Three reasons why you shouldn’t do daily deals for your small business, or at least seriously question the accounting of such a deal. I am basing my commentary on several of my own clients and other small businesses I know of that have tried daily deals.
- Most customers are only looking for a deal. I believe many of the Groupon-type customers are coupon shoppers and want the cheap deal. One of my clients in the retail services sector did $5,000 in sales in one day from a Groupon offer, however, when it was all over they were at break even; their business model was membership based and they didn’t sign up any new customers. And if you consider the non-financial costs of processing all the orders and servicing all the clients, they were actually in the red on the deal. Like my grandmother used to say, “Lots of action and no progress.”
- You give away most of your profit in the deal. The daily deal sites expect you to offer something that is substantially under your normal pricing. In the cases I have seen all the deals were done at a break even amount or slightly above break even. Even if you’re offering something slightly above break even, is it worth it? Could you convert these customers into repeat customers to increase their lifetime value to your business?
- Can you effectively remarket? Are you set up to capture the necessary customer info and remarket to these customers to keep them coming back? How are you going to remarket to these customers? Email? Postcards? In essence, many of the daily deals coming from small businesses, since they are at a breakeven point, are really only a way to purchase a marketing list that you can use for future remarketing efforts. And I would venture to say this list you just paid to acquire is only slightly warmer than a “cold” list you could purchase from a 3rd party, and the 3rd party list is a hell of a lot easier to obtain.
So in general I’m not a fan of daily deals for small businesses because most of the deals don’t work out financially. Do some simple math, and if you’re not going to be successful at remarketing to these customers and capable of building a long-term relationship, is it really worth it? I would look at what other advertising options you have available and ask yourself where will I get the best return on my advertising dollar? Don’t be distracted by short-term delusions of grandeur unless the math pencils.