Small business owners want to dispel a myth about Groupon. The daily coupon site is not going to rake in huge piles of new revenue or give a big boost to your bottom line. Plenty of business owners from across the country even say they have lost money because of Groupon's preference for heavy discounts, usually 50 percent or more.
The deal site could, however, expose your business to a whole new world of potential customers—and entice them to come back again and again if you handle it properly.
While Groupon has made headlines for its rapid growth to hundreds of cities worldwide, small businesses have approached the service with a bit of hesitation. Some business owners who've already been through a cycle of participating in Groupon offer these tips to maximize the potential of the daily discount phenomenon.
How Small Business Can Profit from Groupon: Watch the Price Point
Foodswings, a vegan fast-food restaurant in the Williamsburg section of Brooklyn, has been working to broaden its appeal beyond young tattooed punks, and draw in more middle-aged customers and families. When Groupon approached the restaurant with a deal offer last year, customers snatched up nearly 1,000 of them right away.
But in retrospect, manager Chad Johnson says the deal has been "really kind of a fizzle." Johnson says the price point the deal set was too high. Customers bought a $7 Groupon for $15 worth of Foodswings grub, but since the average meal is about $10, the deal offered little incentive for patrons to spend extra money on food.
"It's not a good price point for us," he says.
Heather Speizman, co-owner of Bottles 'n Brushes, an art studio in Mount Pleasant, South Carolina, was looking to spread the word about the new location in Summerville, so she sought out Groupon. But before she settled on the deal, she researched similar businesses and comparable markets to see what worked. Her company settled on a $15 Groupon for a class worth $35. Speizman advises small businesses is to ask lots of questions before settling on an agreement with Groupon, and don't be afraid to haggle for the best profit margin for your business. Groupon always takes 50 percent of each coupon it sells.
"There's no going backwards," she says. "Once it's launched, that's it, you're done."
How Small Business can Profit From Groupon: Limit the Deal
Knowing how and where to restrain your Groupon is crucial, small business owners say.
Potomac River Running operates eight stores in and around Washington, D.C. But its first Groupon was only valid at four of its stores, to which the company wanted to drive traffic, co-owner Brendan Shapiro says.
It also limited the offer (a $25 Groupon for $50 in the store) to running shoes and apparel, excluding accessories and special promotions. Robinson says the store knew it shouldn't expect a revenue boost from Groupon alone.
"The conclusion that we came to right away was that it's a useful tool when it comes to trying to acquire new customers, but we didn't want our existing loyal customers running in using Groupons," he says. "You can actually end up—and often do end up—losing money on a given transaction. We really looked at it from our perspective as a marketing effort and a marketing cost."
Speizman says she wishes she had limited her Groupon to one location. Keeping track of who used the discounts over two studios proved more difficult than expected, especially when the only option to keep track was a spreadsheet printout Groupon provided.
"That's when it gets tricky," he says. "If you can't do it efficiently and effectively, it just leaves you with a sour feeling."
How Small Business Can Profit from Groupon: Be Prepared With Adequate Staff
Once you start a Groupon, be ready for the rush.
"Be prepared definitely because we were flooded with customers at the beginning and at the end," says Laura Anderson, co-owner of Bananarchy, a frozen banana stand in Austin (a business inspired, incidentally, by the famous banana stand operated by the Bluth family in Arrested Development).
Shapiro saw the same thing at his stores.
"If you're not staffed appropriately, you could kind of end up shooting yourself in the foot," he says. "If people come in the doors and get frustrated at long lines, then it's a total backfire."
Anderson says you should be prepared for customers asking if they can extend their Groupon past the expiration date too. Bananarchy ended up agreeing to extend some of them; The Levys' Unique New York—a New York City sightseeing company—is considering doing the same when it realized people are less likely to cash in their deals during the winter. The tour company sold 300 Groupons but has only had about 35 redeemed, co-owner Mark Levy says.
Groupon has been a mixed bag for Levys'. Mark Levy says he doesn't like it because their deal required customers to RSVP to a tour date immediately, meaning the company still had to staff the tours even if no one showed up. His son and co-owner Matt Levy says he sees it as a good thing because the company gets to keep the profits from unredeemed Groupons.
Speizman and others say their biggest complaint was the difficulty in keeping track of the Groupons as they were redeemed. She says she gave feedback to Groupon that its system needs to be more streamlined so small businesses—which don't always have the ability to quickly scan the barcode on each Groupon—can handle it.
"I take 50 reservations a night, and its impossible to track something like this," she says.
Johnson of Foodswings says it was easy to get sloppy while manually keeping track of the coupon codes during a busy dinner rush. Because of that experience, the restaurant is hesitant to participate again.
"If you had the means to track it, you can maybe do it," he says.
How Small Business Can Profit from Groupon: Spread the Word
Small businesses agree that signing up for a Groupon deal is an easy and fast way to advertise in a way that appeals to smart consumers. Groupon does their part to publicize its deals every day, but you've got to help spread the word.
Speizman says the Groupon deal helped alert new customers about her studio's new location, without any formal advertising.
"It was a great experiment to see social media at its best," Speizman says. "It was the buzz without us speaking a word. It's a great thing for a new business as well. You just can't get a better bang for your buck."
Matt Levy says make sure to add a Groupon section to your business's website, or at least post it prominently in your premises, so people understand exactly how the Groupon works. A lot of users won't read the fine print or won't understand the restrictions on the deal, he says.
Anderson says her banana stand found great success with Groupon, and she liked the payment breakdown, which comes in three installments. Bananarchy has received other offers from similar daily deal sites, but it's sticking with Groupon for now.
"I think the best part of Groupon itself is that they have such a giant network of people," she says.
Thanks to Tim Donnelly / Mansueto Ventures LLC. / Inc.
http://www.inc.com/guides/201101/how-groupon-works-for-small-businesses.html
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