Groupon: Deal-Maker or Business-Breaker?

Groupon: Deal-Maker or Business-Breaker?

This following is a guest post written by Mark Pedersen. Mark is a Boston-based digital marketing strategist and blogger who shares his insight about how small businesses can strategically use Groupon.

The story is a familiar one. A small business owner is looking for that one thing that will make his business pop. He's got a great service business that people love once he can get them to try it. His digital marketing strategy is working - but that takes time.

Enter the almighty Groupon. This deal-of-the-day site has been making major waves recently. Businesses large and small are hopping on the Groupon bandwagon - with hopes that it will be their personal stimulus package.

And the truth is - it can be! Or, maybe not so much. You see, Groupon is a double-edged sword - one that can empower you, or impale you.

I recently managed the Groupon process with a local business I work with. It was a major success for the Somerville auto repair shop - they sold 1,705 Groupons! And talk about increasing brand awareness - the company's Web site traffic increased 640% (yes, you read that correctly) in the one-week period following the Groupon!

What's more, the lure of the Groupon held true - almost all of the people who purchased the Groupon have been new customers. There is no other way to get nearly a couple thousand new people through your door to try your business. And Groupon isn't talking smack about the demographics of its subscriber base either. Sure, there's been some bottom-feeders - the guy with nearly no oil in his truck and the guy who's car was underwater. But there have been plenty of new customers that have been ready and willing to buy. Some are even requesting additional services while scheduling their initial Groupon appointment - now that's the crowd you want!

But like I said, Groupon isn't all a fairy tale. In fact, one new customer who purchased our Groupon told us that her company participated in one too - and it put her out of business!

How is that possible? Didn't she get a slew of new customers? Yes, she did - that was the problem - too many newly-minted, demanding customers that she couldn't keep up with. And a Groupon offer that while great for purchasers, financially bankrupted her.

There are a few things you need to know before taking the Groupon leap:

1. You are going to lose money on the initial Groupon offer. Groupon requires the deal to be at least 50% off your standard price (and they require proof of that).

2. You are going to lose even more money on that initial Groupon offer. After you heavily discount your product or service and practically give it away, Groupon takes half of that amount as its fee! So, for a $100 service discounted to $50 - you would end up with a mere $25. Oh, and there's another small service fee for each transaction, but many times Groupon will waive that if you insist - what swell folks!

3. It's not mentioned often by Groupon, but you can institute a cap on the offer. Just like Groupon sets a required minimum amount to be sold for the deal to be valid, you can set a maximum amount to be sold.

By now you can probably see how this whole thing could put someone out of business in a real hurry.

The key is to be honest with yourself about what your business can handle - both financially and operationally. The thought of gaining a couple thousand new customers overnight may prompt a feeling of euphoria, but remember, the idea is to actually still exist in order to serve these people well into the future. And don't forget - a couple thousand new unhappy customers isn't growth - it's a disaster!

After reading this post you've done your homework - you know what to expect. Armed with that knowledge, you can move forward and take advantage of Groupon. As long as you're in control - why not? There's nothing that compares - a triple digit traffic spike, hundreds to thousands of new customers - fully willing to buy additional services from you - need I say more?

So, start putting your deal together today. Logon to Groupon and get the wheels turning. Stay true to your business and you will be fine. Then sit back and watch the crowd pour in!

Got any Groupon questions? Maybe a story of your own? Shoot me a tweet - I'd love to hear them!