Almost every new business we work with asks for our opinion on daily deal sites. National outfits like Groupon and Living Social and localized operations like Roc n Deals all operate on generally the same model: Offer your products at a discount through them, then share your revenue with them. The overwhelming question we get is, is it worth it. Our answer – what is your definition of success?
How Does It Work?
Simply put, you offer your product or services to the public at a large discount, at least 50%. The company you choose will use their distribution to get your deal attention, and they’ll handle the sales, credit card processing etc. Then, they’ll keep a portion of the revenue (usually 50%) for their trouble and send you a check for the rest. With most of these services you can set a maximum number of deals to sell to ensure you aren’t overwhelmed.
How Much Will I Make?
On the actual deal itself, not much. Consider you have a product that retails at $40. You’ll be offering it to the public via a deal site for $20 – of which that deal site will keep half. You just sold your $40 product or service for $10. If you regularly have margins in excess of 75%, you will at least have made a few bucks. If you run on slimmer margins, you just lost money. A survey of Groupon businesses last year revealed that around 43% wound up getting less than their cost when they sold a Groupon.
So Why Would I Do It?
If you’re not going to get rich offering your services at 75% off, why would you do it? Simply put, if you’re going to do a daily deal like this you need to think of this as a marketing activity, not a sales activity! The goal is to raise awareness about your business and hopefully drive some of the purchasers to become regular customers of your business. INC.com suggests a return customer rate of 19%. There’s also the less tangibly measured awareness factor – a lot of people receive and read these notifications every day.
But What About…
We always get asked this one. What about… people that just come for the deal and leave? devaluing my services? my current customers? You’re right to at least be aware of these. Yes, you’re going to have current regulars that buy the deal and use it. You’re going to be annoyed. But remember, this is a marketing activity, not a sales activity. You have to look at it as them taking advantage of a promotion.
So, Should I Do It?
Maybe. If you look at it as a low cost or free way to advertise, have reasonable expectations, and realize it’s a part of your marketing program instead of a sales tool – it can be worth it.
Still Not Sure? (SHAMELESS PLUG ALERT)
Give ROC IT Out a call at 585.2040.ROC (585.204.0762) or email us. We’re happy to sit down with you and offer a no cost consultation to see how this should fit into your overall marketing mix and online strategy.
If you’ve run one before, we’d love to hear your experiences in the comments below!