Let this be yet another warning to small business owners everywhere: London baker Rachel Brown was recently forced to bake over 100,000 cupcakes for Groupon customers, and ended up losing about $3 on each batch.
Brown, who owns the Need a Cake bakery in Woodley, UK, offered a "too-good-to-be-true" Groupon deal for her customers. The discount was 75 percent off of 12 cupcakes, which normally cost about $40. At this price, customers could nab a dozen cupcakes for just $10--and nearly 8,500 of them did.
Brown ended up hiring extra workers to cope with the sudden influx of bargain-seekers in her bakery.
"Without doubt, it was my worst ever business decision," Brown told the BBC, "We had thousands of orders pouring in that we really hadn't expected to have. A much larger company would have difficulty coping."
Brown estimates she lost about $3 per batch, or about $20,000 total when she includes the cost of hiring extra workers.
"We approach each business with a tailored, individual approach based on the prior history of similar details," Groupon's International Communications Director Heather Dickinson told the BBC. But there was no limit on the number of deals that could be sold, Dickinson said.
Dickinson also told the BBC that she had been in "constant contact" with Need a Cake, and that this was the first time she heard the company had any issues with the deal.
This is not the first small-business tale of woe when it comes to Groupon. In March 2010, Posies Café went through a similarly devastating experience with the hot deal site. The Portland, Oregon-based coffee shop and bakery ended up losing about $8,000 from a 50 percent off promo that sold nearly 1,000 Groupons. Posies' also had no limit on its deal.
While the Need a Cake bakery story is far from the first (and, likely, far from the last) Groupon horror story, it's yet another warning to SMBs thinking of using the service: it's really important to not get swept up in the Groupon-frenzy, especially if your business may not be able to support it. Check out my story, "Groupon Nightmares (and How to Avoid Them)," and make sure you do the math before jumping headfirst into what could be a very bad business decision.