Ok, I know how Groupon works from their business model. They set up a network / website offering fantastic deals to people and they ask local business to pay them to advertise their deals. I think the charge is about 50% of the advertised price. Groupon organise their deals based on geographic cities – Cardiff, Bristol, London etc.
So if your deal is for £100, Groupon gets £50 etc.
Bubble or Valid Model for Consumers?
Got to be a great model for consumers, I mean you get great products at a great price. And you get a wide range of them as well so it’s a win/win all round.
(Actually it’s more like a Win/Lose in the consumers favour as the majority of businesses don’t get it…)
Bubble or Valid Model for Business?
I’m going to talk about photography business here as that is the business I am in.
Private Portrait Photography
A recent deal on Groupon Cardiff is for a portrait shoot for £24, real value was listed as £155 though I couldn’t find a price on the photographers website to confirm this. That is 85% discount. With that deal you also get:
- £50 off any wall portrait
- Includes six 5”x4” inch prints
- Six images on disc
Now again, as far as I know Groupon gets 50% of the deal price, so the photographer is shooting for one hour for £12. (Remember I only ‘think’ Groupon takes 50% of the deal price.)
This deal closed with 29 customers buying, so his turnover from that particular deal is £348. That is 29x £12.
He will have however a lot more work to do to recoup his costs to cover the loss he has made on those deals. 29 portrait shoots is a lot of work to get through, and a portrait shoot like that would normally take me about 5 hours of work from start to finish
- 1 hour of shooting with lets say 150 images to edit. (Come on guys, studio work is “click click click” so 150 images in an hour is very reasonable!)
- 3 hours of editing those images as quickly as you can. (Now, I’m pretty good for Adobe Lightroom and use a few actions and droplets for Adobe Photoshop but if your going to charge a lot of money your work HAS to reflect that.)
- 1 hour of viewing with client to try and get them to buy more
Result – 5 hours of work.
I tend to pay myself an hourly rate of around £50, which covers all my income, tax, insurance, etc. So the photographer above had at least 145 hours of work and at £50 per hour that works out to £7250 worth of work. And he did it for £348.
Oh, sorry – no he didn’t. He also had stuff to give away on the deal – so we can drop that £348 down to maybe £330.
To make money from this the photographer has to skimp on some areas to recover the costs or make a huge gamble that he can sell more prints when they come back on a viewing – and he will be using a hard sell whether he realizes it or not.
One more Private Studio…
One-hour portrait session with a photo book and CD of 10 images for £29. Listed value is £320. Photographer takes home £14.50 each deal.
68 deals sold and the offer expires 18th November and Monday – Friday only 9am – 4.30pm. Clients MUST attend a viewing to select images.
His turnover from 68 deals at £14.50 is £986, which you can drop to pay for the CD and photo book I’d say about £7 each? – (Unless he got a Groupon deal on the books!!) so he is looking at about £460 by the time the books and CD’s are taken out of the costs.
Same 5 hours of editing per shoot…
68*5 = 340 hours of editing at £50 per hour £17,000. He is going to do that for £986.
Once again to make money from this the photographer has to skimp on some areas to recover the costs or make a huge gamble that he can sell more prints when they come back on a viewing – and he will be using a hard sell whether he realizes it or not.
Franchise Photography Studio
Yes guys, you all know which big chain I am talking about – Venture.
91% discount from a portrait shoot valued at £215 – £19. Groupon takes 50% of the deal price so the franchise gets… £9.50.
Included in the price was
- Up to 20 people per shoot welcome
- Digitally edited photographs
- 8”x10” portrait to keep
(I am not sure how they were going to edit digital photographs using non digital techniques mind…)
This particular franchise is very nice, a great location, large offices / studio etc and probably has about 4-5 staff. The running costs on such a studio would be pretty big.
196 deals later the deal timed out. 196 deals at £9.5 is £1862.
The offer expires 18th October 2011 (no Sundays and Saturdays by appointment only). 42 days to shoot 196 portraits, and this close to Christmas you can bet they will be for pressies so the editing needs to be done pretty sharpish.
Unless they have two studios getting 196-portrait session done in 42 days is a very tall order. Yes it is only 4.6 per day per but you can add maybe 30 minutes to each shoot to tidy up before the next batch come in so 1 hour shoot is actually about 90 minutes. I would say they would struggle to get more than 6 sessions in an 8-hour day – but hey, that is just based on my common sense.
Let’s say they also have the same 5 hours to edit
196 x 5 = 980 hours of work. For £1862. This franchise has to make money on the print deals (it is how Venture actually make their margins by the way)
Wedding Photography…repeat business?
A recent wedding photographer advertised on Groupon – £1350 down to £800 for CD only. When I last checked he had sold about 15 deals. That’s 15 weddings for £800. £12k – not bad.
Then I checked out the details. A pre-wedding shoot and pre-wedding consultation is included as is all day photography with no time limits.
So by the time he has removed the hours he needs to work to do the pre-wedding shoots, consultations, wedding day itself and the editing he is working for maybe 5 days (conservative effort).
