I Have To Bake How Many Cupcakes?

A small UK cupcake company uses Groupon in an attempt to grow business, only to find that they weren't prepared for what was to come.

When Rachel Brown's little Need a Cake Bakery just outside London, needed more business, she turned to Groupon to get the job done. She signed up to promote her cupcake business and immediately, out of popularity, the orders started to pour in.

Her offer? A 75% discount on a dozen cupcakes at $6.50 euros instead of her regular price of $26.

And how many orders did she fill?

8,500

This resulted in her tiny staff of eight having to bake 102,000 cupcakes quickly. And I mean very quickly.. The little company which typically baked 100 cupcakes a month was overwhelmed. As demand grew, Rachel was forced to hire 25 additional workers.

"We only expected to get a few hundred orders out of it but we had thousands and thousands pouring in. We had to cut it off at 8,500 orders.”

After all was said and done, she ended up with a $2.50 per order loss.

"Without a doubt, it's the worst business decision I've ever made", she said.

Earlier this year I wrote a piece entitled Is Groupon Good For Local Business? discussing what businesses need to be aware of before they make a Groupon offer.

In it, I mention the first rule of thumb is that you have to make sure that you are selling a product that is currently presenting you with a 100% or more profit to offset your discount to at least break even. The other rule was to make sure you have the resources and capabilities to scale without affecting quality and business operations.

The most puzzling thing about this case is why Mrs. Brown didn't put a limit on the number of Groupon vouchers.

Oh well, I'm sure its a lesson learned. And if you want to help Need A Cake or have an inkling for cupcakes, you can visit the website and order up a dozen - without the discount of course.

About Kerry Kobashi

Kerry is the founder of KerryOnWorld. He lives in Silicon Valley and has worked as an engineer and project manager. He owns Kobashi Computing a consulting company.