With the explosion of these deal-of-the-day sites I’ve had a lot of small businesses asking advice about jumping on the bandwagon to boost their business during these tough economic times. Particularly, it seems that service-oriented, luxury-purchase small businesses, such as spas, restaurants, hair salons, etc., are looking to these new outlets to draw in new clients. One spa owner told me, “Had I understood all of the implications that running a deal-of-the-day would have on my salon, I would not have done it!”

So, what went wrong for this salon owner? Why wouldn’t a small business want to run a Groupon or other deal-of-the-day?*

Word of Caution Before Running A Deal-of-the-Day

Ask Yourself, “What Will It Really Cost My Business?”

These online companies offer businesses “no upfront costs” to do this type of advertising, but that doesn’t mean it’s free!

Most DOD sites require that your company offer products or services at a minimum of 50% off. So already, your revenue is cut in half. Then, the DOD site takes a split of the commission on the sale for each deal sold. Standard cuts seem to be about 50-50% up to 70-30% split between the business and the DOD site. Then, many of these DOD sites charge a credit charge fee per transaction of 2 or 3% on the price of the deal. So what is the math on that?

• Your company offers products or services which are typically worth $50 for 50% off.
• The DOD site gives you a commission contract of 60-40% split.
• The DOD site charges you 3% of each transaction (deal sold), 3% of $25 = 75 cents each for processing or charge fees.
• 100 deals are sold.
• Retail value of all… $50 x 100 = $5,000
• Your company actually makes on the deal… ($25 x 100) – 40% commission to DOD site = $1,500. Oh, but wait… Minus 3% processing/charge fee which works out to 75 cents per deal. You’re left with $14.25 per deal.

So, the retail value of $5,000 is out the door and you’re company has just made $14.25 (oops, typo) $1,425. Or did it?

1. Are you a service-providing business? If you’re a salon or spa, you may have contract employees and you’ll still need to pay them according to their contract at the full retail value. Example: Your hair salon business uses contractor stylists who split the income of each service with your business 50%. So, your $50 haircut sold on a DOD site bringing in only $14.25, but you have to pay your massage therapist $25 to perform the massage.
2. If you sell products, be sure your profit margin is high enough. Example: You sell $50 worth of product for $25 and actually only bring in $14.25, you’re profit margin must be high enough to at least cover that cost. Did the $50 product you sold cost your company more or less than $14.25 ?
3. And then there is the cost of hassle or angry customers. If your business offered something for $25 for $50 in product/services, but the consumer comes in and buys something that is only $48, they don’t receive the $2 change. Seems reasonable as the business, right? But for a consumer who didn’t read the fine-print…
4. But you’ll get repeat business, right? That’s what you really wanted from the deal, new regular customers. Well, maybe, but likely not. 1st, does your business have a client retention plan? How can you help ensure this new customer is going to come back? And, is your DOD offer something that most people just want to get a deal on or where they looking for a deal to try out a new place and then decide to become regular customers? (My 2 cents… I have yet to return to even one place where I bought a DOD from! Not that they were bad, but I just wanted a deal!)

Stay tuned for tomorrow’s post on “Getting the Most from a Deal of the Day offer”.

*Disclaimer: The salon owner did not use Groupon for their deal-of-the-day. Sorry, Groupon, you just happen to be the most well-known of these sites. In addition, the examples of DOD sites are cumulative, general examples and do not reflect Groupon’s exact policies/programs, nor that of any specific DOD site.

But now the revelation is going somewhere and I’d like to share it with you. You may not know this about me, but in my first, errr I mean second career incarnation I managed international educational exchange programs. Much of those responsibilities focused on marketing, which lead me to a master’s in marketing communication, but I digress. And I am the co-founder of Peace4Kids, a J-1 visa high school exchange program, which I still work with. I’ll always have a soft spot in my heart for working with teens and college students, which brings me to my revelation.

