Hey Buddy, wanna deal?

credit: Rocky Ayrawal

Hey, Want a deal? Ok, here it is….I’ll give you $2,500—1/3 now, 1/3 in 30 days, and the final 1/3 in 60. You give my customers $10,000 in retail business from your shop. How does that sound?

That’s a Groupon deal.

The “daily deal” industry structures their deals so that the retailer must be very careful about the deal they are getting.

Generally, a company like Groupon wants you to give a 50% deal ($10,000 worth of stuff for $5,000)—then they take 50% of the income from the sale of the coupons. Will you get customers in your door? Sure….But here are two questions you must consider.

1-Will the people who take advantage of my coupon be existing customers?

2-If they are new, will they return?

The problem is we don’t know the answer. If we have a lot of number 1, we lose money. We just gave away a 75% deal…to an existing customer!

If we have a lot of the second group, and they don’t return, we lose money too. Are people returning? Its too early to tell. We know that Groupon is making money, but will you?

There are many more factors in the daily deal scenario that needs to be scrutenized by the savvy business person. So be careful. Usually, (and depending on your type of business) couponing isn’t a bad strategy—but how many 75% off deals can you afford?

To see the original article from Rocky Ayrawal, Tech Crunch