This excerpt is part of Entrepreneur.com's Second-Quarter Startup Kit which explores the fundamentals of starting up in a wide range of industries.

In Start Your Own Online Coupon or Daily Deal Business, the staff at Entrepreneur Press and writer Rich Mintzer explain how to start a business in the competitive online and daily deal industries. In this edited excerpt, the authors reveal the most common mistakes coupon or daily deal site owners make and offer some tips to help you achieve long-term success.

There are plenty of satisfied merchants whose businesses benefited from working with an online coupon or daily deal site, but there are also plenty of companies for which such deals have proven to be disastrous. Businesses have actually gone out of business because of the deals they offered and their inability to manage the responses. Here are the top three mistakes you can make when running a deal on your site:

1. Not putting a limit on the number of deals. One popular hair salon became a little too popular when 5,000 customers purchased a $99 half-day spa treatment in less than 24-hours. There was no way possible for the spa to provide the number of treatments purchases and they were forced out of business. The owner blamed the daily deal site, explaining that the number of deals was supposed to reach a maximum of 1,300, but the site kept on selling them.

A house-cleaning service owner in Aspen complained that after he stopped running deals, which weren't making him enough money to prove worthwhile, the deal company continued running the offers two more times without his approval. The cleaning-service owner also pointed out that chargebacks, including credit card charges, would also come out of the percentage he was owed and warns other merchants to look for such extra costs.

2. Allowing customers to purchase more than one voucher. Another complaint about some deal sites is that they've allowed people to buy more than one voucher. For restaurant or storeowners looking to draw people in and turn them into regular customers, this can defeat the purpose. There have also been many reports of coupon users coming back with the same coupon again and again when there's a one-per-customer or one-per-family limit. Coupons need to be printed in such a manner from software on your website that limits them to printing the coupon only once. Merchants have complained about PDF files allowing multiple copies, and even photocopied coupons showing up at their stores. Be sure to sit down with merchants and review what counterfeit coupons (or fake vouchers) look like and warn them to be on the lookout for ones that you know are currently circulating.

3. Advertising bogus coupons on your site. While you can't prevent the surge of bogus coupons out there, you can do everything in your power as a coupon site owner to keep such coupons off your website. Know how and where to obtain coupons ethically and legally, and don't accept coupons from "anywhere" as many coupon sites do.

Learning From Others' Experiences

While many satisfied merchants are happy with their success working with daily deal and coupon sites, others voice their displeasure online. Stories of such "discount deals gone badly" aren't very hard to find. You can learn from the mistakes of others and help your customers.

Among the lessons you can pass along to your merchants are:

  • Consider the caps. While it's great for you to sell 3,000 vouchers for a restaurant over the next 10 days, if they can only manage to accommodate 500 people over the next ten days, don't let them run themselves out of business. You want ongoing merchants and a good reputation. Help your merchants set caps or maximums.
  • Do the math. You really need some math skills to effectively run a deal or coupon business. Sure, you can punch in numbers on your calculator, but you need a sense of things like break-even points and markups so you can advise merchants.
  • Set the time frame. This should be in writing, and everyone should agree on when the deal or coupon should be posted and when it should end or expire.
  • Know the laws. The laws surrounding giving away and/or selling alcohol are often the ones that catch business owners off guard. Learn the laws about coupons (they can't be sold or copied) and what types of deals and redemption time frames are legal in your sales region(s).
  • Be customer service savvy. More customers equates to more questions and comments. It's advisable to win over customers and draw new ones, and to have a well-trained staff when it comes to customer service.

There are also some lessons that you should keep in mind for your own benefit, prior to meeting with merchants:

Make sure everything you offer is in writing and you've legally crafted contracts (with some built-in flexibility) to avoid lawsuits, or at least minimize their occurrence. You need to have the details of all deals written down and saved in files. Saving hard copies is advisable.

Be very careful that whomever you're dealing with is aboveboard and not breaking any laws. Also, if you feel the merchant is selling low-quality products or services, you can politely decline to carry the coupon or set up the deal. Remember, you have a reputation to uphold.

Be careful not to expand your own business too fast. It generally takes time to build a successful business, especially as the industry gets more crowded and your coupons or deals are competing with many others. Set realistic goals and make excellent relationships with your merchants a priority. If they're happy and you're doing extensive marketing to prospective and current customers, your business should grow organically. Don't try to force it by expanding too soon.

Get help! Don't try to do everything yourself. You'll figure out early on that there are many aspects of this business and that you should be working from your strengths and getting others to help with areas in which you're not as proficient.