilled Workforce: Groupon prioritizes training and development programs to foster a talented and motivated workforce;
• Strong Brand: Groupon has established a reputable brand, providing an advantage for diversifying into new product offerings;
• Reliable Suppliers: The company benefits from a dependable supplier base, enabling a wide range of products and services;
• Automation: Groupon’s automated processes ensure consistent quality in its operations;
• Loyal Community: Groupon has built a dedicated consumer community that contributes to its ongoing success.

Weaknesses:

• Innovation: While Groupon’s product continues to generate sales, it faces competition from both direct and indirect rivals, including major eCommerce platforms. To sustain its market share, Groupon must invest in new technologies and processes;
• Expansion Obstacles: Groupon’s current structure may hinder its ability to successfully expand into new product segments;
• Research and Development Gap: Despite investing in research and development, Groupon falls behind other industry players in terms of innovation, failing to introduce fresh ideas to the market.

Opportunities:

• Reduced Transportation Costs: Lower shipping expenses create an opportunity for Groupon to improve margins and attract new customers by offering savings;
• Post-Recession Market: The economic recovery after a recession, coupled with the impact of lockdown measures, presents an opportunity for Groupon to attract new customers who are seeking value-oriented deals;
• New Market Entry: Favorable government agreements and taxation policies create opportunities for Groupon to enter new markets and further enhance profitability in existing ones.
• Intense Competition: The straightforward nature of Groupon’s business model has led to increased competition, resulting in lower profit margins and a risk to its market share;
• Workforce Shortage: The limited availability of skilled employees who can support Groupon’s global expansion initiatives may hinder the company’s growth potential;
• Regulatory Challenges: Groupon may encounter challenges due to differing laws and regulations, as well as the acceptance of its policies in the various countries where it operates.

Despite holding a substantial market share globally, Groupon is actively seeking avenues for expansion due to recent declines in market share. However, the company’s robust and well-structured business model provides a promising opportunity to attract new customers and reinvigorate growth.

By leveraging its strengths and capitalizing on identified opportunities, Groupon can captivate a fresh generation of customers, reestablishing its market presence and fostering sustained success.

How Does Groupon Make Money? Groupon Business Model

Groupon, the fastest company to reach $1 billion valuation milestone, is the pioneer of online deals revolution . The company has well positioned itself as a hyperlocal online platform where users discover and save on things to do, see, eat and buy which makes it fairly easy to guess that Groupon makes money as a middleman by connecting connects local businesses to customers.

But there are many layers attached to it.

The company has been in business since 2008 and the well renowned Groupon business model has changed substantially since then.

What is Groupon?

Groupon is a hyperlocal online platform which connects customers to local businesses by offering them deals at low prices.

The company was started by Andrew Mason with an aim to provide group discounts (hence the name Groupon, group + coupon) but soon changed its operating model to be an e-commerce  marketplace  that enables local businesses and customers to discover and engage with each other.

Groupon Business Model

Groupon business model has substantially developed over time. The company is a marketplace, just like Amazon or Alibaba, but at the same time it operates differently from a usual marketplace.

Groupon is the marketplace of deals. The products and services listed on the website are offered at huge discounts and are referred to as deals  and the company capitalizes on the scarcity principle to sell them.

How Does Groupon Work?

Groupon’s operating model is pretty simple. It sells deals and discount coupons to customers and earns revenue as commissions for every customer referred to the merchant.

How Does Groupon Work For The Customers?

Groupon is a free deals marketplace which lets customers explore and save on products and services offered by the local businesses. The platform also enhances users’ experience by using targetted advertisements and personalized emails which lets them save more on their purchases.

Customers purchase these deals and discounts in the form of electronic coupons which can be redeemed at the merchant’s website or servicing area.

Groupon’s target audience includes early adopters with highly affluent and disposable income and urban women with a college degree.

How Does Groupon Work For The Sellers?

Groupon brings more customers to the merchants and charges them commissions for the same.

