Calculate the real cost before you do a daily deal

December 3, 2013 Ronda Online Presence

Looking for a way to promote your business online? Daily deal sites like Groupon, Living Social and Cool Deals are a great way to gain exposure for your products and services. The concept is simple:

  • your business creates a deal
  • a daily deal vendor promotes it for a price
  • people purchase the deal through that vendor
  • they bring the deal voucher to you to redeem for their purchase.

Daily deals can bring in many new customers who could potentially become repeat customers. However, it’s wise to consider the cost of those new customers. After all, selling a $20 item for $10 and giving the daily deal vendor a 50% commission can make you wonder how any business can afford to offer a deal. Profits could be generated by customers purchasing additional items if your staff knows how to up-sell. But, if the customer redeems the deal and leaves without spending anything additional, your profit needs to come strictly from that deal OR your business needs to be willing to absorb the loss as a marketing expense.

To help businesses find out how much they can make (or lose) on a daily deal, MobManager has created a free daily deal calculator.

You enter the value of the deal, the price to the consumer, the number of vouchers to be sold, and other information. It then calculates your potential profitability. In addition, if that calculation shows a loss on your deal, the calculator can tell you how much customers need to spend in addition to the deal for you to break even. This calculator is a great tool to help you make the daily deal decision for your business.

If you are thinking about offering a daily deal, consider these other tips:

  • Limit your deal. Decide how many vouchers you want to sell. You might not want to start with a thousand deals. Think about the demand it will generate and your available resources.
  • Limit your items. Create deals for specific items, especially overstocked or high-margin items.
  • Encourage multiples. For example: “Two items for a certain price” or “Get three visits for the price of two.”
  • Decide on a deal length that works for you. Are you prepared to fulfill all those deals in a short amount of time? Do you need extra staff to meet demand, or can you handle the new business better over a longer period of time?
  • Consider your cash flow. You provide the inventory for the deal, but the daily deal site sends payment to you later. Find out how long your cash will be tied up before you make the deal, and be sure your business can handle the time lag.
  • Train employees. There is nothing worse for a customer than trying to redeem a voucher with an employee who doesn’t know how to process it. Your goal is to get repeat business, so your employees need to know not only how to handle the deal, but need to be on their top customer service game to win customers over and get them to return.
  • Work with your daily deal vendor and make sure you understand how it works before you commit to anything.

Daily deals can work, but usinesses just need to be prepared to do some homework first.  Understanding the real cost of the deal is a great first step, so try out the daily deal calculator before you seal any deal.

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Ronda

About Ronda Hawkins

Ronda Hawkins, training coordinator for the ASBTDC at Arkansas Tech University, has experience in sales, business administration, business management, business education, and small business ownership.

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