One thing that a lot of analyses fail to account for are the number of Groupons that go unused. I would love to see some figures on how many Groupons are never redeemed (for whatever reason).
I had some friends visiting SF, and they had bought Groupons from various outfits for the trip. But they ended up not using a few of them, and gave them to me. Chances are I'll end up using them, but I wonder: how many such Groupons expire unused?
They make a lot from vouchers that are never used. (The term of art for such revenues is 'breakage'.)
For a stored-value medium that's like a gift card, many states prohibit an expiration-to-zero-value. Groupon has been sued a bunch of times over this; at least in those states, I think their current policy is that the business must still honor the Groupon for the original purchase price (but not the ~2X face value).
This blog post by Andrew Mason suggested lawsuits were unnecessary because customers unhappy for any reason, including expiration policies, could always rely on 'the Groupon Promise' for a full refund:
However, if you try to get a refund on an expired Groupon, they'll reject your request. So Mason's blog post and 'the Groupon Promise' are deceptive... and Groupon probably deserves to be sued over the gap between the unequivocalness of their 'promise' and the way they carve out exceptions in practice. They talk the talk of a 'customer is always right' retailer, but their model seems to require them to be stingy with refunds.
It would be very poor business to count that money as revenue. If anything, that money is in escrow. The float value might be significant at Groupon's volumes, but it's just plain sleazy to count unredeemed voucher proceeds as revenue.
Also, it sounds like you're saying that the Groupon Promise is not honored. I wouldn't be at all surprised to see that tested in court soon, too.
I am not an accountant, but I imagine it has to be booked as revenue in an accrual system on a per-period basis. To satisfy double-entry, it would originally be booked as cash and a liability.
Take magazine subscriptions. You pay $240 for an annual subscription to Frisbee Fancier's Magazine at the start of the year. They book this:
Cash at Bank: $240 -
Magazines Owed: - $240
Then they send you the January edition ("Gold Plated Frisbee Showdown!") and do this:
Revenue from Subscription: $20 -
Magazines Owed: - $20
That is, they move $20 from liability to revenue. Cash at bank is unaffected by this transaction.
How Groupon chooses to recognise the timing of revenue will affect their apparent numbers. I would prefer a conservative magazine-style model as above, but it might be possible for them to book the revenue up front and then use that as their basis of their projections.
I don't know enough about Groupon or accounting to be certain. Seek professional advice before investing etc.
It's not really tap dancing. Accounting aims to give a meaningful account of the life of the business. Dividing up subscriptions into parts and recognising that a pre-payment is also a liability more accurately represents the nature of subscription than merely booking a single payment up front.
In this scenario, income is appearing each time the magazine is sent out, but the cash is in hand all along. The hardest part of understanding accrual accounting is to learn that a sales event is not necessarily a cash event.
I don't mean to diminish accounting as a discipline. I'm sorry if I came across that way. My point was that the cash position doesn't reflect real revenue until the contingency is cleared. At best, you can "gamble" with the money while you have it.
I only did one unit of accounting to see what the fuss was about. Quite enlightening really.
Cash positions are a different beast from revenue -- and indeed that's why Income Statements (aka P&L) and Cashflow Statements are both produced -- to give that two-way perspective on a business, along with the Balance Sheet.
All three are connected and you can, given a sample, derive them from each other. But to understand how a business is behaving you need to study all three.
That being said, accounting is all about devilish details. If Groupon are booking their revenue as being immediate upon the deal, rather than a subscription style cash+liability, then they can make quarterly revenue appear much higher than it might otherwise be seen as in retrospect.
What difference does it make? Sure, on one Groupon promotion a few unused coupons can mitigate losses on the deal overall, but make no mistake about it- businesses use Groupon because it is a cool, hot, marketing play that allows them to be lazy and bring in a ton of foot traffic.
The root of the problem, and the reason Groupon's model is unsustainablem, is that most of these businesses are not producing a product that is different or so unbelievably valuable that people are going to continue to come in and buy it at a price that is profitable in the long run. People go to a coffee shop because it is close and convenient. All coffee shops serve a commodity that is in a price range that varies by only a few cents. Their only way to differentiate is with location. Period. With restaurants it's a little different because food costs and quality vary a bit more, but I still maintain that the only people who regularly buy Groupons are deal-hunting cheapskates who won't be back regularly. All businesses would do better to focus on their core products and pricing, and let word of mouth do the rest.
For a coffee shop owner to run a Groupon promotion to bring in foot traffic thinking it will pay off is lazy, stupid, and shows very poor business acumen.
It probably works out as high as regular gift cards. They're easier to find (just search your email) but they're easier to buy so one can get much more of them. I have friends who bought "pay $X for 10 workouts" but only end up going once before it expired.
I had some friends visiting SF, and they had bought Groupons from various outfits for the trip. But they ended up not using a few of them, and gave them to me. Chances are I'll end up using them, but I wonder: how many such Groupons expire unused?