Groupon went public in November, and LivingSocial and more locally based coupon sites are also flooding email inboxes with daily deals.
Online coupons can be a great way to find new customers because they cost a business owner only if someone actually uses them. Business owners, however, have to be careful with this powerful marketing tool. As a marketing consultant who frequently works with entrepreneurs, I tell them, "If you don't structure this opportunity right, it might run you under."
You can ruin your business as you're flooded with sales that you're losing money on. Business owners also fail to take advantage of the opportunity to sell other products and basically upsell off the deal.
I recently purchased an $80, one-room paint job through LivingSocial that was supposed to cost $250. Considering the cost of the paint was added in, it was a really good price.
The owner of the paint franchise persuaded me that she could provide me a reasonable price for painting other rooms in my house – about $1,000-worth of work. But I haven't heard from her since about it. The way online couponing sites work, she may received only $40, with LivingSocial pocketing the other $40.
I'm guessing that her business was overwhelmed with responses from the coupon, and therefore missed the chance to make money off of me. A wasted opportunity.
The problem with online couponing is that most business owners don't know how to structure the daily deal right, or they have the wrong strategy in using the coupons.
Here are some things you should do to make sure your leap into online coupons is a successful one:
- Track the results. On each sale, record how much customers purchased above the amount of the certificate and whether the coupon users are first-time or repeat buyers. Doing so will help you measure whether the coupon helped your business and is worth trying again.
Related: The Three Worst Daily Deal Mistakes and How to Avoid Them
- Figure out how much a new customer is worth to you. On average, how many first-time customers become regular customers for your business? Let's say it's one out of four. And then how much is a regular customer worth? Let's say a restaurant defines regular customers as people who stop in 30 times a year, and they pay an average $10 on a bill, with the eatery making a $5 profit on each bill. (Not unusual for a quick-service establishment.) That means each regular customer is worth $300 a year in gross sales and $150 in annual gross profit. A Groupon coupon that costs your business $150 in lost profits needs to bring in four new customers in order to make up for what you gave away.
- Prepare for an influx of customers. Get an influx of customers and disappoint them, and you may be out of business six months later. Don't be like the painting company that I bought the coupon for. Make sure you have the staff and resources in place to offer the best service possible in order to turn those first-time customers into regular customers. Make sure that your employees recognize that a customer with a coupon deserves service that is just as good, if not better, than a customer without a coupon. And they should try to upsell extra products or services to them.
- Make sure the coupon customers are the right ones for you. There's an upscale restaurant I was recently working with that wanted to engage in online coupons out of desperation. People who are interested in using Groupon in your area might not be the upscale restaurant type of people. Ask the online coupon site for demographics of its local users so you can make sure the people using the website's coupons are the type of customers you want.
Also, use online daily deals sparingly, because you don't want regular customers to become used to the coupon prices.
You may own a small business, but online couponing sites are now having challenges finding really good local businesses with attractive deals to keep them going. If you have a good business, they need you as much as you need them. So get the most you can out of them.