How Does Groupon Make Money?

You already know that Groupon can help you get a great deal on local merchandise and services.  But what’s the deal that Groupon’s getting?  What’s in it for them?


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How Groupon Makes Money

Basically, Groupon makes its money by acting as a middleman between local businesses and potential customers.  More specifically, Groupon is a promotional vehicle for companies looking to drum up business.

Here’s how it works: say that a company’s going through a slow business period, and they aren’t selling many of their products or services.  They don’t want to take a total loss, so they go to Groupon.  Groupon tells them that it will help them get business rolling by promoting and publicizing a special offer for that company, on the condition that Groupon gets a percentage of the revenue from any products sold via that offer.  The company agrees, hoping that the new customers that they get through Groupon publicizing their offer will become regulars, due to the company’s other merits (friendly staff, speedy service, quality of products, and so on).

Since transactions happen on Groupon’s end (i.e. you’re buying the vouchers from Groupon, not from any of the businesses that it’s promoting), Groupon keeps a percentage of what each deal is worth, and then pays each respective business the rest.  This percentage is usually around 50%. 

So, for example, if Groupon sells 100 vouchers for a $40 deluxe manicure and pedicure, then Groupon keeps about $20 from each sale, and thus ends up making about $2000 from the deal.  The other $2000 goes back to the salon that offered the deal.

Now you know a little bit about how Groupon makes their money!