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What's your business model?

110799

How does Groupon make money?

Groupon takes a fee of roughly 50 percent every time a deal is sold

Innovation series by Steven Loeb
December 23, 2016
Short URL: http://vator.tv/n/48aa

Editor's note: Our Splash Health, Wellness and Wearables event is coming up on March 23 in San Francisco. We'll have Mario Schlosser, Founder & CEO of Oscar Health, Brian Singerman (Partner, Founders Fund), Steve Jurvetson (Draper Fisher Jurvetson), J. Craig Venter (Human Longevity), Lynne Chou (Partner, Kleiner Perkins), Michael Dixon (Sequoia Capital), Patrick Chung (Xfund), Check out the full lineup and register for tickets before they jump! If you’re a healthcare startup and you’re interested in being part of our competition, learn more and register here.

Also, vote for your favorite healthcare startup before February 16! Vote here!

As the daily deals space has faded over the last few years, Groupon has stumbled but has remained standing as the largest company in the space. It has done that by branching out to other areas besides offering its customers discounts to spas and restaurants. 

In its early days, Groupon would offer one deal a day in each of its markets; if enough people signed up it would be opened up to all users. If not enough people wanted it, it wouldn't be available to anyone. The company has since expanded beyond only offering daily deals, launching services that include Groupon Goods, which allows customers to sell physical objects; Groupon Getaways, for vacation and travel packages; and GrouponLive, for ticketed events. 

Groupon makes its money by taking a fee from every time a deal, or a good, is sold on the site, from any of its different arms. 

"Groupon makes money by charging a marketing fee advertising and promoting their offers. In most cases, that fee is a percentage of the revenue generated by selling on Groupon," the company says on its website

While the revenue split not is specifed, it is said to be typically 50 percent of what was paid by the users, which the company justifies by noting that the merchant will actually more money in the long run due to the customer spending more in the long run. 

"Merchants make money from running deals on Groupon as Groupon customers typically spend more than the value of a deal and 91% return or plan to return to the business. Plus, there’s no upfront cost to sell on Groupon—we don’t make money until you make money," the company wrote. 

In its most recent quarterly earnings, Groupon's gross billings were $1.43 billion, while its revenue was $720.4, roughly half of what the company sold on the site. While billings were actually down 2 percent year-over-year, from $1.47 billion in the third quarter of 2015, revenue managed to go up 1 percent from $713.6. At the same time, gross profit decreased 4 percent from $328.9 million to $314.1 million, and the company saw a net loss of $35.8 million. 

Earlier this year, Groupon bought up one of its biggest competitors, acquiring Living Social at the end of October. This year also saw it raise a $250 million round and partner with Comcast's advertising network. At the same time, the company was forced to downsize from 27 countries to just 15. So, even while there have been signs that things are going well, there are also signs that Groupon isn't what it once was. 

The company went public at a $20 IPO price in October 2011, but has lost 85.91 percent of its value since then. The stock ended at $3.61 a share as of the end of trading Wednesday. 

(Image source: groupon.s3.amazonaws.com)

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