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Is a Groupon deal right for your business?

Groupon (visit) offers one discount per day at a local business in each of dozens of cities around the world. It's popular, and growing rapidly. The number of people buying Groupons is increasing fast, and businesses are lining up to be featured as a Deal of the Day. The site's success has inspired a number of similar companies, including LivingSocial, Sharing Spree and Tippr.

How Does Groupon Work?

When someone purchases a Groupon offer, the money is split between Groupon and the business. Typically the business gets half the money, and also pays Groupon for credit card processing and other transaction costs.
Unlike almost any other type of marketing campaign, Groupon offers businesses concrete results. You don't have to guess, or use analytics to track whether people found you through your SEO efforts, email newsletter or a Google ad. Once the deal is closed, you'll know exactly how many people bought your Groupon.

What Do Business Owners Think of Groupon?

Consumers seem to love Groupon. (If you haven't tried it, subscribe to get a daily Groupon email.)

Business owners, however, give Groupon mixed reviews. Some have won lots of new business, while others have lost money.

Posies Cafe in Portland, Oregon, published an account of its bad experience with Groupon on its blog in September 2010. I wondered whether this cafe's experience was typical, unique, or somewhere in between.

Interviews with several business owners who have used Groupon yielded valuable tips and cautions about getting the best out of a Groupon deal. The results of my small survey are below. Note: Groupon itself did not respond to two separate requests for comment.

Is Groupon Right for Your Business?

• Crunch the numbers

You know your business. Figure out how many new customers your company can support and how much it will cost to provide your service or product to these new people. Perhaps you should consider limiting the number of discount deals you're willing to offer. Groupon will allow you to do that.

• Talk to similar businesses that have already used Groupon

It may feel weird to talk with a competitor, but knowing how Groupon worked for a business like yours will help you make an informed decision. Kudos to Erika from Bikram Hot Yoga and Sandra from Emerge Medical Spa for this suggestion.

• Some types of business do better with Groupon than others

Groupon seems to work best for event-based businesses, because within reason, you're better off if more people show up. Service-based businesses like salons do okay, too. Restaurants, which often run on lower margins, don't fare as well. Companies that sell physical products give Groupon mixed reviews, depending on their product costs.

Right-Size Your Groupon Deal

• Offer a smaller, cheaper Groupon

When they've purchased a smaller deal, Groupon customers are more likely to spend money beyond the limit of the Groupon. That can mean spending another $20 to $30 on their meal, or purchasing extra salon services at the normal price.

Both Eugene from Il Piatto, an Italian restaurant, and Sandra from Emerge Medical Spa wish they had featured smaller deals. Instead of offering $45 worth of food $22, for example, Eugene would have offered $30 worth for $15.

• Consider limiting the total number of Groupons you offer

In many cities, a Groupon deal can rack up several thousand purchases, a number that's growing as more people join Groupon. For a small business with limited resources, selling thousands of discounts can be a scary proposition. Several business owners I spoke with didn't expect to sell nearly as many Groupons as they did, and most didn't know that setting a limit was an option.

Groupon only recently began suggesting that businesses consider capping their offer. The video to the right, dated August 2, 2010, mentions this practice. Groupon did not respond to two separate requests for comment on capping deals.

Eugene from Il Piatto said if he were to offer a Groupon again, he would limit the offer to one per customer. While the rules say that the buyer can use only one Groupon - multiples must be given as gifts - people often ignore the rule and use multiple Groupons themselves. It can be difficult to enforce the one-per-person rule.

What To Expect If and When Groupon Features Your Business

• A ton of phone calls and foot traffic in the first one to two months

Be ready to answer the phones and deal with a store or restaurant full of people, starting the day after your deal is featured. Sometimes people show up on the day of the deal, even though the rules explicitly state that the deal starts the next day. Tips for dealing with the onslaught are in the section below.

• Your staff may be disgruntled

As the business owner or marketing person, you'll understand the upside of a Groupon deal. Your staff, though, will be suddenly working harder and for longer hours, serving customers who may not be as nice as the ones they're used to. Staff could get pretty frustrated if they don't see the same big picture you do.

A study of Groupon deals found that employee satisfaction during the Groupon campaign was the biggest factor in whether a business would deem its deal a success.

• Increased expenses for a while

Your labor costs will go up while you're providing your service to customers who purchased a Groupon. You can expect a rise in costs for materials and equipment too, such as food for a restaurant or a new laser for a medical spa.

• Waiting to be featured

Sandra from Emerge Medical Spa waited eight months for her spa to be featured. Groupon has not responded to my question about wait times.

• Some people just want a deal

No matter how good your service, some new customers won't tip well or return to purchase at the normal price. This was a common experience for the business people I spoke with, but these customers didn't appear in overwhelming numbers.

• Some people coming back

Every business owner I spoke with whose deal was featured more than a few months ago said some Groupon customers had returned even after spending their discounts. Actually tracking retention of Groupon customers isn't easy for a lot of businesses, though.

• Some upset customers

When you're busy and scrambling to keep up with all the customers and calls coming your way, you're bound to end up with a few more dissatisfied customers than usual. Tips for how to handle this appear in the next section.