Merchants benefit from partnering with Groupon as not only do they get more customers, but stats say that around 78% of the customers referred by Groupon are likely to visit the merchant again.

The company has worked with over 1 million merchants till date.

Groupon Revenue Model

Groupon has a well-designed  revenue model  where it earns money from merchants in the form of commissions by providing them customer and marketing tools.

How Does Groupon Make Money?

Groupon makes most of its revenue by marketing and promoting businesses on its website. The platform acts as a middleman between potential customers and the merchants and charge commission on every customer referred to the business.

But this commission revenue model isn’t as simple as it seems.

Suppose a merchant ‘XYZ’ runs a campaign on Groupon to offer his $100 service at 50% off and signs a 50-50% revenue sharing contract with the company. This means for every deal sold on Groupon, XYZ earns $25 dollars and Groupon earns $25.

But Groupon only shares the revenue of the deals redeemed at the merchant’s store and not the total amount of deals sold. That is – if out of 100 deals sold by Groupon, only 70 were redeemed:

XYZ earns: 70*25= $1750

Groupon earns: (70*25) + (30*50) = $3250

The revenue sharing percentage depends on the negotiations and the marketing tools utilized by the merchant. These tools include product promotion, advertisements, deal of the day listings, etc.

Sources Of Expenses For Groupon

Cost of acquisition (merchants).

This is one of the most expensive tasks for Groupon as the company signs a different contract with different merchants. This is also one of the business aspects where economies of scale don’t work. Every new market is tapped separately by the company.

Marketing Costs (Cost of acquisition of customers)

Everyone would agree that the ultimate source of income for Groupon is the customers referred to the merchants. The marketing costs include costs to acquire such customers. These are email marketing costs, referral bonuses, advertisements, etc.

General & Administrative

This includes compensation to the employees of administrative departments and other legal and accounting expenses.

Is Groupon’s Business Model Sustainable?

Groupon business model has evolved from a model which utilized economies of scale and economies of networking where the discount was only available if a certain number of people signed up for it to a marketplace where deals are bought and sold.

This new business model is a win-win model for the company as well as the merchant where the merchant gets more customers which tend to visit again (~78%) and Groupon gets more customers by providing more and better deals.

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How does Groupon work and make money: Business Model

Have you ever believed in the collective bargaining power of customers? I am sure you must have. Groupon did the same too.

Groupon is an American global e-commerce marketplace connecting subscribers with local merchants by offering activities, travel, goods, and services in 15 countries.

Groupon was born out of founder Andrew Mason’s frustration trying to cancel a mobile phone contract in 2006. Mason thought there must be some way to leverage many people’s collective bargaining power.

In 2007 Mason launched The Point, a web platform based on the “tipping point” principle that would utilize social media to get people together to accomplish a goal. The Point was intended to organize people around a cause or purpose.

It gained only modest traction in Chicago until a group of users decided their cause would be saving money. They wanted to encourage people to buy the same product to receive a group discount. Founder Eric Lefkofsky wanted the company to pivot to focus entirely on group buying. Born from The Point, Groupon was launched in November 2008.

The name for the E-Commerce platform, Groupon, is a portmanteau of “group” and “coupon.” Groupon’s first deal was a two-pizzas-for-the-price-of-one offer at Motel Bar, a restaurant on the first floor of its building in Chicago.

In this story, let’s analyze how does Groupon work and make money and break different aspects of Groupon’s business model.

What exactly is Groupon? How does Groupon work?

Groupon is a popular e-commerce platform that offers discounts and deals on various products and services. Groupon works with businesses to create custom coupons and promotions, which are then marketed to consumers through the Groupon website and app.

When a consumer purchases a Groupon, they receive a code that can be used to redeem the offer at the participating business. Groupon offers an easy and efficient way for businesses to reach new customers and for consumers to save money on things they want or need.

Groupon is a way to drive sales and increase brand. With Groupon, businesses create special offers only available to a select number of customers. Customers purchase these special offers at a reduced price.

