Tuesday , 29 July 2014
Similar to Groupon, Heartsy connects with sellers on Etsy and offers their products at a discount of at least 50% off. While Groupon splits the proceeds of the deal with the retailer, Heartsy’s services are currently free but they are planning on incorporating a transaction fee in the near future as they grow.

Crunching the Numbers On Heartsy – Groupon for Etsy

heartsy groupon for etsy

Guest Article by: Pepi’s Musings

A few days ago, I came across the handmade version of Groupon – Heartsy. Similar to Groupon, Heartsy connects with sellers on Etsy and offers their products at a discount of at least 50% off. While Groupon splits the proceeds of the deal with the retailer, Heartsy’s services are currently free but they are planning on incorporating a transaction fee in the near future as they grow.

After I discovered Heartsy, I was curious what the Etsy community thought about it. I searched through the forums and found many sellers with mixed emotions. Those featured on Heartsy before had only great things to say about it, but others felt that such a huge discount would leave them with nothing while giving their product away for free. Being a math person, it really made me wonder if they were right. This reminded me of an article I read in the New York Times last year about doing the math on Groupon and figuring out whether participating in such deals is good for your business or not. So using a similar model, I decided to do the same for Heartsy.

There are nine key factors that an Etsy seller should consider:
1. Incremental cost of sales – how much does it cost you to make an item to get one additional sale? This doesn’t fixed costs. If you are selling vintage, it could be 30%; jewelry might be 50-60%; bath and body products might be 40%.
2. Amount of average sale – will buyers stick to the total amount offered in the coupon, or will they spend more than that?
3. Redemption percentage – the percentage of people buying the coupon and actually using it.
4. Percentage of coupon buyers that are already your customers.
5. Percentage of coupon buyers that will become regulars.
6. What is the advertising value of promoting your business to 500 people – how much do you spend on ads on Facebook or other blogs for example?
7. Cost to acquire a new customer
8. Etsy fees
9. PayPal fees.
[For simplicity purposes, this model assumes that a customer buys only one coupon.]

So now let’s go through an example. Suppose you offer $19 for $40 store credit (53% discount) and you sell 40 coupons. Following the list from above, let’s say your business numbers are:
1. 50%
2. $45 (buyers spend $5 more dollars than the coupon value)
3. 100%
4. 0%
5. 10%
6. $25
7. $5
8. 3.5%
9. $0.30 plus 2.9%

Coupons redeemed = 40.
Revenue: 40 x $19 = $760
(this will be different if Heartsy starts charging a fee)
Additional revenue: 40 x $5 = $200
Total revenue = $960

Expense: 40 x $45 (average sale amount) x 50% incremental cost = $900
Etsy fees: 40 x $45 x 3.5% = $63
PayPal fees: 40 x ($0.3 + 2.9% x $5 (additional value over coupon)) = $18
Total expense = $981

In this example, the net revenue is -$21, which means it cost you to participate in the deal. However, it’s important to look at other contributions to your business – how many new customers will you get? Assuming the return percentage is 10%, you get 40 x 10% = 4 new customers. This costs you roughly $5 per new customer, which is exactly what you were spending anyway (item 7). The overall cost is also similar to your current advertising cost. So now the question is whether it was worth going through this for just 4 new customers. In my opinion, yes, but you can make your own decision.

Of course, the end results could be drastically different if any of these key inputs change. For instance, if the amount of average sale was $50, or $10 over the coupon value, then you’d actually be making $66 in profit and still getting those 4 new customers. In another example, if your incremental costs are only 30%, then you’ll be making $339 in profit. And of course, the opposite can happen too – if your costs are 60%, then you’ll be paying $200 to participate in this deal.

You can really help or hurt your business, so it’s really important to know your customers, your costs, and your limits. In the case of handmade products, it’s also good to have a good inventory of items, especially if you’re expecting people to go over the coupon value, as well as being able to accommodate a cluster of sales at the same time. But most importantly, make sure you price your items well. Heartsy’s current model is similar to wholesale, but there are still sellers (and also due to the unique nature of some handmade products) who find it very difficult to achieve wholesale prices, if at all. If that’s the case with your business, then you know the answer.

Now that I’ve done the math, I’m really curious to hear from sellers who were already featured and actually know what the exact numbers are.

Original Article

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41 comments

  1. I’d be interested to hear some numbers from previous participants also. For me, it isn’t just about the costs in terms of dollars, but also how much of my time it will take to create all of the items that I will sell {possibly at a loss}.

    It’s certainly tempting as far as creating traffic and interest in a shop.

  2. This is such a great article! I have really been wondering so much about this and how it is working for others. Thanks for doing the math because it sure isn’t my favorite thing to do. I haven’t done Heartsy and I still feel mixed about. Thanks SO much for this article!

  3. Here’s my thoughts on this: If I’m offering a 50% discount that is essentially offering the coupon buyers wholesale. Since I already have a profit built into my wholesale prices I’m still going to come out ahead.

