30 days to Becoming an Entrepreneur: Daily deal site – is it worth it?

Are daily deal sites a boon or burden to businesses? There are many articles, blogs, etc that talk about how daily deal sites are bad for small businesses. I think they aren’t a great fit for every type of business – but for some businesses, they are an excellent way to bring in new customers.

What are daily deal sites? Daily deal sites (Groupon, LivingSocial, Crowdcut, etc) are email advertising campaigns sent out daily to massive listservs of individuals that have opted to receive deals. Businesses agree to offer something at a discounted rate as the daily deal. The deal site also takes a cut of the sales. For example, today on Groupon in my area you can buy a $20 gift certificate to a local restaurant for $9. People love buying these because everyone loves a deal.

What are the pros and cons? The pros are that you get access to an enormous amount of people that have never heard of your business. Some deal sites have lists of hundreds of thousands of people. You don’t pay anything to have a deal unless someone buys something. So, if no one buys your deal you just got a lot of free advertising. You also get an influx of cash which is always helpful for a new business. The cons are that you are getting very little for your deal. Not only are you required to offer something at 50% + off – but you also have to give a percentage to the deal site. The percentage you get to keep varies based on the deal and your business – but it usually varies between 50% – 75%. If you are a giant like Amazon you probably get 90% or more – but small businesses usually get stuck with only 50 – 60%. That means in the example above of the restaurant, they are only getting $5-$6 for each deal sold. So they are basically selling $20 gift certificates for $5 or $6. Another con is some customers will only come for the deal – and never come back, which defeats the purpose of doing the deal (bringing in long-term customers). Lastly, daily deals are a lot of work. Not only do you often get a huge influx of calls, visits, etc during the deal promotion – but some businesses get unmanageable rushes of customers that they are not prepared to handle.

Should you do a daily deal? It depends. I personally don’t see how it’s worth it to restaurants and other businesses that people go to very infrequently. For The Woof Room, it was very worth it because the nature of dog daycare is that people bring their dogs regularly. Some people bring them daily, others weekly. So, even if only 20% of people that buy a daily deal become regular customers we’ll easily make the money back we lost. Also important to consider, is the cost of actually providing the deal. Don’t lose money on it! Factor in all costs associated with providing your service or deal. It doesn’t make sense to give someone $15 worth of food when they are only paying you $5.

Anyone have any experience doing a deal site? What were your thoughts on it?

Next, 30 days to Becoming an Entrepreneur: Doing a daily deal – negotiation and preparation

Photo Credit: Mark Smiciklas

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