In the beginning we were animals, right. Then, at some point we were thought of as something more because, well, we thought more–we were humans. Then, someone thought a bit more about it and broke out of the proverbial box and said, “Hey, no. I’m not just a human. I’m a person.” Well, then wars happened and religions started getting all up in our business and the dark ages occurred and then some enlightenment or something and then the industrial revolution and suddenly we were cogs. Just cogs in the wheels. Then… there were so damn many of us and computers came around and we needed something easier to track all of us because there wasn’t just one or two John Smiths, there were 457 in Dubuque, Iowa alone, so we became numbers!

So here it is. The big revelation. We aren’t numbers anymore. Or actually, I should say, we are each so many numbers now–numbers and passwords, and bills and invoices, and accounts and rights and responsibilities–that we are each a business unto ourselves. It is so complicated to be a human being that we must all become business experts if we plan to succeed at our own lives. Oh sure, we can survive without any business training, but chances are that means you’ll end up one of the millions of Americans in major credit card debt or without medical insurance or someone who can’t figure out how to pay your taxes. And hell, think of how many people you know who don’t vote because it’s too complicated to figure out ballot measures (sorry if I’m now making fun of you.)

So this little tirade is not really about marketing, really. But in a way it’s related. We need to consider that each individual person is more like a business now than they ever have been in the past. Life is complicated and as a society we don’t seem to be doing much to catch up and teach the next generation. We need to be letting teens and college students know that they need to not only understand the basic business principals to prepare to run their lives, but they’ll also need the advantage of a bit of branding and messaging for their own career and personal lives as well. Be looking for more on this topic to come. I promise not to be gone so long again!

Don’t be stingy, share!

What Does it Mean to Share? How Do I Show that?

1. Through your company’s established communications/conversation channels, let your audiences know what’s new. Depending on what news you have to share and the information outlets you establish as applicable for your company, you’ll want to consider: press releases, new content on your website, Tweets (twitter or microblog postings), blog posts, individual communications to influencers, forum or other online community posts, newsletters, email blast, traditional on and offline advertisements, social media network page mentions, and many others. This is about letting the world know what’s new! Be proud, let people know. But don’t forget, not everyone cares and different people like to receive information in different ways, so share, but be considerate–don’t spam or smam people/networks.
2. Share positive customer experiences. You’ll still want to consider the same outlets listed above to point people to the stories, but here you’ll also want to seriously consider the format. Be fun and inventive, but true to your brand personality: videos, podcasts, testimonial quotes, case studies, slide decks, etc.
3. Share negative company experiences. What! you say? Yep, sometimes it can be a boost to your audiences to see a company take ownership of mistakes. Here’s an example: An online retailer experiences a glitch in their systems and looses all of a day’s orders (probably wouldn’t happen, but got with it for this exampe.) What are their options? They could ignore it and wait for all those customers to complain that they didn’t receive their purchase. Hmmm, that would probably be a lot of pissed off people who are likely to start telling other people what a shitty company you are. Probably not the best option. What else could they do? They don’t know who made a purchase that day, because they all got lost, so they can’t just contact the people to let them know. But they do have the emails of all the people that have purchased from them in the past. They also use Twitter to tell people about special deals and many of their customers follow them on Twitter. Well, those are a great place to start. They could own up to the computer failure and email their customers and Tweet to their followers that they had this problem. They’re very sorry it happened and have taken additional steps to ensure it will never happen again. They appreciate their customers and want to offer a 10% discount for everyone for the next week so that individuals who need to redo their purchase have an incentive to use come back. Getting the word out may be showing a weakness, but it’s also showing that the company is human AND responsible. They’ll loose some of those customers, but at least it will help head off a bunch of online complaints about how terrible the company is and may bring in new customers because of the offered discount.

There are many other things a company can share, as well. For example, you could share links to third party endorsements or industry reports or a blog post that advocates the method your company takes for fulfilling a customer’s want/need. You can share things that don’t have your company or product mentioned, too. The most important thing is to keep in mind what the best method of delivery is, what format is going to have the biggest impact and what is helpful to share (both for your company as well as your customers.)