Tracy Z wrote an interesting post on FactoringInvestor.com comparing and contrasting the cost Groupon vs. the cost of invoice factoring.
Rightfully so, Tracy defined the marketing lure of Groupon as “marketing with no upfront fees.” For cash-strapped business owners looking to make more sales, free advertising sounds like a good deal–That is until you break down the numbers:
- 50% discount to customer
- 25% fee to deal provider
- 25% net to business owner
In essence, the business owner only makes 25% AND they have to wait to get their portion, in installments, over time.Tracy outline a simple example, where 1/3 of the business owner’s profits was paid in 5 days, 1/3 in 30 days and the balance within 60 days:
$100,000
-$50,000 discount
-$25,000 fees
=$25,000 received by business owner (33% or $8,333 immediate advance, with the remaining $16,667 paid out over 60 days.)
Then Tracy used the same scenario as though the business owner were factoring:
$100,000
-$5000 factoring fee (average 5%)
=$95,000 received by business owner (80% advance or $ 80,000 upfront, with the balance less the fees received once debtor pays in full).
Pretty interesting comparison, huh?
Click here to read the article Tracy referenced in her post: Why Groupon is Poised for Collapse.
