{Advice} The Good and Bad of Groupon for Small Businesses

The Groupon coupon service (and other social-coupon sites) are hot right now – not only with customers who love to save money or score a great deal, but also with businesses looking for an inexpensive marketing tool that will appeal to a large database of potential customers.

But small biz owners should be careful and not get caught up in the ‘deal’ frenzy. A number of small businesses have learned the hard way…running a discounted deal (typically 50%) can drive a iot of customers through your doors but cost you a lot of money at the same time!

Daily Deal Coupon Service 101.

For consumers, you sign up for daily email notices, get invited to a 40- or 50-percent off deal at a business, often but not always a local one, and you buy the deal. You have a limited amount of time to act and the businesses that offer the deals have the option to apply some rules (limit one per person, not valid with other offers, etc.).

For businesses, Groupon almost insists that a business’s deal be at least 50% off or better, they take 50 percent of all revenue generated from the deal as commission, and they also stick the business with the credit card fees.

So, if you’re a small business and think giving away 200 or so 50% off coupons will help drive people to your store, you’ll want to proceed with caution. Your one-day Groupon feature might lead to not 200, but 2,000 or more sold, leaving your business overwhelmed, with no margins or even a loss!

Lessons to be Learned.

Do the Math. You need to account for their commission and how much it’s costing you and how much you will actually get back. Also, it’s important to be prepared for a very high redemption rate – I’ve heard redemption rates are typically between 60-80%.

Bad Branding. Offering deep discounts on your products/services can be a bad thing for your business because bargain hunters are unlikely to come back and purchase your products at full price. And you could potentially be devaluing your product in the eyes of your existing/regular customers.

Be Prepared.  Do things to entice those newcomers and coupon hounds to get to know you, want to come back or even upsell them while they shop…and you could ultimately profit.

Keep in mind, a one-time customer who buys nothing extra is the worst case scenario. So set up your store accordingly and prep your salespeople to bring their “A game”. A Service business? Consider offering an incentive for customers to sign up for additional appointments on the spot!

Scheduling and Customer Overload. You need to consider your size, the type of biz you have and how many people you can reasonably serve. For example, Blo, a small salon and day spa in Chicago, ran a Groupon promotion ($40 for $110 worth of services) and sold 3,915 Groupons in April. Unfortunately, that was way more traffic than the salon could reasonably handle, and its reputation consequently suffered.

If you decide to do a ‘deal’, clear your schedule and expect to be serving coupon customers – and only coupon customers – in the week following your promotion. You’ll probably be answering the phones and email questions the day of the promotion. Consider hiring some extra help for the first few weeks of your deal.

The Positives. 

-Drives people to your store, restaurant, event – they are best used to create a short-term blip in traffic.

-Brings awareness about your business (your brand, your products and services).

-An inexpensive marketing tool.  No-up-front cost advertising solution.

-Potential is there for consumers to spend more. Those consumers who visit your business with the express purpose of using the coupon can end up spending more than they planned. Especially if the coupon is focused on one simple product or service and your business offers many.

-Distributing coupons to new prospects is a quick and efficient way to build interest and goodwill.

This is what I want you to get from this post…

Groupon and other social-coupon sites are NOT for everyone (especially if you’re a really small shop).  It’s important to consider the ‘good and bad’ to make sure this sort of coupon deal will work for you/your business!

My BFF honest advice.

If you are good at what you do, consider yourself the best in your business, and there is a market for your business (where you are), you will get more mileage out of creating marketing that will make you stand out in your industry…and these ‘deep-discounted deals’ don’t do that!

It really comes down to branding your business and setting the stage that draws attention to your biz, attracts clients and repeat sales—which does take time!

So there you have it.

Special thanks and shout out to Sheera Gersh/Addicted to Nails for asking us to blog about the pros and cons of groupon and living social deals.