The sale is called a “Groupon” because the discounted price is only available to a certain number of people. If a product doesn’t sell, it isn’t offered again. But how does Groupon technology work to know what coupon to list?

Groupon works by analysing what customers are interested in purchasing. When someone buys a Groupon deal, it will be listed on their site. When someone clicks the deal, they will be brought to that business, creating a win-win situation for the partners in the ecosystem.

How does Groupon make money? What is Groupon’s business model?

Value proposition.

Customer Experience and Relevance of Deals : Groupon leverages technology and scale to target relevant deals based on individual subscriber preferences. As the volume of transactions increases, Groupon’s data about deal performance and customer interests also increases. 

This data allows Groupon to continue to help merchants better design the most effective deals and deliver deals to customers that better match their interests. Groupon uses information about its subscribers to select and send deals via email, and our mobile applications can also target deals to subscribers based on proximity to the sponsoring merchant. 

Increased relevancy enables Groupon to offer several daily but targeted deals, thereby driving greater demand for Groupons.

Merchant Scale and Quality : Groupon evaluates prospective merchants based on quality, location, and relevance to its subscribers. Groupon maintains a large base of prospective merchants interested in its marketplace to be more selective and offer its subscribers higher quality deals. 

Increasing the merchant base also increases the number and variety of deals that Groupon offers to consumers, driving higher subscriber and user traffic and, in turn, promoting greater merchant interest in offering deals through its marketplace, creating a network effect.

Local : The category includes experiences from local and national merchants. Groupon’s local inventory comprises multiple subcategories of experiences, including things to do, beauty and wellness, and dining.

Goods : Goods category currently includes merchandise across multiple product lines, such as electronics, sporting goods, jewelry, toys, household items, and apparel. In this category, Groupon sells merchandise inventory directly to customers.

Travel : Groupon features travel experiences at both discounted and market rates, including hotels, airfare, and package deals covering domestic and international travel. Customers can either make room reservations directly through Groupon’s websites and mobile applications or can choose to purchase a coupon from Groupon and then contact the merchant for a reservation.

Marketing Strategy of Groupon

Groupon uses a variety of marketing channels and strategies to make customers aware of its offerings, including search engines, email and push notifications, affiliate channels, social and display advertising, and offline marketing. Let’s break down Groupon’s marketing strategy.

Search engines : Groupon uses search engine optimization (“SEO”) and search engine marketing (“SEM”) to increase the visibility of its offerings in web search results.

Email and mobile messaging : Groupon communicates its offerings through email and by push notifications to the customers based on their locations and personal preferences.

Affiliate channels : Groupon has an affiliate program that uses third parties to promote its offerings online. Affiliates earn commissions when customers access its offerings through links on their websites and purchase on Groupon’s platform.

Social and display : Groupon promotes and publishes its content and offerings through various social networks and adapts its messaging to the particular format of each of these social networking platforms.

View this post on Instagram A post shared by Groupon (@groupon)

Television and other offline : At times, Groupon uses other offline marketing channels such as connected television and traditional television advertising, and to a lesser extent, print and radio advertising, to help build awareness of its offerings and brand.

Competition

Groupon’s customers and merchants are at the center of its two-sided marketplace. The quality and stability of both our customers and merchants are key to Groupon’s business model. Groupon faces competition on both sides of its marketplace.

Groupon competes with companies that address only specific verticals in its area of business. These businesses have a more targeted user base, allowing their competitors to benefit from their existing customer base with lower acquisition costs or to respond more quickly than Groupon can to new or emerging technologies and changes in customer trends.

These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies, which may allow them to build a more extensive subscriber base or monetize that subscriber base more effectively than Groupon.

Groupon believes it can compete due to the access it provides to merchants to the large customer base, its trusted brand, and the investments Groupon is making in self-service tools that will allow merchants to manage demand more effectively and attract and retain customers.

Revenue: how does Groupon make money?

Groupon generated $967 Mn of revenue in 2021. Groupon makes money through two revenue streams: Service and Product. Groupon’s revenue is declining; Groupon made $1.4 bn in 2020 and $2.2 bn in 2019.