    • I think it’s great you build profit in to your wholesale prices! Sometimes I wonder how many Etsy sellers do that… so often I see so many who want to compete and have sales, that I worry they’re undervaluing their work as it is… and that’s just as a consumer!

  4. Thank you for this info…I have been really pondering what to do and this helps give me a way to figure out whether it is worth it.

  5. Thanks for this article! I also would like to hear the numbers from someone who has done it already to know if they have actually come out ahead.

  6. An interesting comment I saw someone make in the forums was the question of whether or not you are really gaining new customers. If they pay $50 (or $35, as Heartsy is now asking for 65% off) for an item, will they be willing to come back later and spend $100 on it? Does this set you up in the customers eyes as being of lesser value? Just an interesting point. I also sell close to retail as I have wholesale accounts, so I would be more concerned about long term effects in the eyes of my customers than just the profit or loss of the initial deal.

    • YES. This. Even if you DO come out ahead with programs like Heartsy, you are also continuing to feed into people’s latent belief that handmade creative goods are not worth paying money for.

      Our goods are better made than the knockoffs at Target. We should not, as a group, be bowing to the pressure to discount. It’s the flat wrong marketing tactic for the industry of arts and crafts as a whole.

      • Cat,
        I don’t think the purpose of Heartsy is to devalue your unique handmade products. I also don’t think that any of the sellers that offered discounts were pressured to do it. It just gives buyers an opportunity to experience something (new) at a lower price. I think it’s really up to the seller, the quality of their product and customer service they provide to wow those buyers so that they come back again and spend the $100.
        Item #5 in the article talks about that – this % will be different for each shop, and yes – pricing your items will be a huge factor in the buyer’s decision, but that shouldn’t be surprising to anybody.

      • Cat, I agree. There are plenty of marketing opportunities to advertise your product at full retail price: a price that you’ve determined your product, time, creativity, overhead, etc. warrants. For instance, I just got an email solicitation today to be featured in a targeted email to 50,000 shoppers, plugs on FB and Twitter, and on this site’s homepage. The cost of that was $245. If you have an average transaction of $45 (as we do), we’d need a little more than 5 people out of 50,000+ to open their pocketbooks to recoup expenses (0.01% of total recipients). Yes, there is the risk that you don’t make back your investment, but you avoid the potential long term damage of devaluing your brand AND devaluing your industry.

        I think Groupon and similar sites *might* work well for restaurants in terms of garnering return visits, but I think it’s possibly destroying the massage industry (or rather the massage industry is destroying itself). After all, you eat out maybe 40 times a year (?) Plenty of opportunity to go back to a place you loved. How often do you get a massage? Maybe once or twice per year? Furthermore, it seems like there will always be a massage coupon out there (if the last several months are any indication). I think the same things goes for handmade goods: fewer purchases over the course of a year and an abundance of vendors out there. It’s easy to forget who you bought from three months ago. Especially if there’s a “great” deal for 50%+ off coupon sitting in your inbox from the next artist on heartsy…

        Add to this the transaction fees that will inevitably come (Groupon takes 50% of gross sales plus a credit card transaction fee on top of that) and it’s a really troubling picture.

    • You are right, they don’t come back and spend $100. I would be concerned about the long term effects.

  7. The Heartsy sales are a big potential advantage to any seller who wants to move a bunch of old stock. If you’ve been sitting on something for a long time, it might be good for you!

    • If it didn’t sell in your shop it won’t sell on heartsy, why? because only the most popular voted items make it to the deal.

      We built something similar for europe, you get a much better deal.

      Loula

  8. Take a look at http://www.quiteunique.com

    We have a customer base that doesn’t expect 50% off and understands the value of handmade products. You can actually make money using us.

    We typically only ask for 30% off and we actually buy the products and ship out of our warehouse.

  9. Gotta love math! Thanks for crunching the numbers!

  10. As a customer I am always looking for a good deal and take full advantage of it but I do not go back and pay full price for something similiar because I always feel that if it can be offered for such a low price it really is not worth the full price.
    So to my way of thinking heartsy may bring in new customers but I doubt they will be repeat customers.

  11. I have worked at RV Parks that offer “Passport America” The customer joins this group and pays a fee. The park then gives the customer 1, 3, 7 days at 50% off. Not once has a customer stayed longer than the specified time and paid full price for his site. They complain and expect more than the regular price customer. They are also the ones that will leave a bad review.
    In my opinion, people who look for free or nearly free deals, are always gone to the next deal and do not make good customers.

  12. wow-thanks for breaking it down like that. I just submitted my work for Heartsy and have been having mixed thoughts whether that was a good idea. I thought that as a new business, I needed to get my product out there, regardless if I make a profit on these sales.

  13. I agree with Cat, this is the wrong sales model for handmade. It is enticing in certain ways but I don’t think I would ever participate in such a venture because I really feel like it would devalue my work.

