Deal or No Deal? Is Groupon, Living Social, or Another Deal Site Right For Your Business?

Deal or No Deal? Is Groupon, Living Social, or Another Deal Site Right For Your Business?


A few years ago Karen Hodges worked for a new nail salon that set up a deal on a major deal site. Ninety days later, the salon was out of business. "The owners did everything wrong," says Hodges, ranging from not understanding the economics of a spa deal to overbooking clients.

On the flip side, Danielle French, Spa Director at Boulders Resort & Spa in Carefree, Arizona, uses Groupon to set up value-based deals that minimally affect the spa's bottom line. She limits sales of each deal, especially during the spa's peak season, including limits on weekend booking. The front desk is trained to offer deal clients upsells and add-ons, and clients leave with discount offers for services received within a specified time.

Hodges, cofounder of Salon Gurus, has also seen business owners use deal sites successfully, and she developed suggestions that cover three main topics: You must understand the economics, have a plan, and maintain control of the process.

Understand The Economics

Deals work like this: You offer a service at a discounted price. You receive a percentage and the deal company receives a percentage. For example, let's say you offer a $100 service for $50 and the deal company takes 50%. You receive $25 for each deal sold.

If you think you made $25, that's a big mistake. You must pay the service provider (yourself or someone else) and cover the usual service-related and overhead expenses. You're probably losing money, spending $100+ to get a new client.  

So, your first question: Can you do enough upsells and convert enough clients to regulars to make this deal a worthwhile marketing expense?

Your second question: Could you use a less costly marketing technique to get the same client? For example, how much advertising could you buy for $100? How many flyers or half-off coupons could you print and distribute to your target market?

Have a Plan

While deal sites expose your business to many people, a drawback is some people use the sites to move from deal to deal. "You need to be discriminating in marketing the deal," says Hodges. French targets deals for the Boulders to higher-income zip codes. Three suggestions:

  • Choose a target client for your deal and know how much you're willing to spend to get a client.
  • Offer one of your most expensive services. A deal that costs $100 will attract different clients than a $50 deal. Base the deal price on the service's full price, not on any discounted package price you already offer.
  • Limit the number of deals sold. Don't agree to a time-based sales campaign with no limit.

When you talk to a deal company salesperson, remember they're trained in sales and closing techniques. You don't have to accept the first offer. "Everything is negotiable," says Hodges. "Negotiate hard. Different sites will take different things." If you feel pressured, step back. Don’t do anything in a hurry.

After you decide on a deal, read the contract and sleep on it before you sign. Make sure it includes your right to review the written copy explaining the deal before it's published—you want the copy to convey your desired business image.

Maintain Control

Deal customers are calling for appointments. Now what?

  • Manage and keep control of your appointment schedule. Don't schedule more appointments than you can comfortably handle. You must give every client an extraordinary experience if you want to convert the person to a regular or avoid a negative online review.
  • Limit the number of weekly appointments available for deal customers. Leave time for regular clients and for rebooking.
  • Market to the client at that first appointment, including offering upsells and add-ons for the first appointment. Ask the client to rebook, offering a discount on the next service. Give out coupons or referral program cards or set the client up on an awards program.

Groupon, Living Social, and other deal sites are a marketing tool, but are they right for your business? It depends. Before you set up a deal, evaluate all the factors involved, and decide based on your business model and goals.



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