At $0.25 per, it really does not matter. Even at higher costs, the customer mix would need to be pretty horrible to compete unfavorably with traditional advertising where you very well might get zero custo,ers for your outlay.

In the example given, it's really $1.25, but even at $0.25, I'd still disagree. That's just the cost of getting someone in the door. If your sales process is just people browsing in a physical location, possibly that's OK. If it requires a lot of interaction with staff, that's cost that needs to be factored in.

Should that be factored in to the groupon price? Absolutely. Will most people know to do that (and goes groupon counsel people on how to do that)? Based on most groupon horror stories, absolutely not.

Those horror stories are actually somewhat scary for a business owner. Not being able to dictate what time your discount starts?

If people have a bad experience with the Groupon at your store, the store gets inflicted with tons of bad reviews due to long lines, long checkout times, etc etc etc. While in theory this sounds like a good problem to have, its not and won't provide a sustainable stream of customers (i.e. majority of these customers come once, have an awful experience because of the aforementioned problems and never come back).

While my sample size is small (~15 biz owners) I saw it first hand at a restaurant in Somerville. My buddies and I stayed for 3 table turns around us. I overheard everyone that was there because of Groupon and every single table had no intention of coming back. They didn't mention the cause, but I am assuming it was slow service because the place had a 1.5 hr wait (normally 15mins).