Take off the costs associated with running a business, travel, insurance, marketing, equipment, tax and national insurance and the £800 will probably drop to maybe £700 or possibly lower.
£10,500 for 75 days work is £140 per day.
All he has done is fill his diary and his time with low paid work when, according to his website, his packages sell for £1350.
All this photographer has done is reduce his turnover by possibly £10,000. Don’t know about you but I can’t afford a drop like that in my turnover. And I have only ever been asked to photograph the wedding of a previous bride to a different groom once.
Areas to Skimp On
To try and recoup the money the photographer therefore has to look at other areas, possibly…
- Retouching – won’t bother to spend as long retouching your photos or outsource it to India or Russia or China. Result – quality drops.
- Effort – won’t put as much effort into getting the best from you the client. After shooting the 5th session in a day the photographer is going to be very very tired. Result – quality drops.
- Prints – won’t use a pro-lab but will get them printed by Asda or Jessops etc or maybe print themselves using a £100 printer. Result – quality drops.
- Canvas options / Frame options – won’t use a pro supplier but will buy from ‘The Range’ or similar shop. Result – quality drops (and loss of reputation when the client finds out!)
Areas to recover costs
Price for products – you really need to set these at some ridiculously high rate to make any money from the deal. Result – reputation drops and so does repeat business. Rapidly.
Just a quick one. Every deal offered mentions the price you pay, the discount and the price it was offered at. After checking the websites of all the companies I mentioned not one of them listed the real price as stated in the Groupon advert.
Many didn’t have a price at all. I am not saying that is misleading, but again we run business – we need to make sure we follow the rules of the land or some one somewhere will make a complaint…
The Modern Buyer… is very very savvy.
Many photographers make the hug mistake of treating the modern buyer like an idiot. Tip – don’t treat the modern buyer like an idiot.
They know that if your offering a stupid discount then there is going to be a catch. Remember the phrase “If it looks too good to be true – it probably is.” Yes they will take advantage of the deal – they are a consumer. They are also much more willing now to complain and complain loudly, to Trading Standards to friends, on Facebook, on Twitter and the other myriad of social networking sites.
If your product isn’t up to scratch they will complain. That is a no brainer.
Recovering the costs
Back to the first portrait guy. Let’s say they buy more stuff from you. Great. I would imagine that to cover the costs of 5 hours studio work your going to be looking at selling a minimum of £500 worth of products to each client, and that is with cheap price points. That would mean you make £10,000 minus cost of materials etc. However we all know that this is a numbers game and in times of recession people do not have that kind of money so I would say an average of about £300. – £8700. Still not bad for 145 hours work – £60 an hour so it may just work.
If you’re going to do the whole low lights, comfy sofa, champagne, soft music and emotional stuff then believe it or not you’re hard selling. And people don’t appreciate being sold to like that anymore, it turns them off and when they walk out of the door and check their bank account they will remember you… and not for the right reasons. You have just turned a potentially repeat business customer into a one off. In a recession. Are you nuts?
The killer here, especially in the portrait world is the price point.
Too many deals, too much work – customer service drops, quality drops, reputation drops and so does your income!
I’m not sure on the details here, but you seem to be able to set the number of ‘deals’ or vouchers you wish to sell. Set this to high and your going to be maxed out and working for nothing.
This isn’t an article about selling and price points etc however the price point for your work is the most critical factor in this.
How many people actually go back to Venture? They all say “fantastic work, but very expensive and I won’t be going back.” A friend of mine spent over £2000 in one sitting – and she would have spent more but maxed her credit card out! Has she gone back? Nope. No repeat business at all. In fact no one she knows has gone back after listening to her story.
Set your price point to high and the client will buy the cheapest thing, probably a 10″x8″ or even a 7”x5” print and walk away. If they do – you have lost a massive amount of money and will not get them back. “Too expensive” is what they will tell all of their friends.
Just think about that franchise business. 196 deals at £9.5 and all people buy is a 7”x5” print priced at maybe £30? Massive losses resulting in laying off of staff and closing down a business.
Set your price point to low and you ‘may’ re-cover your costs and ‘may’ get repeat business but your working at a very low hourly rate. “Great photographer and a great price” is what they will say and all their friends will come and book with you… but your working for a very low hourly rate
Groupon is great for the consumer. My wife and her friends use it loads.
Groupon for the business may be good, but it really is about getting repeat business back in the door. It is a great marketing tool.
I just don’t think photography is the right kind of business when discounts of 85%, 91% or 92% are on the table.
I really hope that the business I have mentioned make something from the deals and not just end up working for nothing. I really hope they thought about the discount they were offering, did the numbers and worked out the finances. I am however skeptical that many photography businesses don’t bother to understand the business of photography.
People are not stupid – if the discount is large they know they won’t be able to afford you again so won’t bother coming back to check your prices next time they need a portrait photographer. And as for weddings…repeat business?!
This has been a hurried blog and I would expect to get feedback that my figures are wrong etc. I hope they are wrong and I hope people do give me feedback. It is time we started looking seriously at using Groupon for marketing. It has great potential, but also great danger.