Blog & Company News

Aug 3, 2011

Is Groupon Right for Your Business?

[caption id="attachment_393" align="alignright" width="300" caption="Web Coupons"][/caption] Chances are, you’ve heard about these new daily-deal websites popping up as fast as Whac-A-Mole moles. There are Groupon and LivingSocial, and there are BuyWithMe and Dealfind. Even mid-market newspapers like the El Paso Times are beginning to offer daily deals via their websites. And what’s not to like about all of this? The deals are often unbelievably good. In a tough economy when household budgets are tight, you can often find restaurants willing to give you $20 worth of food for $10, or yoga establishments offering $160 worth of classes for $25. You can even find great deals on vacation packages, hot-air-balloon rides, pedicures, and, of all things, common plastic-surgery procedures. It’s no surprise, then, that the leading brand of these so-called web coupon sites, Groupon, would be hailed by our good friends at Forbes as the fastest growing web company of all time. Although it’s obvious that these deals are great for both the consumers and the deal brokers, is it as clear as to whether they are good for your business? The answer, of course, is … maybe. If you’re considering using Groupon or any other deal site, you need to know five things. 1. Be prepared for a large influx of customers. Chad Nason, a B2B specialist with Groupon, posed this question in an interview conducted via email: “Is your business really ready for a Groupon deal?” If you offer a smoking Groupon deal, expect a ton of new traffic to walk through your door. You might think of it as a good problem to have, but without being adequately prepared, you could be looking at a disaster. “Groupon guarantees an influx of customers, and both your business and your staff need to be ready to handle the rush,” Nason said. “The most successful Groupon merchants stock up on people, product, and sleep.” So, before going through with a Groupon, be sure you can support well-above-normal staffing levels in the days following your deal. [Need a more affordable option for your payroll needs? Learn more.] 2. Be prepared to lose money in the short run, especially if you’re a restaurant owner. If you went to Groupon’s website right now, you’d almost certainly find an amazing deal on food or products: $40 worth of food for $10, $30 for $15, etc. On top of that, the daily-deal website, just as with any other broker, will take a cut from that coupon (that’s, of course, how they make their money). So if you’re a restaurant owner offering $40 worth of food for $20, you’re not only giving away $20 worth of product, but you’re also splitting the $20 coupon purchase with the daily-deal company. So in reality, you could potentially receive as little as $10 for $40 worth of product. The true cost to you could be even higher than that if you’re adding staff members to support the rush. So our advice would be to think of doing a daily deal not as a profit strategy, but strictly as a marketing investment. For that reason, be sure you can take the upfront costs. One thing you could do to minimize those costs is to place a cap on the number of coupons you can sell. According to Nason, placing a cap “ensures that [your] business won’t be overwhelmed.” [Lowering your credit-card fees might be one option to improve your margins. Learn more.] 3. Do everything you can to get those daily-deal customers back and buying at regular price. If your daily deal ends up cutting into your margins and the deal itself ends up losing you money, the only way to make it a winning proposition is to get those new customers back and buying at regular price. Even better, turn them into regular customers. This is where you need to get creative. If you’re giving away an exorbitant amount of products or services with your daily deal, don’t be afraid to ask your customers for something in return. This could be anything from signing up for your newsletter to "liking" you on Facebook or following you on Twitter. Create a mechanism where you retain some sort of contact with your new customers after the initial sale. 4. Be sure you have a great website, and be sure that website is easy to find online. As part of your broader marketing strategy, you should use more than just extra staff members to support your daily-deal offer. Make sure you have a solid web presence that is optimized for search engines. Do you own a coffee shop in St. Louis? When someone googles “coffee shop in St. Louis,” will he be able to find you? If you sell merchandise at your store, are you set up to do the same through your website? And if you’re building customer relationships through social media, have you integrated Facebook and Twitter on your website? Can someone “like” your business from your home page? If you haven’t considered these factors before, you can incorporate them now to ensure the long-term success of your daily-deal adventure. [Need a consultation on your website or internet-marketing strategy? Learn more.] 5. Be sure you’re completely comfortable with the terms of your daily deal. This should go without saying, but it might be the most important part of your daily deal. Do the math and figure out what your investment is. Be sure to consider placing a cap on your daily deal if the deal itself cuts into your margins. And if you know other business owners in your area who have run deals on Groupon or LivingSocial, get their insight on the matter, and learn from their mistakes or successes. Have you ever run a daily deal before, or are you thinking about running one? Share your experience in the comments below.