Service Revenue from Local, Travel, and Goods Categories:  Service revenue primarily represents the net commissions earned from selling goods or services on behalf of third-party merchants.

Service revenue is reported on a net basis as the purchase price collected from the customer less the portion of the purchase price that is payable to the third-party merchant.

Groupon also earns commissions when customers make purchases with retailers using digital coupons accessed through its websites and mobile applications. Service revenue for 2021, 2020, and 2019 has been $795 Mn, $644 Mn, and $1.1 bn, respectively.

Product Revenue from Goods Category : Groupon generates product revenue from its first-party Goods merchandise inventory sales. For product revenue transactions, Groupon is the primary party responsible for providing the merchandise to the customer.

Product revenue is drastically declining due to a decrease in consumer demand for the Goods category.

It’s Free but then how does Honey make money?

Groupon provides an excellent opportunity for businesses to reach new customers and promote their products or services. In 2010 Groupon even rejected a $6 bn offer from Google.

However, companies need to be aware of the potential risks in offering discounts. In particular, businesses should ensure that they can handle an influx of new customers and meet the demands of the Groupon deal.

Additionally, businesses should make sure that they are providing a high-quality product or service at a fair price, as customers who are dissatisfied with their purchase are likely to leave negative reviews.

Overall, Groupon’s business model is an excellent way for businesses to expand their customer base and make money.

A passionate writer and a business enthusiast having 6 years of industry experience in a variety of industries and functions. I just love telling stories and share my learning. Connect with me on LinkedIn. Let's chat...

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How Does Groupon Work? The Ultimate Guide For Businesses

Does this question intrigue you? – ‘ How Does Groupon Work?’ If yes, this blog is the ultimate guide for you and your upcoming business venture.

Getting people together to achieve particular goals. This was the prime goal of The Point, a tipping-point-based website founded by Andrew Mason in 2007. Later on, Andrew Mason became the proud owner of Groupon and made the site what it is today. The birth of Groupon is thanks to The Point. Andrew Mason needed a website to provide whopping deals to businesses and enterprises. And that’s how Groupon started its journey.

And ever since its inception, Groupon has been in talks among the business personas. There have been some allegations regarding whether it’s real and not fake. You wouldn’t be the first to hear the question, “Is Groupon legit?” That said, let’s take a deep dive into the world of Groupon. From understanding What is Groupon to getting how does Groupon work?

What Is Groupon?

Before we get to know, what is Groupon ? Let’s understand where the naming comes from and what it means. The name Groupon is a mix of the words “gathering” and “coupon”. References are from the organization’s viral marketing business model. The objective of a viral way to deal with marketing is to urge Groupon individuals to give marketing messages to different destinations and users, making a possibly remarkable development in the message’s perceivability and impact. Groupon’s deals are just presented for a specific measure of time – normally 24 hours. The discount coupon will possibly become dynamic if a pre-decided number of individuals focus on buying the advertised product or service.

Groupon is a marketing endeavor that offers its subscribers everyday discount coupons by email, Facebook, and Twitter channels. Regular Groupon deals center around nearby restaurants, stores, services, occasions, and local products. Today, there are 35 million enlisted Groupon users around the world.

When usr reaches the tipping point, the discount voucher opens up. One can print it as well. This is regardless of whether they are not Groupon individuals. If the tipping point isn’t reached, Groupon drops the deal. The first individuals who pursued the discounted purchase get their money back. The tipping point is there to guarantee that Groupon’s business partners get a settled upon several customers before focusing on the discount.

Groupon Business Model Canvas

In this Groupon Business Model, key resources, key activities, key partners, customer relationships, value propositions, channels, customer segments, cost structure, and revenue streams have been showcased.

How does Groupon Work?

Groupon Business Model is exceptionally straightforward. It is made up to sell arrangements and rebate coupons to customers. Then it acquires revenue as commissions for each customer alluded to the merchant. Now, together, we will answer the question, “how does Groupon work?”