  14. I am in total agreement that this is a bad idea for handmade items. I doubt very much if this results in customers for any of the sellers who have higher priced items. Low price items maybe, because there is not much difference in the discounting process, but for anything over $50 I would bet not a single one of those people who bought at a discount will return to buy one of your full-priced items. So to me not only am I cheapening my handmade pieces, I am in a lose lose situation. I’d love to hear from someone who has items that are $50 or over who has participated in heartsy and has the people who purchased at the discount return as full paying customers.

  15. There is a firestorm over on the Etsy forums regarding this issue. Apparently more and more sellers on Etsy are being approached by shoppers for a direct discount there. I think this may be a slippery slope and as a buyer, I feel it does cheapen the image of artisan-made.

  16. I’ve thought about it because I also already have a profit built in to my wholesale prices.

    But I think my regular customers would be pretty disappointed to see something they paid full price for listed at below wholesale (heartsy asks for 65% off for jewelry) and at practically Going Out Of Business prices.
    My wholesale accounts that buy a dozen at a time don’t even get that big of a discount.

    Sadly I have to agree with another poster who said that people who are really into deep discounts often are the most demanding, the most likely to leave neg feedback, and feel that the items don’t have much value to begin with.

    Try it out, stand on a busy street corner and give your product away. How many will you find in the closest garbage can? People do not value things that are cheap.

  17. I love the idea behind this, but it won’t last. They (heartsy) is even starting the “VIP Status” thing now!, where you pay $8 a month to get better opportunities than non-paying members. It reminds of Zynga and other applications on Facebook..where you have to use real money to get anywhere in the ‘game’ Weird example, but that is what it reminds me off. lol.The whole idea of it; is greedy, and just plain stupid. Aren’t they already getting enough money from the sellers of etsy? Geesh.
    Now, as for MY FIRST time experience with buying a voucher, I’m a tad bit
    p-o’ed and left thinking “you get what you pay for!” I’m not talking about the product when I say this, I am talking about the Customer SERVICE. What a PITA it has been! It’s been a week and 2 1/2 days, and I still haven’t been able to pay the for the rest (the difference) of my order.
    Here’s how it went “down.”
    I bought a ‘deal’ from a popular Bath and Body shop, and soon as I pay, and get my voucher number through Paypal; I head over to her shop to to buy my items, and I found it was closed[within moments of me paying] so she can get caught up with orders. Why Heartsy continued to sell her the deals, or why she did is beyond me! She got too in over her heard with the deals/vouchers. She shouldn’t have sold so many deals if she couldn’t keep up. If I pay for something, I want to be able to place my order right away! Geesh, I don’t want my product right away, I just want to order the stuff! LOL Anyhow, A WEEK goes by, and I finally get the email that her shop is back in business again & I finally got to place my order, but she didn’t send me an invoice yet..(another 2 days (and waiting) wait!)
    She’s been in business for 14 years, and on etsy with 7000 plus feedback, so I know I will eventually get my product(s). I just hate waiting! especially since I bought the “groupon” to use as to buy items for GIFTS! I won’t get them in time now, and it makes no sense to even gift them AFTER someone’s birthday. Kwim?
    I am actually re-thinking ever using it again, and just waiting on my favorite shops to have their own sales/specials/clearances etc..as I have before Heartsy.

  18. How would one go about finding their incremental sales percentage, out of curiosity?

  19. After selling on Heartsy, overall it was a good experience in terms of sales and exposure, but i can also see why some people might feel the opposite. I had my sale in September and it went really well. However, some sales did end up costing me profits due to the discounts, but others made up for it. It’s the VIP program that really kills you. My advice is to just try to come up with a number that isn’t going to make you lose much profit, and take your shipping costs into consideration because Heartsy requires that they be included with the voucher amount. For people like me, my normal shipping is usually around $7-$8 per small box. however, sometimes it was the full $14 to some locations, so essentially those people got free stuff (ugh). if I did it again, I’d try to stay out of the VIP program because the majority of my sales were from VIPs at the higher discount rate which kinda killed me.

    After doing my own number crunching, here is what I came up with (I haven’t included Paypal fees because honestly I’m tired of crunching numbers right now… but this should give you a general idea):

    I sold 61 Heartsy vouchers at $14 each. Regular members received a $28 discount for $14, while VIPs received a $38 discount for $14.

    TOTAL HEARTSY SALES TO DATE: $1,542.75
    - HEARTSY DISCOUNTS: $714.00
    - SHIPPING COSTS: $247.63
    - ETSY FEES: $53.99
    = PROFIT SUBTOTAL: $527.13

    There are still 23 Heartsy vouchers to be redeemed, for which I have already collected the $14. (so, $322)

    Vouchers Left: 23
    Additional Heartsy Profit: $322.00

    TOTAL PROFIT TO DATE: $849.13

    Of course, with the vouchers that are still to be redeemed, the buyers could still spend more than the voucher amount (which was common). And shipping/etsy fees weren’t included in the final $322 since it hasn’t happened yet.

    hope that helps someone!

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