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How does Groupon Work? Insight into the Business Model and Revenue Model of Groupon

groupon busiess model

Do you know one thing? Before Groupon became the success it is today, the daily deals site actually stemmed from another company called ‘The Point’ – a brainchild of founder Andrew Mason. Groupon got launched in 2008 and its services, initially available in some of the cities in the US, has grown both nationwide and internationally. Right now, it is the most popular website for discount and coupon code in the US. And it connects millions of subscribers with local merchants by offering activities, travel, goods, and services worldwide. The company’s headquarters is located in Chicago, Illinois.

What is Groupon?

Groupon is an online platform which connects customers to local businesses by offering them deals at low prices.

Andrew Mason (the founder of Groupon) started with the aim to deliver group discount but soon changed its operating model to be an e-commerce marketplace that enables local businesses and clients to discover and engage with each other.

Groupon Business Model

business model of groupon

Groupon is a local internet business commercial center that interfaces shippers to purchasers by offering merchandise and enterprises at a markdown. Customarily, neighborhood vendors have endeavored to achieve buyers and create deals through an assortment of techniques, including the business directory, standard mail, daily paper, radio, TV and online ads, and advancements. By bringing the physical universe of nearby business onto the web, Groupon Business Model is making another route for local traders to pull in clients and offer products and ventures. Groupon furnish buyers with reserve funds and enable them to find what to do, eat, see and purchase in the spots where they live and work.

Every day they email their supporters reduced offers for products and ventures that are focused on the area and individual inclinations. Customers get to their arrangements straightforwardly through the sites and portable applications. Their income is the price tag paid by the client for the Groupon. Their gross benefit is the measure of income they hold in the wake of paying an endless supply of the price tag to the included vendor.

You may also like to read: How does Alibaba Work: Insights into Business Model and Revenue Analysis

Groupon Business Model Canvas

groupon business model canvas

In this Groupon Business Model, key partners, key activities, key resources, value propositions, customer relationships, channels, customer segments, cost structure, and revenue streams have been discussed.

How does Groupon Business Model Work?

Groupon’s Business Model works on the different strategies other than common marketplace strategies. It works on economies of scale and economies of networking. This business model works for the win-win condition. In Groupon Business Model merchants get more customers which tend to come again and again and Groupon gets the more customers by providing more and better deals.

Groupon Revenue Model

how groupon makes money

Groupon has an all-around composed income show where it acquires cash from traders as commissions by giving them client and showcasing apparatuses.

How Does Groupon Make Money?

Groupon makes the majority of its income by showcasing and advancing organizations on its site. The stage goes about as an agent between potential clients and the dealers and charge commission on each client alluded to the business.

In any case, this commission income demonstrate isn’t as straightforward as it appears.

Assume a trader ‘XYZ’ runs a crusade on Groupon to offer his $100 benefit at half off and signs a 50-half income imparting contract to the organization. This implies for each arrangement sold on Groupon, XYZ acquires $25 dollars and Groupon procures $25.

Be that as it may, Groupon just offers the income of the arrangements recovered at the vendor’s store and not the aggregate sum of arrangements sold. That is if out of 100 arrangements sold by Groupon, just 70 were reclaimed:

XYZ wins: 70*25= $1750

Groupon wins: (70*25) + (30*50) = $3250

The income sharing rate relies upon the arrangements and the advertising devices used by the shipper. These devices incorporate item advancement, ads, an arrangement of the day postings, and so on.

Source Of Expenses For Groupon

Cost Of Acquisition (Merchants):

This is a standout among the most costly undertakings for Groupon as the organization signs an alternate contract with various dealers. This is likewise one of the business viewpoints where economies of scale don’t work. Each new market is tapped independently by the organization.

Advertising Costs (Cost of securing of clients):

Everybody would concur that a definitive wellspring of pay for Groupon is the clients alluded to the dealers. The promoting costs incorporate expenses to get such clients. These are email showcasing costs, referral rewards, commercials, and so forth.

General and Administrative:

This incorporates pay to the representatives of authoritative offices and other legitimate and bookkeeping costs.

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How does Groupon Work?

Groupon Business Model is very simple. It is made up to sell deals and discount coupons to customers and earns revenue as commissions for every customer referred to the merchant.

How does Groupon Work for the Customers?

Groupon is a free arrangement commercial center which gives clients a chance to investigate and save money on items and administrations offered by the neighborhood organizations. The stage likewise improves clients’ involvement by utilizing targeted notices and customized messages which gives them a chance to spare more on their buys.

Clients buy these arrangements and rebates as electronic coupons which can be recovered at the vendor’s site or overhauling zone.

