Is Groupon Good For Local Business?

By now I'm sure you heard of Groupon, the marketing company successfully selling coupon vouchers on the Internet. But while there are tons of stories touting the company, the question remains, Is online coupon vouchers a good deal for local businesses?

Use Groupon As A Marketing Tool

Let's make this clear. If you are looking to use Groupon as your advertisement provider, don't expect to make money on the item you are selling. Rather, look at Groupon to be a tool in marketing your business. Ask yourself the following:

1. What is your purpose of advertising on Groupon?
2. What is your expected outcome?
3. Are you prepared for what is to come?

As an advertiser, you don't pay a thing to use Groupon's service. If the minimum number of people who sign up for your Deal Of The Day is not met, then you lose nothing. However, in most cases, your deal will go through and this is where many businesses are not prepared.

Doing Groupon Math

You must do the math to determine if your business can even use Groupon. This goes especially true for smaller businesses.

Lets say that you have an item to sell and it costs you $10. Realize, that when you give a 50% discount, that you are likely going to end up breaking even. Here's three different price points to consider:

• A $10 item selling at $15 = 50% markup
• A $10 item selling at $20 = 100% markup
• A $10 item selling at $30 = 200% markup

Now if we factor in Groupon's 50% cut on your marked up item we get the following:

• The $15 marked up item with a 50% Groupon cut = $7.50 in sales ($2.50 loss)
• The $20 marked up item with a 50% Groupon cut = $10.00 in sales (break even)
• The $30 marked up item with a 50% Groupon cut = $15.00 in sales ($5 profit)

So the rule here is that if you are going to do a Groupon promotion, make sure you are advertising a good or service of which you make at least a 100% profit presently to at least break even.

Are There Additional Costs To Consider?

When you advertise to groups, and accept a larger volume of sales, you have to factor in additional costs to support the increase in customer volume. For example, if you are a restaurant, you will have to look at your present operations to see if it can support more diners. Most likely, you will have to spend more. You may have to add more waiters, dishwashers, and bartender. Your food and drink inventory will increase so you have to let your suppliers know.

Look at every angle of your business to see where it needs improvement when the number of customers increase. This is called scaling up. In most cases, these factors are going to cut into your profit margin as well.

Now you may be thinking at this point, "Then I'll increase the price of my product". Don't. First you are affecting your competitiveness with other businesses who sell the same good or service. Second, you stand to turn away your existing customers.

Set A Reasonable Voucher Expiration

Your Groupon promotion should be set to have an expiration of no more than 30 days. The reason is that you want a time limit to measure the progress of the campaign and control your costs. Thirty days is a good measure because if you determine that the promotion was beneficial, you can use the same time period on your next Groupon promotion. In other words, keep your ad campaigns consistent so you can measure their efficiency. Having one campaign for 30 days, another for 45 days, another for 90 days is not a good way to measure your promotions. Besides, if Groupon is indeed beneficial, you can compare the same month's period last year with this years performance.

Also, when you set your minimum Groupon voucher number, set it to a level that you can run your business without affecting its daily operation. Groupon will do everything to want you to sell thousands of vouchers - its in their best interest. But if your company cannot handle the overload of new customers, you will do more harm to your reputation than what it was worth.

Payments Don't Come Immediately

Are you aware that you may not get full payment for those vouchers immediately? Groupon pays in 3 monthly installments. For those businesses whom live day by day on their cash flow, you need to factor this in. Especially if you got lease payments or business taxes to pay in the near future.

Prepare To Offer Exceptional Customer Service To Win Them Over

If you do advertise on Groupon, make sure you are capable of providing the same if not exceptional customer service with the new flood of people that come to your business. Since you already determined that advertising on Groupon is a break even affair, you want to impress new customers so they come back again.

Don't Accept Hard Sales Tactics

Make sure you are not bullied into a price point that you are incapable of supporting. Groupon wants to make attractive deals to its email subscribers so that it can make more money. The more vouchers they sell at a price point that generates sales, the more money they make.

Add An Incentive To Build The New Customer Relationship

Be clever! Make sure you add an incentive to your Groupon customers so that they do come back. Hand them a 5% off coupon on their next purchase and direct them to your website where you will build a relationship with them. If you need help in doing this, you can contact my company to assist you.

About Kerry Kobashi

Kerry is the founder of KerryOnWorld. He lives in Silicon Valley and has worked as an engineer and project manager. He owns Kobashi Computing a consulting company.