Jul 24

Is Groupon Killing the Skydiving Business?

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Leadership at many established dropzones often moan about Groupon and its effects, “killing the skydiving business”. In my extensive tour of dropzones I’ve stopped and worked consistently at nine of them. Of those nine, three have been heavily Groupon based, five have been negatively effected by Groupon, and one has escaped the effects of Groupon in their region. I’d like to think I can shed a little light on the topic with my view of the Groupon issue for those who don’t know much other than what their traditional style dropzone has told them.

The traditional style Skydiving business set up looks like this: An owner hires an office manager and an school manager. They have a large airplane such as a caravan or a twin otter with a full time pilot or two, and a Tandem/AFF/Video staff of a number of full time and part time independent contractors. They have 6-12 tandem rigs and a number of student rigs. They might even have a rigging loft, restaurant, or gear store, ran either by independent people or managed by the company as its own department. There are a number of parachute packers around as well, and there might even be a full time mechanic.

The school manager makes sure there is enough staff to make operations work for each day the school is open with the goal of making the least amount of loads possible. The office manager is overseeing manifest staff who answer the phone, take reservations, and check in customers.

A customer’s interaction with the business goes like this: checks out website, calls and makes a reservation for a tandem (which is usually over $200), shows up and checks in with manifest staff, is ushered into a waiting area, is called by a instructor/videographer who briefs the customer, gears them up, takes them for a jump, and completes the order.

Expenses includes the following: Cost of website, person answering phone, person who checks in customer, tandem instructor/videographer, rigging/packing, pilot, fuel, airplane/mechanic fees.

Assuming a different person is paid for each of these elements, we have the following 12 bringing this tandem skydive to the customer, and each are a cost of doing business:
Webmaster
Phone answerer
Office manager
Manifester/Tandem Checker inner
Managing Instructor
Tandem Instructor
Videographer
Rigger
Packer
Pilot
Groundcrew/Ramper/Airplane Fueler
Mechanic

Some other people who the customer might interact with, (bringing our tally up to 14,) include:
On site food provider
Gift store clerk

This infrastructure is necessary to build a large “lifestyle” dropzone like many people have come to associate with “the business of skydiving.”

For years the $100ish margin the owner kept after paying out all these people was enough to build their bigger dreams that skydivers love: New hangar, nice bathrooms/showers, camp ground, large/second airplanes. 40 tandems on a Saturday translated into $4,000 margin to apply towards building this “escape from the real world” park for adults. 200 tandems in a weekend was $20,000 towards the empire. And I’m not saying it’s bad to reinvest in your skydiving community — I can’t think of a better dream.

These businesses also to a lesser extent produce revenue from video sales and the AFF school. Their rigging/food/gear store, businesses will also make money, and special events like boogies and continuous education classes offered from time to time are also a source of income. But nothing touches the revenue that the tandems produce.

Despite having hundreds or thousands of first timers walking through the door every year, the lifestyle dropzone will retain less than 10% of its customers as return customers. Also, skydivers will pay about $25 a jump ticket. If we use $7 as a baseline for jump ticket margins, 10 sport jumpers making 10 skydives will net the business an extra $700 for their 100 jumps.

For the most part, these lifestyle dropzones subsidize the true cost of jump tickets for their sport jumper population. It is their mission after all, and they look for ways they can give more to the community. It is a beautiful thing, and coming up in this atmosphere is the reason I have a successful career behind me.

Now let’s turn our attention to a Groupon dropzone. Their mission is different. Usually they are opened by a tandem instructor who, tired of squeezing by year to year on less than $30,000, saves enough to purchase a Cessna and two tandem rigs. This tandem instructor has started at a lifestyle dropzone, moved to a place where he could do 12+ tandems a day 5+ days a week, and realized he could be taking home even more if he was the owner. He increased his pay to $50,000 a year, but is ready for the next milestone.

By outsourcing web advertisement and the large office of manifest to groupon, he can cut major costs in the first stages of customer interaction. A place holder webpage gives basic directions and directs to the phone of a tandem packer who also has basic waiver responsibilities added to their job description. The phone may or may not be picked up, but is mostly used to communicate with customers who have already paid — not to generate sales.