Groupon’s intended interest group incorporates early adopters with profoundly wealthy and discretionary cashflow and urban ladies with an advanced education.

How does Groupon Work for Sellers?

Groupon conveys more clients to the traders and charges them commissions for the same.

Vendors advantage from joining forces with Groupon as do they get more clients, as well as details say that around 78% of the clients alluded by Groupon are probably going to visit the shipper once more.

The organization has worked with more than 1 million dealers till date.

Operating Metrics


Groupon characterize endorsers as the aggregate number of people that have finished enlistment through a particular date, fewer people who have withdrawn. To agree to accept the administration and turn into a supporter, an individual gives an email address. Groupon can gauge our general development in the market and also our potential income open door as a component of our aggregate endorser base. The supporter base does not mull over the action level of the endorser with our administration, nor does it alter for numerous or unused records. Regardless of these disadvantages, Groupon trust this metric gives an important understanding about the direction and size of the business. Despite the fact that by far most of our income originates from supporters, they additionally pitch Groupons to clients that buy as visitors and, thus, are excluded in our aggregate endorser number.

Cumulative customers

We characterize total clients as the aggregate number of one of a kind clients that have acquired Groupons from January 1, 2009 (the main date we started following one of a kind clients) through a particular date. We view this metric as a critical marker of our business execution as it encourages us to comprehend the buy rate of our supporters.

Featured merchants

This metric speaks to the aggregate number of shippers highlighted in a given day and age. For bargains offered on an across the country premise, we tally the national dealer once. For bargains offered by national shippers on a nearby or territorial premise, we consider the national vendor a different trader in each market in which the arrangement is advertised. We view this metric as a decent marker of development and in addition an imperative measure of the adequacy of our deals and showcasing framework.

Groupons sold

This metric speaks to the aggregate number of Groupons sold in a given day and age. This metric is exhibited net of Groupons discounted amid a similar day and age. We utilize this metric to quantify our development and action level in the total and additionally in our individual markets.

So, that’s how Groupon works!. There are still major factors related as to How Groupon Works! You can Get an in-depth knowledge which answers the question of How does Groupon Work in this informative blog.

Groupon Value Proposition

A “Groupon Value Proposition” of a chosen bundle of items as well as services that takes into account the necessities of a particular client fragment” (Prahalad and Hamel, 1990, page 13). Groupon makes an incentive through the low costs they offer yet in addition to the convenience and acceptability of the extensive variety of items they give. Groupons beginning offer was to enable local companies to acquaint individuals with their company, therefore enabling companies to gain future potential customers. Notwithstanding filling in as a stage for creating new clients, Groupon supplies geo-driven coupons implying that geo-focusing on ads put the item (coupon) at the fore of the most appropriate clients. Groupon additionally gives a short portrayal of the companies past giving out the coupon. In this manner, companies that buy into Groupon give coupons in return to great promoting. In that sense, Groupon helps in producing the coveted buzz through informal publicizing, a standout among the most effective promoting methods.

Groupon additionally cultivates a feeling of direness since the deals are accessible for one day. Therefore, the clients wind up shopping on occasion when they wouldn’t typically do as such. Groupon’s services don’t just make an incentive for the companies yet in addition to the clients as in they get an exceptional yield on venture since Groupon expects companies to offer their arrangements at half off.

Groupon Partners

groupon partners

Organic growth was not that effective for Groupon so they found a partner in the market. Tencent (the Chinese mobile operator and internet giant) and Groupon jointly opened Gaopeng (which is later merged with another provider coupons creating GroupNET)

Groupon Competitors


There are more than 500 sites like Groupon in a global market, 100 in the US itself. LivingSocial is the direct and big competitor of the Groupon.

In October 2011, Adlibrium announced Adlibrium Dailies, the first free daily deal service for merchants which, according to estimates, reaches nearly 4 million consumers via email and mobile combined. As of December 2015, Meituan (Chinese startup unicorn) is the largest player in the daily deals space.


Groupon Goods competes with Amazon. Facebook is testing “Local Market”, a buying and selling community-powered by Facebook groups, that also indirectly compete with Groupon.

So, it was a complete insight on Groupon Business Model. Are you thinking to build your own multi-vendor, multi-brand and multi-store website like Groupon? Take a look at a customizable ready-to-go script for your startup.

Here are some informative eCommerce business model articles crafted by NCrypted Websites, it’d help further to understand various business models from the eCommerce segment.

Kinjal Buddhadev
Kinjal Buddhadev
Specialized in eCommerce, marketplace, on-demand, startup, peer-to-peer, business model

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