Offering a Groupon for a small business could be a great way to market it-or, it could cost you time, money, and grief.

If you are considering Groupon as a marketing expense and not as a sales vehicle, you are off to the right start. Groupon buyers are looking for a deal. Many businesses offer deals of 50%, or more, off their regular prices. However, did you know that Groupon takes 50% of every sale? So if you offer a 50% discount on your Groupon deal, you would make only 25% of the typical revenue from each Groupon sale. If 25% doesn’t cover your operational costs, you will lose money for every Groupon that gets sold. Most businesses do not have a 75% margin.

But you do gain extensive exposure. So is it worth it? Maybe.

Some Groupon buyers will love what you have to offer and stay as repeat customers, give you great reviews, and tell their friends about how great you are. That would be the best possible outcome because you quickly converted someone from the pre-awareness stage to the loyal customer stage.

Six years ago, I bought two Groupons for gymnastics lessons at a local club. My kids had wanted to try gymnastics. We have plenty of local gymnastics clubs in our area, but we chose this club because it was close and offered a significant discount through Groupon. We have now spent thousands of dollars at this club. They made their money back off of us many times over.

But not every Groupon I bought has yielded positive results for the business. I suspect that many of the retailers did not make their money back. We redeemed our discount but didn’t return to become full-price paying patrons.

Why didn’t we return?

Reasons for not returning fell into these basic categories.

  1. I would never pay the full price for the activity/service.
  2. It was such a great deal I was willing to drive across town for it. But it is too far away for repeat business.
  3. The experience wasn’t good enough to warrant repeat visits at full price.

If I didn’t return because of price or geography, I was not the target market for that business. There is a reason you see advertisements for McDonald’s near the freeway, but not in Vogue or GQ magazines. You want to spread awareness to the right demographic group. Depending on how these businesses structured their discount and the operating costs, those businesses lost money when I redeemed the Groupon.

Do you want a bunch of customers paying discount prices if they can’t or won’t continue doing business with you at full price? If you aren’t breaking even operationally and you spread awareness to the wrong group of people, what have you accomplished? Marketing to the wrong audience only creates headaches and potentially worse outcomes.

If you cut operational costs to make the Groupon worthwhile, you are in danger of not providing a fabulous service. Do not fall into that trap. Companies that lost my future business because I had a mediocre experience had the worst outcome. I warned my friends to steer clear of that establishment. Remember, even Groupon purchasers can leave negative reviews.

How to Overcome these Pitfalls

  1. Structure the discount so that you are attracting your target audience. If the discount is too steep, you will likely attract people who aren’t willing or able to become repeat customers. You may also attract people who drive 45 minutes to your business to save a few dollars. When the discount ends, they will find a closer solution.
  2. Limit how many Groupons you sell. If you don’t have the staff or space for an influx of 650 new customers in the next three months, don’t sell 650 Groupons. It will stress out you and your team. Plus, you run the risk of lowering your standards.
  3. Give your Groupon customers the same level of service you give other customers. Turn them into people who will rave about your business.

Another Groupon Dilemma

Let’s say you have decided to try marketing with Groupon. How often should you offer a Groupon?

If you manage to get a high return on investment, you might be tempted to run Groupon promotions frequently. Be careful with that too. If Groupons are always available, you run the risk of devaluing your service.

You also want to make sure that you specify “for new customers only.” We buy Groupons from a few establishments regularly. They run Groupon promotions so often I never pay full price. Hopefully, the business is making some money off of my purchase.

You may want to consider offering a Groupon for a season or time that is slow. There is a stable near us that offers a Groupon for horseback riding lessons before 3 pm. Most schools don’t get out until 3 pm, so the stable is trying to attract homeschooling children.

A Final Thought

Before you use Groupon as a marketing tool, make sure your website is up to snuff. You will want some great content for visitors to poke around on to help them make a decision. Don’t have time to write content? You can always use the services of Cuttlefish Ink.

Have you already tried Groupon? Did it work for you? Leave a comment and share your experiences.