For three years I managed a skydiving facility. In March of 2010 we chose to run a Groupon promotion. At the time I hadn't heard of Groupon, and frankly, not many others had. They were new and at the beginning of the discussion with our Groupon rep, we had no idea what to expect. Another skydiving facility in the area ran a promotion and sold something like 250 Groupons. IIRC it was a 15k jump for $129. We had three products to choose from:

10k: Weekdays only, $159. Low margin, low volume. We were planning to phase this product out.

15k: 7 days a week, $199. Good margin, high volume. Discounts available, custs usually end up paying $179.

18k: 7 days a week, $259. Ridiculous margin, low volume. Discounts available, custs usually end up paying $239.

All of these skydives cost pretty much the same thing to produce, about $80. The cost goes up about $5-10 for every level. So a 18k might cost around $90 to $100.

We chose to run a 10k for $99. The standard Groupon cut is 50-60% of revenue, so based on this standard we would get around $50-60 for each Groupon (the TOS precludes us from talking details, so I am not going to say what our margin was). In advance of the Groupon we raised our 10k price to $169 so that the discount percentage was higher - the price was raised for all customers, not just Groupons.

Our first promotion sold 700 in March 2010. It was insane, the phone rang off the hook and we were slammed with customers. They weren't the best customers, but there were a lot of them. Skydiving is seasonal, in winter we do anywhere from 15-50 tandem jumps per month, 100% on the weekends. In the heat of summer we did about 200 jumps per month, Friday through Monday.

We saw an immediate uptick in business. While our volume was increasing, our net was slowly decreasing. We ran another promotion in August that sold 950 Groupons. That August we did 400 jumps, by far a record for us. Then in March of 2011 we ran our third promotion, selling 1350 Groupons.

We felt the Groupon crunch. Right after the promotion our books were full, 2-3 phone lines constantly ringing, 80-90% of customers on weekends were Groupons. We did what we could to keep things in check and have weathered the storm. This last March we did more jumps than in any month, ever. March is historically a slow month, usually about 20% as many jumps as a busy summer month.

How we made it work for us:

-Apparel: We sell at lot of cool shirts and hoodies at a great margin. We didn't really have enough volume before for this to really make sense.

-Cross sales: We sell Video packages a pretty good margin to about 60% of customers. We also offer a 'Same Day Special', allowing customers to buy another jump at 50% the same day they have skydived. Sometimes upwards of 40% of customers purchase this product.

-Up sales: If people want to jump on a weekend they need to upgrade to a higher altitude. $30 to 15k gets them twice as much freefall time, and $90 to go to 18k is a fairly popular option.

-Post experience contact: We post their videos to Youtube, encourage them to check-in and like us on Facebook, and add them to an email list where we run our own promotions on tandem skydives and solo training.

-Breakage: It hovers around 30%. This directly boosts the effective payout of each Groupon. Also, many people take close to a year to use their jump, turning their Groupon into a business loan which we use to invest in maintenance, marketing and equipment purchases.

-Scheduling: Unlike a coffee shop, we can control how many customers come in our doors. If we're booked up we can tell them so, rather than have a line out the door.

Why it is kind of painful:

-The people: Lets face it, they are kind of stingy and leave a higher ratio of bad reviews. The bad reviews have been a great incentive for us to make the business more efficient.

-The cost: Groupon is expensive. If someone buys a Groupon and jumps without buying anything else, (with a standard Groupon margin) we'd lose about $20. About 30% of Grouponers fit into this category.

For our company, Groupon was an amazing experience. It is costly advertising, but we don't plan on keeping our ratio of Groupons/non-Groupons at 80% where it is now. It is expected to precipitously drop off as the year goes on, and when it does we will enjoy the collateral benefits of a huge word of mouth campaign and an email marketing list 10x what it would be otherwise.

We have learned to survive on the razor thin margins that Groupon throws at you, so as this ratio shrinks in size, even if our volume goes down our net will recover and we will continue to grow. Skydiving, as a business, has a lot of features that differentiate it from other retail businesses and make Groupon a lot easier to stomach. That said, I feel that all of the Groupon horror stories floating around are from businesses that would be in trouble regardless. Remember, the attrition rate for B&M businesses is scary.

user:	kungfu71186
created:	December 18, 2010
karma:	7