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In the nearly ten years that both companies have been around, both LivingSocial and Groupon have dominated the market in local, discounted deals. Both platforms also specialize in vacations and getaways, but get most of their attention for local attractions which can range from wine + painting pairings to golf lessons to spa treatments. However, what caught my attention was the offer for home services.
Home Services on Living Social and Groupon
I’ve noticed maintenance-related deals like a one-time maid cleaning or light landscaping before, but some of the services offered are for higher-ticket services, such as air duct cleaning or staining a deck. It goes beyond that; check out these recent deals on Groupon:
Half-off for replacing an entire roof! Whether or not the service is actually worth $8,000, consumers are going to see this as a bargain.
Check this one out:
Save $10,000 on a complete kitchen remodel! For a remodeler, something like this is going to be its core service. However, again, depending on the extent of the work and the quality provided, there may not be $20,000 worth of work to the consumer. But according to Home Advisor, spending $20,000 on a kitchen is a pretty spot-on average. To anyone in the market for a kitchen remodel, this deal is going to be appealing.
Should You List on LivingSocial and/or Groupon?
I can tell you as a homeowner, both of the above deals would be worth looking into if I were in the market for either. But should home service companies provide deals? Here’s the #1 question you need to ask yourself: what would you pay for the sale?
If you answer “I don’t know, $20?” or ”as little as I can,” you’re probably not ready to look at these sites. You should base your answer only on the direct costs associated with providing that service.
Let’s take the deal from above. We’ll say for the remodeler, the margin on a $20,000 kitchen is 45%. For every $20,000 kitchen they remodel, they bring in $9,000. How much should you pay to have a job like this? Depending on capacity and are growing at a steady enough pace, it could be worth it to pay up to and even exceed that price. While it may not be ideal, anything below that margin is going straight to the profit of your business, and if you go over, you potentially have a satisfied customer that can refer more business.
That said, going back to the example above, paying $10,000 for the job it a little high, and it isn’t even limited to that. Both Groupon and LivingSocial are going to take a significant cut of the sale – after all, it came through their site and their marketing. If Groupon takes a 50% cut of the profit, you’re suddenly paying $15,000 (the 50% discount+50% of the sale to Groupon) for the sale, which ends up costing your business $6,000. A loss of $6,000 per job is going to put a company out of business in a hurry.
The reality of the deal above is probably that it’s only $10,000 worth of service with a higher margin, but hopefully you get the idea. Find out what your profit margin is, find out the cut that Living Social/Groupon will take, and figure out for yourself whether that’s worth it.
If you can’t accurately answer some of these questions, it’s impossible to really know if Living Social or Groupon are worth the investment.
Return Customers and Referrals
Of course, a $20,000 kitchen remodel is a bit of an extreme case for most LivingSocial and Groupon deals. A more common use-case is something like an HVAC company providing a $100 air duct cleaning discounted down to $50 on Living Social. If there’s a 40% profit on the $100 job, you could be down $15 after the discount and LivingSocial’s cut. But if you exhibit exemplary customer service (which is a marketing strategy in itself), that customer could call back directly for the same service later, or even to a higher-ticket item. The HVAC company could also sell long-term service agreements after performing the initial service. Those customers could also refer their family and friends to your company directly as well.
The Bottom Line
If you’re considering investing in Groupon or LivingSocial, you need to know your numbers. Accurate tracking and measurement is at the core of any marketing strategy, and investing in pay-per-lead and pay-per-sale companies are no different. That said, with these sites, you are going to take a serious hit to your profit margin when converting sales through their site. You’ll almost always be better off investing in your own brand.
About The Author:
Ethan is a Business Development Representative at Blue Corona. Outside of the office, you’ll find him at concerts or a baseball game – if he’s not parked on the couch watching TV and movies.
View more blogs by Ethan Batson