The original title for this article was going to be “Group Buying Deal Review: Why WagJag Can Suck It”. After receiving an “offer” to participate in a group buying deal (also known as social buying or deal-a-day. Examples include Groupon and LivingSocial) from one of the larger local group buying companies in my area, it took me a few days, and some good advice from my wife to cool down and write this (mostly) rational analysis of the group buying deal economics.
Here’s the group buying deal my photography studio was asked to participate in:
Here is the portrait photography group buying deal promotional material we received:
let’s review: for a purchase price of $29, a person who bought this group buying deal would receive:
- A photography session for up to 5 people.
- One 8×10 or two 5x7s or eight wallet prints
- A CD with high resolution copies of three photos
- 30% off of anything else I tried to sell them.
That is an offer so ridiculous that I can’t even put it into words. Ridonculous maybe. Crazy? Silly? Stupid?
Analyzing the Offer
Now, let’s take a closer look at this “scam” (see disclaimer above) offer.
WagJag tells us that this is a $250 value. That actually sounds about right for a lower end photography studio (and to be fair, WagJag did approach my budget oriented spin-off photography studio as the service provider for this offer, not my main commercial studio).
Here is what I think a reasonable breakdown would be for the services and products that are included:
- Photography session for up to 5 people: $150 to $250
- One 8×10 or two 5x7s or eight wallet prints: $50 – $100
- A CD with high resolution copies of three photos: $50 – $150
- 30% off of anything else I tried to sell them. Forget that: full price.
So for a real business, the offer on the table does break down to about $250 to $500, depending on how budget you really want to go.
At this point I expect dissenting comments along the lines of: “I only charge $20 for my 8x10s,” “Nobody will pay $150 for a sitting fee in my area, so I only charge $50,” or, “I just give everyone the full resolution files for free.”
Hey that’s fine. If you are making money and you’re happy with your rates, cool, and good for you. But if you’re charging less than what I’ve outlined above, I seriously doubt that you are making any money—but I digress.
Back to the WagJab offer. Besides the price, the other obvious problem with this group buying deal is: why would a photography studio provide a print (or prints) and a CD (can you even buy CDs anymore?) with high-resolution copies?
You know that anyone with the high resolution photo files is just going to take the photos on the CD or DVD to Walmart and print their own 8x10s for $3, so why bother wasting your time providing them with a print?
Group Buying Deal Economic Analysis
Now let’s review the economics of this group buying deal. For the photography studio group buying deal, here is the rest of the offer from an email I received from WagJag:
There is no cost to you and you get free newspaper ads and the deal is emailed to 80,000 people in Hamilton they just ask that you honour the deal for any customers who purchase it for your location Your paid for every voucher whether its ever redeemed or not how wagjag makes money is we split the voucher price so if 100 customers buy yours for $29 your get $1450 and we get $1450
OK. Spelling and grammar mistakes aside—I’m not perfect either—let’s take a closer analysis:
Free Newspaper Ads and Emails to 80,000 People!
Hey that sounds pretty good…ummm…except the ads are not for your photography studio. The ads are for the group buying deal (although your studio name is included as one of the chumps photographers who will fulfill the offer).
Your You’re Paid For Every Voucher Whether Its Ever Redeemed Or Not
Hey, that’s good too. Oh wait—the group deal advertiser takes 50% for providing you with all of that free advertising and the opportunity to screw your own business. So, you just paid $1,450 for advertising. Do you have any idea how many Google AdWords $1450 would buy? You could be the number one ranking photographer in your area for a month on Google for less than that.
Ok, well, that’s still $1,450 for 100 vouchers. Not bad.
Now let’s say that only 70% are redeemed (I should have asked for redemption statistics before I sent back my tersely worded reply, but, for argument’s sake, let’s use 70%).
So if 100 group deals are sold, for a payment of $1,450, a photography studio would have to provide 70 photography sessions (and products) in accordance with the offer.
Time Plus Cost Analysis
Now, let’s figure out just how much you would make from each session. Here is what I think a reasonable time plus cost breakdown would be for the services and products that are promised with the group buying deal:
- Booking (Emails, phone calls & scheduling): 5–10 minutes per booking
- Prepare gear for session: 5–10 minutes with the assumption that you are photographing a whole day’s worth of sessions in succession
- Photography session for up to 5 people: 20–30 minutes of face to face photography time, assuming everyone is on time
- Review and select images with client: 10–15 minutes
- Buffer between sessions: 10 minutes
- Gear breakdown and storage: 5–10 minutes with the assumption that you are photographing a whole day’s worth of sessions in succession
- Basic editing and sending print to printer: 5–10 minutes
- One 8×10 or two 5x7s or eight wallet prints: $3–$8 cost of goods sold
- Drop-shipping print to client: $0–$2.50 client could pick up their print or have it mailed by the lab
- A CD with high resolution copies of three photos: $0.50 cost of goods sold
- Uploading photos and burning DVD: 5–10 minutes
So for every voucher redeemed, it would take a photographer at minimum 65 minutes of their time plus $3.50 in direct costs. At the most, it could take 105 minutes of the photographer’s time plus $11 in direct costs.
