As small business owners we need new customers and advertising sales people can be very persuasive but hold your horses before you fall for their arguments, things may not be as rosy as they seem. I know of a number of business owners who have bitterly regretted signing a Groupon or similar deal.
On the face of it these deals seem brilliant. The company has a huge database of customers just waiting to do business with you and they can quote some impressive statistics about customer profile, repeat business, retention etc. But before you rush to sign up there are three questions you need to answer to your own satisfaction.
What will this discount cost me?
Typically Groupon will want you to discount your price by 50% and you will probably have to pay the company 50% of the discounted sales price for every sale redeemed.
Let’s see how that works. Let’s say I sell a training course at £150 per head. Groupon will want me to reduce that to £75, and will then charge me £37.50 for advertising the deal. So out of my share of £37.50 I have to pay the hotel a daily delegate rate of £55 per head and the learning materials cost me £2.50 per head so before I have even paid myself I have made a loss of £20 per head.
Perhaps my starting price isn’t high enough so let’s make my course £300 per head. At 50% discount I’m now charging a deal price of £150 which means I pay the company £75. So when I’ve paid the hotel and the learning materials I’m left with a profit £17.50 a head. Now if I’m going to give participants individual attention I probably don’t want more than 15 on the course so my maximum earnings are £262.50 and the hotel will probably want £55 of that for my daily delegate rate!
Without the deal I might struggle to sell all the places on the course but if I only sold 7 places I would make £647.50 at £150 per place or £1697.50 at £300 per place so suddenly it seems more worthwhile
Will this deal bring me new customers who will return to pay full price?
One of the problems with discount deals is that they tend to attract bargain seekers and often these people are more demanding than those who pay full price for a product or service. So you get paid less and have more hassle serving the customers. I know I’m generalising and may be being unfair to some customers but think about your own experiences. Have you ever had customers who have struck a hard bargain? Have those customers lowered their expectations because they have got a great deal? Unlikely!
Now if you have the sort of product or service that people will come back again and again for it may be worth selling the first purchase below cost price because of the value of future purchases. However it’s important to calculate how much repeat business you will need to generate before you have started to make a profit from this customer. Remember that you will need to capture the customer’s contact details and incur additional costs in marketing for their repeat business.
What will the impact on my existing customers be?
Have you ever chatted to someone on holiday or at an event and found out that they have paid half the price that you paid? How did you feel? Aggrieved I should think. That’s just how your regulars are going to feel when they find out that they could have got 50% off on a discount deal!
Perhaps your existing customers will see the deal and use it for their next purchase so the customer who was prepared to pay 100% of your asking price is now getting the same service for half the money. Not good business is it?
Making a deal work
I’m not saying a Groupon or similar deal can never work but you really do need to be careful before you sign up.
- Negotiate hard to get the best possible terms.
- Set a budget and limit the duration and volume of the offer to stick within that budget.
- Capture the contact details of those who redeem the deals and add them to your database and then mail them often.
- Find a way to reward your existing customers for their loyalty.
- Be really clear on your numbers and be sure that a deal will bring you sufficient extra business in the longer term to make you a profit.
If you would like to find other, less costly, ways to win new customers book a free 30 minute no obligation consultation here.