Photo: Adriene Curenton Simon

The collective coupon model doesn’t work for every business, but Pam Nelson, co-owner of Butter Lane Cupcakes, New York City, calls it a “lifesaver” for a small startup business in a shaky economy. The bakery has offered four Groupons since launching three years ago–for half-price cupcakes and baking classes. All told, more than 9,000 coupons have been purchased.

“Initially when we did a Groupon offer, we said we aren’t going to make money; it’s strictly marketing,” Nelson says. “But I have been surprised by how many full-paying customers are coming in at the same time the Groupon people were coming in. So our actual numbers go up, which is nice.”
Some businesses would shudder at the thought of selling that much product at such a heavy discount. But Butter Lane’s costs are fairly modest given its simple menu, allowing it to come out ahead.

“With cupcakes, we can absorb so much more capacity than, say, a restaurant, because we have a product that is relatively inexpensive in terms of ingredients. So if you manage your margins correctly, you can really make some money.”

Groupon first pitched an offer to Butter Lane in 2009; now the bakery gets about three calls a day from various coupon organizations. “Since we’re a relative success story, we get a lot of pitches, and we do look at them,” she says. “But given Groupon’s breadth, other organizations don’t sell near the numbers.”

Moreover, the bakery has seen its customer base grow given the viral nature of group discounts. “People are excited about discovering you, and they want to tell their friends,” she says. “Them sending the offer out is so much more convincing than if we did it ourselves.”