How does Groupon Work for the Customers?

Groupon is a free plan business focus that allows clients an opportunity to examine and get a good deal on things. The stage similarly works on clients’ contribution by using designated sees and tweaked messages, allowing them to save more on their buys.

Clients buy these plans and refunds as electronic coupons, which can be recuperated at the merchant’s site or updating zone. Groupon’s planned vested party integrates early adopters with significantly affluent and optional capital and metropolitan women with high-level training.

How does Groupon Work for Sellers?

Groupon passes more clients on to the brokers and charges them commissions for something similar.

Merchants’ advantage from uniting with Groupon as they get more clients, as well as details, express that around 78% of the clients implied by Groupon are likely to visit the transporter again.

The organization has worked with more than 1 million sellers to date.

1. Working Metrics

Groupon portrays endorsers as the aggregate number of individuals that have completed selection through a specific date, fewer individuals who have been removed. To consent to acknowledge the organization and transform into an ally, a singular gives an email address. Groupon can check our overall development in the market and our potential pay open entryway as a part of our aggregate endorser base. The ally base doesn’t consider the activity level of the endorser with our organization, nor does it modify for various or unused records. No matter what these inconveniences, Groupon trusts this metric gives a significant figuring out about the bearing and size of the business. Notwithstanding the way that by a wide margin the vast majority of our pay begins from allies, they furthermore pitch Groupons to clients that buy as guests and, subsequently, are prohibited in our aggregate endorser number.

2. Total Customers

We portray all our clients as the aggregate number of exceptional clients that have gained Groupons from January 1, 2009 (the fundamental date we began following stand-out clients) through a specific date. We view this metric as a basic marker of our business execution as it urges us to fathom the buying pace of our allies.

3. Featured Merchants

This metric addresses the aggregate number of transporters featured in a given day and age. For deals presented on a nation over the premise, we count the public seller once. For deals presented by public transporters for a close-by or regional reason, we consider the public seller an alternate merchant in each market wherein the game plan is promoted. We view this metric as a nice marker of development and a basic proportion of the sufficiency of our solutions and exhibiting structure.

How Does Groupon Make Money?

Groupon gives a connection between customers and businesses or merchants in the local market. As it is a broker among sellers and buyers, the wellspring of a large portion of its revenue is the foundation of that connection. All in all, the platform offers deals and discount coupons to customers. At the point when that customer alludes to a merchant, the platform pockets some cash as a commission for giving that connection between the buyer and seller.

Remember that Groupon is a two-sided marketplace . The platform will advance businesses and merchants online, which assists them with getting more customers. Consequently, Groupon requests a commission from the business. As they accomplice up with local businesses there is a variety and assortment in the services and products you can get.

How about we separate the revenue hotspots for Groupon.

1. Offerings and Deals:

Coupons and vouchers are the greatest revenue generators for the business. Groupon gives offerings and deals from local sellers. Along these lines, customers can purchase merchandise at a marked-down cost, and the business will advance itself and increment its client base. The organization charges a commission for every sale. The offerings are isolated as follows

• Local services : by the organization between Groupon local in addition to public merchants.
• Products : both immediate and outsider sales
• Travel : different traveling offers like hotel reservations, eateries, tickets, and so forth.

2. Direct Sales:

Albeit the organization has an organization with different sellers, it offers different products to online customers without including any outsiders at times.

3. Vouchers, Tickets, Coupons, and Card-connected Deals:

Vouchers and coupons are the greatest revenue generator for Groupon. The platform has now begun to zero in on card-connected deals to make the process smoother for customers.

So, there you have it. From understanding what is Groupon to get an in-depth analysis of how it works. This guide will help businesses in starting their own Groupon-like business. If you’re having any particular idea like Groupon hovering around, lucky for you – we have a perfect solution. Drop us a line , and we shall discuss it with you.