The Cost Of Overhead
Of course there is also your business overhead (which many photographers seem to like to ignore). Overhead can vary quite a bit for different studios, but let’s look at a budget example for someone who works out of their home (does not pay rent on studio space):
- Cell Phone Plan: $100/month
- Internet: $75/month
- Business Insurance: $100/month
- Business Portion of Home Insurance: $20/month
- Photography Software Subscriptions: $50/month
- Business Portion of Gas & Auto Expenses: $50/month
- Website: $25/month
- Advertising: $50/month
- Photography Gear Allowance: $250/month
- Computer Equipment Allowance: $80/month
I’m sure that I missed some items, but without even paying for rent on studio space, most photographers carry somewhere in the neighborhood of $800 per month in direct overhead expenses.
The Bottom Line on This Analysis
At a 70% redemption rate, the best case time plus cost scenario for this group buying deal works out to a photographer working 75.8 hours (full time for nearly two weeks) and spending $245 out of pocket in order to earn $1450 of income. Over that 75.8 hours, the photographer will also burn through about $360 worth of overhead too.
That leaves the photographer with a best case scenario hourly rate of about $11 per hour ($1450 income, less $245 in expenses, less $360 in overhead, divided by 75.8 hours).
The worst case scenario leaves our rube hypothetical photographer working 122.5 hours (just over three weeks, full time) and spending $770 out of pocket to earn that same $1450 of income. Over 122.5 hours the photography studio would burn through roughly $585 worth of overhead.
The worst case more realistic scenario works out to an hourly rate of $0.77 per hour ($1450 income, less $770 in expenses, less $585 in overhead, divided by 122.5 hours).
Or, in other words, nothing.
Are you willing to work for a best case of less than the minimum wage in Ontario, or a worst case of free?
The Myth of Sundry Sales and Promotional Value
Let’s put this to rest right now: There is no—none, zero, nada—value in additional sales or promotional value from participating in a group buying deal. Ask anyone who has ran one. I have. This is what they told me:
Clients never buy anything that is not included with the group purchasing deal.
And why would they? You just gave them a whole photography session and a print and high resolution photos for $29. Do you honestly think that they’re going to turn around and buy an extra 8×10 at your regular price of $50…oh wait, you have to give them a 30% discount, so $35?
Clients will not come back to you in the future if you do a good job.
If you are going to buy a widget, do you really care what store it comes from? Do you care about how much it costs? The group purchasing deal turns you into an interchangeable service provider, not a photographer who brings their individual talent to their work.
Clients have no incentive to seek you out in the future, no matter how awesome you are.
You will not gain new clients who will pay the regular price in the future.
Even if you are successful in retaining new clients from your participation in a group purchasing deal, they will never pay you your regular price for future services. Again, why would they? You just gave them $250 worth of products and services for $29.
Therefore, to them, your service is now worth $29, and that is exactly what they will expect to pay in the future (or in realty, they will just wait for another group buying deal).
(Incidentally, the merchants I’ve talked to would actually prefer future clients to come to them directly and demand the group buying deal price instead of purchasing a new one. That way they at least get 100% of the purchase price instead of their measly 50% cut.)
Why Group Buying Deals are Bad for Consumers
If you are an astute business person, you might have noticed that there are two variables that could be manipulated in order to maximize the profit from a group buying deal. Of course, you would also have to be somewhat sleazy, but the opportunity is there to screw over consumers and make money.
1. The less time and less money it takes you to fulfill the group buying deal, the more profit you make
You could decrease your time and cost by simply offering worse service and cheaper products. In this case, you could run your photography sessions like school picture day. Just run people through as quickly as possible in the same setup, snap 3 photos (the minimum promised), email them instead of burning a CD and make a color ink jet print right there instead of using a lab.
Even Sears’ and Walmart’s Portrait Studios didn’t do that, and we all know what happened to them, but the opportunity is there to make a quick buck.
2. The less group buying vouchers that are redeemed, the more money you make
You receive payment for every group buying voucher that is purchased, whether it is redeemed or not, and they expire in three months. So it is in your best interest to make it as difficult as possible to fulfill the vouchers. In this case, you could simply take really, really long to respond to booking inquiries in the hopes that the voucher holders will just give up.
Or, you could make your availability very inconvenient to the families who want to have their family photos done. For example, you could only be available Monday, Wednesday and Friday from 9:30am to 11:30am and 1:00pm to 3:00pm, when everyone is in school and at work.
Or you could re-schedule people five times in the hopes that they will get sick of you and forget about it. Or, you could claim that you are already booked solid 2 months in advance and you only have 10 slots available just before the vouchers expire.
I could go on.
I think that it is pretty obvious that group buying deals this crazy are clearly horrible for both photographers and consumers.
If it was a 30% discount, or maybe even a 50% discount, maybe, just maybe the economics could be made to work. But a 90% discount? Come on. Who in their right mind would want any part of that?
Image credits: maybank + groupon partnership by diloz, Group Photo Session by fotografar, CD by DeclanTM, Money by 401(K) 2013, Fort Wainwright’s Photography Studio by Fort Wainwright Public Affairs Office, Empty Pockets by danielmoyle, Sale by smoMashup_, Cheapskates by ilovememphis