Groupon - Does it Really Save You Money?Credit: http://groupon.com

People all over the country are touting the savings power of social buying websites like Groupon, Living Social, and Buy With Me.  But are these really saving them money?  Would the money they spend on these impulse buys be better spent paying off existing credit card debt or saving it for a rainy day?

How do social buying websites work?

Groupon and other group buying sites negotiate group deals with local and nationwide companies.  These discounts are usually around 50% off but can be up to 80% in specific situations.  They then turn around and sell them to public as a "one day only" sale. 

How do group buying websites make money?

Most take a cut of the money you pay for the deal.  For example, if you pay $50 for a $100 perm at a local hair salon, Groupon will keep $25 of that fee and pass on the rest to the salon.

How do companies make money with such deep discounts?Can you really save money on group buying sites like Groupon?Credit: http://groupon.com

Most hope that you will spend more money once you get there.  So, if you take advantage of the above perm deal, you might be more willing to buy the expensive products on the salon shelves, or opt in for a mani/pedi.  Stores that offer these deals also hope that you will return later even without a coupon.

Are people really saving money with these deals?

Some are.  Some aren't.  It all depends on the deal, the fine print, and if the person actually uses the deal before it expires.

How can I save money with these social buying websites?

Here are a few tips to help you save money when using group buying sites:

1) Only buy deals that you will actually use and/or something that you need.  These sites make money by enticing you with a steep discount on non-essential items, like massages or facials, and then urge you to buy it before it sells out.  Some people fall for these tactics, snapping up deals on services that they never would have bought or used just because they were on super-duper discount.

2) Check the deal. Is the deal actually a "deal" or just a discount off of an already over-inflated price?  Some deals with say "$100 worth of savings" but if you do a little poking around the internet, you might find that it's really a $50 savings or even less!  You might even be surprised to find a better deal or coupon on another site.

3) Read the fine print.  Some of the deals have very Groupon - Multi-Platform Group Buying SiteCredit: http://groupon.comstrict expiration dates and limitations that you must adhere to.  For example, tour perm coupon might only be good on the salon's slowest days so a weekend trip to the salon is out of the question.

4) Read reviews about the vendor.  This is easy to do, thanks to the power of the internet and Google.  Head over to yelp.com or Google Maps and search for the company listed in the deal.  Reading the reviews on these sites will give you an idea of what to expect when you turn in the deal.  If there are questionable or bad reviews, evaluate if the deal is really worth the possible hassle.

5) Be ready for anything.  Even though you've bought the deal, it doesn't mean that the vendor has to honor it.  Some companies won't realize how popular their deal is, don't expect so many people to turn it in at one time, or don't realize the loss they're taking until after the deal goes into effect.  To stay afloat, they stop accepting the coupons after so many are turned in, leaving you out in the cold.  Don't worry – this doesn’t mean that you're out of the money that you paid into the deal.  Just contact the website that you bought it through, explain what happened, and ask for your money back. 

6) Make sure you use it!  This is the most important tip of all.  These deals usually have a "use it or loose it" policy attached to them.  If you don't use that coupon for a discount mani/pedi before its expiration date, it becomes null and void and you lose the money you already put into it.  Vendors that make these deals hope that you won't turn it in so they can keep the fee for free.   Don't let that happen!  Use the deal!