01 Apr 2012
Groupon and daily deal sites are projected to be worth over $4.2 billion by the year 2015*. There are dozens of daily deal sites,
although most of them operate in generally the same way; for small business owners, these daily deals can make or break a business.
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The way daily deals are structured
Generally, daily deal services are structured in such a way that both the merchant and the daily deal service both make money in some way. Groupon splits the income from the daily deal half and half, and requires a 50% or more discount on the product or service.
For example, a Groupon that costs $10 must be for a product or service worth $20. The merchant gets $5 of this income, and Groupon gets $5. Most daily deal sites also charge a credit card processing fee of between 1 and 3 percent. At the end of the day, this means the merchant gets approximately 22% of their usual charge for the item included in the coupon.
Each daily deal site pays out income from their deal differently; some in one lump sum, though many pay out in smaller installments.
The benefits of running a daily deal
For business owners, there are a multitude of benefits associated with running one of these daily deals.
- Very targeted customers: Generally daily deal sites offer very tightly controlled targeting of their customers, based on age,
previous buying habits, and geographical area. There are also daily deal sites that aim for a very targeted demographic; services such as Gaypon, for example.
- New customers: Many of the customers that purchase and use a daily deal are customers that may not have otherwise spent the money to visit your location or utilize your service; these new customers can be a much-needed shot in the arm for a business.
- Social presence: Most daily deal website users are already comfortable with the web and social media. Running a daily deal means attracting customers that are already primed to use social networks and offer their opinions on your business to friends.
- Search Engine Optimization: The spike in traffic, topical links to your website, and social media discussion of your business that will happen the day a daily deal runs with your business can do great things for your search engine optimization, if your website is ready for it.
There are a multitude of benefits to running a daily deal, but unless you are truly prepared for the onslaught, then a daily deal can ruin your business. There are hundreds of thousands of stories online of businesses that have been put out of business by their Groupon or daily deal. Before you decide to run a daily deal, you should carefully consider:
- The cost of the deal: In order to run a daily deal, you will likely giving a discount of 75% or more to every customer that uses
the coupon. Consider if your busienss can take that kind of a discount, and if not, then running the deal may not be worth it.
- Utilizing the information: You can get a wealth of information from and about the customers that buy and redeem your deal. If you do not yet have the structure to utilize the information in the future, however, then it may not be worth the cost.
- If you are prepared: A daily deal means several large spikes for your business. A spike in website traffic, a spike in orders the first few days, and another spike a few days before the deal expires. These customers are also very vocal and very likely to share, so if you are not prepared to handle the onslaught, you could do more damage to your businesses’ reputation than you could help.
So – should you run a Groupon?
So, in the end, should you run a Groupon or other daily deal for your business? The answer depends on if your business is prepared for the deal, and if you can structure the deal in such a way that the deal will not drive your business out of business. Do the math very
carefully, know your goals for the deal, and structure it in such a way that you can turn the one-time daily deal customers into a boon
for your business, rather than a drain.