If you’re running an online business, the following are the advantages you can grab on: Up-selling Advertising High-volume Sales

As a service fee, Groupon gets 50%. Let’s assume that someone is running a beauty parlor, if the deal is generating $2000 in sales revenue, out of it, $1000 will go to the owner of the company, and $1000 will go to Groupon.

Groupon charges 50% of the sales revenue as its fee.

Groupon has numerous contenders that offer a comparative or contending product offering. What makes Groupon extraordinary is its prices and the kind of deals they offer. Groupon utilizes a huge sales force that effectively arranges deals from businesses for clients. Concerning the kind of deals on offer, the company has figured out how to effectively do a business given what customers need as opposed to what they need.

Paresh Sagar

The CEO of  Excellent WebWorld  and a digital marketing expert. Paresh loves to experiment with new techniques and strategies. The posts written by Paresh are awesome for businesses who are seeking for marketing ideas.

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Business Model of Groupon and How Does Groupon Make Money?

June 9, 2023 | By Hitesh Bhasin | Filed Under: Business

Founded in the year 2008, Groupon is an American Company that offers Online Deal Marketplace. The business model of Groupon revolves around connecting local consumers or subscribers with the local merchants.

In this post, we will be diving deep into the world of Groupon Business Model and understand how it makes money. So, without wasting any more of your time, let us start deciphering the business model of Groupon straight away –

Table of Contents

Introduction to the Business Model of Groupon

We have heard a lot of times about the company known as Groupon, and there is no doubt that we know a lot of things about it as well.

However, it is one thing to know about the company and a whole other thing to have an idea about the business model of the company.

So, the channelization of the business model of Groupon is based upon the philosophy of offering an e- commerce marketplace where local consumers can connect with merchants to get the products and services of their choice at a discounted price.

In the process-

• Consumers buy products and services at a discounted price
• Merchants meet with a wider base of qualified local consumers

There is no doubt about the fact that Groupon is one of the most amazing and popular companies that we have in the industry of Online Deal Marketplace these days.

The company is known to be the fastest company that ever reached the valuation milestone of 1 billion dollars the first time. So, there is no doubt that this company is something that you need to know about for sure.

We wouldn’t be wrong if we say that this company is one of the pioneering names when it comes to the online deals these days.

Groupon, as a company, has managed to grab a position in the online platform world where the users can discover certain things to do or see or eat or buy and save the things as well.

The company is very much known for the fact that the users find the site pretty easy to use as well.

Working of Groupon can be understood as a middleman who can make money from the different connections that it makes between the customers and the businesses.

Before we get to the discussion of the business model of Groupon, it is important to know a bit more about the company as a whole. So, here we are going to discuss a little bit about it in the best way.

So without any further ado, let us get started in the best way to learn a little bit more about Groupon as a company.

What is Groupon and Business Model of Groupon

For those who want to know a bit more about Groupon, we can say that it is a hyperlocal online platform which can be used to make sure that the customers can connect in the best way with all the businesses that are locals and functioning in their area.

It also connects the local businesses that are ready to offer products and services at discounted prices with the right kind of consumers.

So, in a way, the customers will be able to have the products, services, and experience and much lower prices for sure.

As mentioned earlier, it was in the year 2008 when the company Groupon came into existence, and the founder of the company was Andrew Mason.

The man wanted to provide some amazing group discounts to the people, and hence the name of the company came to exist from this idea itself.

Groupon is the inclusion of Group and Coupon.

However, with time, mason decided to change all the operating models that were used by the company to have a much better and more amazing share of the marketplace online.

Now the company allows the customers and the businesses from all over to discover things about each other and then engage with each other in the best way.

So, this is all you need to know about the company as a whole.

One can access the Groupon platform in two ways. First one is the website of the company, and the second one is the mobile application.

Let us now dig deep into the business model of Groupon to understand how it channelizes the association between local consumers and local merchants-

Understanding the Business Model of Groupon

We have already established the fact that Groupon is one of the best ways with the help of which the company can earn a lot of money for sure.

