Daily deals like Groupon and Living Social are attracting interest from small businesses looking to attract new customers, but experts warn if these businesses are not prepared to deliver what is promised it can a lot more harm than good. Some small businesses end up not being able to afford the deals they offered when too many people buy into them, or are just not prepared with enough product. Either circumstance can lead to a bad reputation, a bad balance sheet, or both. Business owners are advised to have clear expectations, and to do the math to figure out if a planned daily deal will result in a profit. For more on this continue reading the following article from The Street.
If you are on the Internet, engaged in social media or otherwise digitally connected, you have undoubtedly received at least one digital deal opportunity. These digital deals frequently give you a limited time to take advantage of drastic price reductions on goods and services in your local area businesses.
On the business side, many solo, micro and small businesses take advantage of this low-cost advertising in exchange for high visibility to prospective customers, some they may never otherwise connect with. But if the small businesses aren’t equipped to make the right level of offer and deliver on it, they may go to a place they have never gone: failure.
The downside to daily deals for the inexperienced can occur in one of two areas: You offer a deal you can’t afford (whether it’s too low a price or too many offers sold) or fail to plan for the impact of getting what you wished for, which is a lot of sales.
Let’s pretend you’re a photographer who offers a deal through a site such as LivingSocial.com or Groupon for a half-hour session that includes two poses for headshots, print copies and digital files for $29, when the regular price is $300. This is your slow time of year so you "know" this is found money and, since you are only 10% booked for the month, you "know" you can handle 50-plus half-hour sessions a week, not including those you can schedule on weekends and evenings. So you sell 200 of these deals.
Let’s say you are a solo operator, so you handle everything from booking the appointments to taking the pictures, editing, printing and packaging — and your offer states that the deal must be used within the next 30 days.
Do the math: You will need 100 hours for the actual photo shoots. You will need to respond to 200 calls at the minimum to schedule the sessions, and more if you play phone tag with the customer. You will need time to do all the technical aspects related to producing the pictures, and so on.
Then the calls begin. Assuming you already have some client base, you aren’t available to take all of the calls to schedule appointments. You pick up messages from your deal customers and return calls, catching about 10% of the customers and being able to schedule them when you connect. The other 90% you leave messages for. They call you back. You miss the calls. You call them back. You miss them and leave a message. Time passes. You have scheduled maybe 50 of the 200 customers and have spent hours trying to contact the others.
Another week goes by. You are halfway through the 30-day period in which the customers are required to exercise their deal. You have only one-third of the customers scheduled; the remainder are starting to leave messages that indicate they are "not happy." Another week of "telephone tag" goes by and you now have to schedule the customers you contact outside the 30-day deal period, now in one of your busiest months. You are booking the deal sessions in slots where you normally are booked at full price. Are you making money? Are you impressing your customers?
Are you building your brand … or breaking the business?
Before you offer a digital deal, be sure the outcome you want for your business is realistic and achievable. Are you selling idle resources? Are you looking to capture new customers? To get the customer in the door to upsell them to more products or services? Know what you want to accomplish and then think it through. Answer the how, when, where, how much, what impact and other questions. Then make a plan that establishes how you will deliver the deal — handling the phone calls, orders, scheduling and other logistics that will result.
Ensure that if you are not going to make a profit out of the "deal" you know how it will lead to profit later. If you will have upfront costs of delivering the products that aren’t covered by the price you are being paid, understand the impact on your cash flow.
Digital deals can be great for you and your customers but costly in time, money and reputation if you don’t get the delivery right. Make sure you’re ready for the real-world consequences of the digital deal.
This article was republished with permission from TheStreet.