This week's cover story, Cheat Local!
, explores how local businesses get crushed buy daily deals sites like Groupon
. As the article explains:
"There is no upfront cost to the business running the promotion. Groupon typically keeps half of the discounted price, and reimburses half—so, $5 of the original $20 price of [an item]—to the merchant."
Depending on the discount and the cut taken by the deals site, the amount a business actually makes on the promotion can vary. For instance, a Groupon this week
offered 50 percent off an $84 dinner for two at Giorgio's. Assuming Groupon took a 50 percent cut of the sale, Giorgio's will make $21 off each meal, or $11.50 per customer. With 514 sold, Giorgio's will make $10,794 (as will Groupon)—which means the promotion will have cost it $32,382 in foregone revenue. (That doesn't figure in the cost of labor, food and other overhead. And, again, the example assumes a 50-50 split with Groupon.) We put together a tool to help you work out just how much a local business will make from that daily deal that just landed in your inbox.
Enter what the site claims as the original price or value of the product or service, the discount offered, and the cut the deals site might be taking on each sale, and press "calculate."