However, there is no doubt that how the company earns money might be a little bit of a mystery to the people these days. So, to know more about the company, one needs to know the business model. That is one of the main reasons why you need to know about it for sure.

When we are talking about the business model of the Groupon Company, there is no doubt that it has changed from time to time and developed over the years of success that it has seen. We can easily say that the company is just a market place, just like Alibaba or Amazon in the best way.

However, there is a little difference between the other common market-places and Groupon. Hence, we are going to have a look at it to have a better understanding of the concept in the best way.

When we are talking about the marketplace of Groupon, we can say this without a doubt that it is where the deals are marketed.

The services and the products that are to be provided to the customers will be properly listed on the Groupon website, and then people will be able to choose from the amazing options that they have.

These are the products that are available to the people and that too, with some very large discounts for sure. That is exactly what we know as deals.

The company will be able to capitalize on the revolutionary scarcity principle to make sure that they can sell these in the first place.

Working Of Groupon for Customers 

We have already established the fact that Groupon is one of the amazing sites which can be called as the amazing site for the deals. The customers of the site will be able to explore the products that they want to have, and they will also be able to save a lot as well.

There are different services and products that are provided by local businesses these days.

So, there is no doubt that the company customers will have one of the best chances to make sure that they can make use of the amazing sales and discounts that are available in the best way.

Not just that but this amazing platform also makes sure that the user experience of every single person visiting the website is enhanced in the best way with the help of targeted and amazing advertisements as well as the personalized emails too.

So, the customers will be able to save a lot of time and effort as well.

This is one of the main reasons why the company is so popular among the people for sure. The customers will be able to have the deals as well as the discounts in the best way, and these are provided to them in coupons that are digital in the form.

So, there is no doubt that the Groupon company provides a lot of benefits to the users and the customers for sure.

Different marketing techniques that the company uses to get its customers are-

• SEO or Search Engine Optimization
• SEM or Search Engine Marketing
• Affiliate Channels
• Email and Push Notifications
• Social and Display
• Television and other Offline Channels

Working Of Groupon For Sellers or Merchants | Business Model of Groupon

When it comes to the sellers who want to sell their products on the platform of Groupon, then there is no doubt that they will be very much benefitted for sure.

The Groupon company manages to provide the sellers with highly qualified customers.

The merchants are provided with the customers, and then they will get the amazing commissions for the merchants for giving them the customers in the first place for sure.

The merchants are really very much benefitted from the platform of Groupon because they will be able to get more partnerships with the people.

The merchants are indeed able to sell their goods and products in the best way with the help of more and more customers. However, there are some of the recurring customers, and there is a chance that these customers will visit the merchant selling the products to them again.

So, we can say this without an inch of doubt that the company is doing a lot to provide the merchants with more and more benefits for sure.

By offering the ease of sales operations , Groupon pulls in and retain more and more numbers of merchants. Groupon also assists merchants in editorial, customer service , merchant service, deal management , technology, logistics, merchandising , etc.

How Does Groupon Earn Money?

Now that you have an idea about the business model of the company, we are pretty sure that you would want to know about the revenue model of the company and how it can earn money in the best way.

Well, the revenue model for Groupon is certainly very amazing for sure. There are the merchants that provide the commission to the company in exchange for the customers that they get in the first place. This is one of the major sources of income for the company.

However, there are some other ways, such as sales. It is really important for people to know about it in the best way so that they can find some inspiration from it.

Sales of vouchers and card-linked deals also play a key role in helping Groupon make good money.

Groupon also generates direct revenues from the merchandise of sale inventory, plus third part revenues also help the company generate revenues.

Wrapping it up!

So, that is all about the business model of Groupon.

With an efficient model to connect local consumers and merchants, Groupon is writing a new story of success. By the end of the year 2017, the company’s revenue was US$2.84 billion, and its new strategies are quite promising that will only take the business to the new heights.

How effective do you consider the business model of Groupon? Share your thoughts with us in the comments.

Liked this post? Check out the complete series on Business Models

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About Hitesh Bhasin

Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

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