What it means
The basic idea is simple. A local business agrees to sell vouchers at a large discount, often around half of the normal price, through the platform.
Customers buy the voucher online and redeem it at the business, and the platform and merchant split the money paid. The attraction for merchants is marketing without an upfront advertising bill.
They pay only when a voucher sells, and they hope the new visitors will become regular, full-price customers. The attraction for customers is a bargain and a reason to try somewhere new.
The economics need careful reading, though. If a voucher is sold at 50% off and the platform keeps half of that, the merchant receives a quarter of the usual price for each redemption.
The merchant must still cover the cost of the product and the staff, so margins can disappear unless the business has spare capacity or high gross margins. The model has a wider lesson about customer acquisition cost, which is the total spent to win one new customer.
A discount deal can look cheap, but if few customers return at normal prices the true cost per useful customer is high. Businesses should track repeat visits, not just voucher sales.
Groupon is also a well-known case in discussions of rapid growth, public listings and competition from larger technology platforms. The company has changed strategy over the years, and the daily-deal format has faced pressure from other ways of reaching local customers.
In glossary use, the name usually stands for the broader deal-voucher approach. Accounting treatment deserves a mention.
A merchant that receives cash before delivering the service should not record it all as revenue immediately, and it must also decide how to handle vouchers that are never used. The rules differ between jurisdictions, so the finance team should agree the treatment with its accountant before the first campaign.
In practice
Real-world examples.
Example
A neighbourhood pizza restaurant has empty tables on weekday evenings. It lists a voucher offering $40 of food for $20 and fills the quiet slots with new diners. The owner tracks how many customers return later without a voucher, and she also records the average spend per table so that she can see whether voucher diners order drinks and desserts.
Example
A climbing gym offers a half-price introductory session through a deal platform. Many first-time visitors sign up for memberships after enjoying the session. The gym sees the discount as a customer acquisition cost that pays back within three months, and it compares the figure with the cost of its other advertising channels.
Example
A boutique hotel sells discounted weekend packages for the off-season. The marketing manager caps the number of vouchers so that full-price guests are never turned away. She reviews the results after each campaign and adjusts the offers, keeping the best-performing packages and dropping those that attract only bargain hunters.
Formula
Calculation
Merchant revenue per voucher = normal price x (1 - discount) x (1 - platform commission)
Suppose a spa normally charges $120 for a massage. It sells a voucher at a 50% discount, so the customer pays 120 x (1 - 0.50) = $60. The platform keeps a 50% commission, so the spa receives 60 x (1 - 0.50) = $30.
If the direct cost of the massage (therapist time and supplies) is $35, the spa makes a loss of 30 - 35 = -$5 on each voucher customer.
To break even on a first visit, the spa needs a return visit: a second booking at the full $120 with the same $35 cost adds 120 - 35 = $85 of margin, which covers the loss.Case study
Seen in the real world.
Maple Street Bakery is a fictional business that tried a voucher campaign for the first time. The owner sold 800 vouchers offering $20 of baked goods for $10, and the platform kept half of each sale.
The bakery received $5 for each voucher while the baked goods cost about $7 to produce, so the campaign lost money on its own. The illustrative outcome was that about one in five customers returned and spent full price, which brought in just enough margin to recover the loss over time.
The owner learned to limit the number of vouchers, to bake extra only for expected redemptions and to track repeat customers using a loyalty card. In this fictional example, the second campaign was smaller and better targeted, and the bakery finished it with a clear profit on first visits as well as a growing list of regular customers.
Watch out
Common mistakes.
- Looking only at the number of vouchers sold and ignoring how much margin remains after the discount and the commission.
- Failing to cap redemptions, which can overwhelm staff and damage service for regular customers.
- Assuming every voucher customer will return, when many come only for the discount.
Questions
People also ask.
How does Groupon make money?
It keeps a share of the price customers pay for each voucher.
Is a deal voucher a good way to find new customers?
It can be, particularly for businesses with spare capacity and high margins, but only if enough customers return at full price.
How should a merchant account for unredeemed vouchers?
Treat the cash received as deferred revenue, which is revenue recognised only when the service is delivered, and follow the relevant accounting rules for any expired balance.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related