The owner is the managing instructor. He may have one other partner working with him. His 182 takes two tandems at a time and they go to lower altitudes. The lower operating cost of the airplane increase margins, and this instructor through his work in the industry has realized that full altitude jumps for $100 extra are a much harder sale. He will offer them to those who ask, for an up charge, but knows the highest value task he can do rests in the volume of jumps he can make.

He has maybe worked as a videographer and realizes how replaceable they are. He has seen many selfish videographers not become multirated, choosing to keep the easy job, and despite this non-team-player attitude, be treated as equals to those multirated instructors who have $3,000+ more in training investments and often times have the exact same video helmet set up. He has seen videographers lose canopies or not be able to work for other reasons, and he can replace them with his Gopro action cameras. Their $100+ videos were a hard sale anyways, and he can focus again on high value tasks — shooting volumes of lower quality videos for lower prices, while increasing his own margin. One of his packers will also double as an editor, and can therefore bring home more money themselves.

In the ideal situation the owner/manager is also a rigger, and does his own rigging during the winter or at night during the busy seasons. This can be delegated to an appropriately rated packer. Being a pilot/mechanic also helps, but is not entirely necessary. Often times these skills can be hired in the same person.

The facility will have the lowest overhead possible. Usually these outdoor or semi-outdoor dropzones are the most charming — unless you actually prefer spending a beautiful day inside a hanger for an outdoor activity.

So a customer interaction in this business goes through these people:
Groupon
Manifester/Packer/Rigger/Video Editor
Pilot/Mechanic
Instructor/Manager/Handcam Videographer

So with the right team the tandem skydive can be delivered to you with only three people and the help of the outside business.

As an instructor/owner making money off the instructor pay, handcam pay, rig rental, airplane slots, and potential tips or up sales, what do you their personal margin is?

Are you surprised it can be at or above $100?

Needless to say, the operator who can do 40 tandems in a day at $100 margins is going to be better off than the one who does five at the same margin.

But the “lifestyle” dropzone does some things way better than the Groupon dropzone, and it is in this that they need to focus their energy. They provide a better customer experience.

They run an AFF Program
They offer continuous education
They change lives for the long term
They create an inspiring community
They document with incredible video
They solve sourcing issues for sport jumper equipment
They provide hard to come by rigging services
They feed the hungry (by creating many jobs)

This should be the focus of the lifestyle dropzone.

It has been the wish of many owners that I have met to raise the price of their sport jumper tickets or downsize their airplane. But they know that if they did that, they would lose their community. And their community is what they work so hard for.

They don’t understand that they just trim the fat, and that the best of their crew will stick around because there is depth to these core fan’s love for their operation. These community members are a breathing part of the dropzone. This close inner circle has brand loyalty and commitment to the business, for whatever reason.

To downscale is not such a terrible option.

But to maintain the current system that prizes the sport jumper, the money lost from tandems will have to come from somewhere. Either the sport jumpers can agree to start paying more for all the value they are offered, the business can turn to its strengths with higher margins in mind, or we can continue with the business accepting lower margins and cannibalizing itself. I see events like canopy courses, which bring people in from two states away, and I wonder why these community events aren’t offered every weekend. I wonder why organizers and sport videographers aren’t always available and on payroll, so that as a consumer I know I can go out to a dropzone and be a part of a skydive that is worth money because it is quality and recorded. Indeed, only the ignorant feel a $25 solo or zoo dive is worth more than a $35 well executed/beautifully planned/documented jump.

I have to conclude these concepts are not popular because the market doesn’t want to pay for it. At the end of the day, the typical sport jumper community is just the same as the community of tandem consumers who are purchasing Groupons. They just want to jump out of an airplane for as cheaply as possible. And it’s just not sustainable for a large group of people with this mindset. So at the end of this analysis, I have to disagree. I don’t think Groupon is cannibalizing the the skydiving industry — I think the skydiving industry cannibalizes itself.

As a side note, there are still many places outside of the U.S. where Groupon is not influential in the market. I see these businesses making 200+ margins with the older business model. Unfortunately, they often do not have the volume of customers or population to easily create a community, and also lack the competition that spurs worldclass growth.

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