• People talking about you online

Groupon customers are often more web-savvy than the average person. When they have a good or bad experience with your business, they'll often announce it on social sites like Twitter and Facebook, and review sites like Yelp and CitySearch.com. See the section below for tips on handling these online comments.

Preparing for the Big Day and Aftermath

• Make your website work for you
  • If you need new patients to fill out forms, ask them in the fine print of the Groupon deal to print these from your website and bring them to their first appointment, already filled out. This will save time, paper and ink.
  • If customers need to book an appointment to use their Groupons, consider having them schedule on your website. This will save you extra phone calls, and is probably easier for customers, too.
  • Consider creating an FAQ (frequently asked questions) page to help new customers and protect the sanity of your employees who will be answering phone calls and emails. Try placing a prominent link to the FAQ besde your contact information. You could even put the FAQ on the contact page itself.
  • Make sure your address can be easily found on your website, perhaps with a map and directions. While you're at it, make sure your business is listed with Google Places, so people can find it in Google Maps, and on their mobile phone when they're on the go.

• Prepare your customer service channels
  • You will receive a lot of phone calls. Add enough phone lines so you have one for every person who could possibly answer calls during the initial rush. Test your phone system to see what happens when more people than you have phone lines call all at once. Alleviate frustration by creating a message that says you're busy because of the Groupon deal, and invites them to call back.
  • You will receive more email than usual. Considering using an auto responder - an automatic email reply - that offers helpful information, lets people know you're busy because of the Groupon deal, and that you'll respond as soon as possible. Provide a link to your FAQ page - that gives people a fast answer and saves you some time. You can either create a separate auto responder for your existing customers, or set up a special email address for Groupon customers.

• Keep tabs on what people are saying
  • You should monitor what people are saying about your business. The linked article, Track Your Social Presence, discusses a few online tools to make this easier, apart from obvious means like checking for replies and direct messages on Twitter, and watching posts on your Facebook page.
  • Respond to people in a way that maintains or boosts your online reputation. If someone reports a bad experience with your business, you certainly want to try to make them happy. But it's even more important to remember the online audience of potential customers that's watching how you respond.

• Take Groupon's advice

Groupon has a PDF checklist of tips to prepare for being featured.

• Find a way to get more from your customers
  • You could invite people to join your email newsletter list or connect with you on Facebook or Twitter. That lets you stay in touch and offer these new customers any future promotions, or inform them about new products and services.
  • Offer customers a low-pressure upsell or alternative discount. Perhaps Groupon customers could pay a little more to get a more luxurious service, or you could offer additional products or services at a discount to Groupon customers. Just be careful not to upset your loyal regulars.

Unexpected Side Benefits from Groupon

• More reviews = better local SEO

Groupon customers are typically web-savvy, and are more likely than the average person to share their experience with your business in an online review. More reviews in Google Places, Yelp and other review sites can increase your local SEO, helping you gain more visibility and new customers. See the last section of Make Sure Your Business Appears in Google Maps for tips on using Google Places.

• Hey, it's advertising

Groupon's emails go out to a bigger group of people than actually buy the deal. New people are seeing your business name; they may remember you later.

Daily Deal Sites Similar to Groupon

• MyEZDeal.com (now SharingSpree.com) - Shelby from Platform Artistic Salon was featured on October 8, 2010. As of November, her experience has been a good one. She sold 16 MyEZDeal coupons and believes she will get some repeat customers from the deal. Shelby likes the fact that MyEZDeal donates a percentage to nonprofits.
• LivingSocial.com - Noho, a restaurant owner who wouldn't recommend Groupon, says he would be most likely to recommend LivingSocial. This company gave him a bigger percentage of the sale and brought in better customers.

Counterpoints - What Others Say About Groupon

• A study by Rice University and professor Utpal Dholakia found that Groupon was profitable for two thirds of participating businesses. Restaurants had the least success with Groupon, while salons and spas fared better. Forty percent of surveyed business owners said they wouldn't offer a Groupon deal again. Satisfied employees were the most important factor in determining whether a company's Groupon deal was a success for them. Read more about the Groupon study in a post on The Wall Street Journal's Digits blog, a post from ClickZ.com, one from BNET.com, and another from Lead411.com.
• Is Groupon a small business killer?
• Groupon in Retrospect - Posies Cafe's wrap-up of what the Groupon cost this small restaurant. The comments below the post are informative, too.
  • Groupon's response to Posies Cafe. Note that while there are more than 80 comments, very few are shown.
• SearchEngineLand.com - A bit of additional information about small business owners' experiences with Groupon.
• Blog post from LinkedIn highlights the lasting effect Groupon had on sales for one small business
• Helpful answers to the question, "Is Groupon good for businesses over the long term?" on Quora.com

Business Owners: Would You Recommend Groupon or Do It Again?

Yes

1. Eugene @ Il Piatto (visit) - Restaurant in Portland, Oregon, featured in May 2010
2. Andrea @ OMSI (visit) - Science museum in Portland, Oregon, featured in May and September 2010
3. Erika @ Bikram Yoga Vancouver (visit) - Yoga studio in Vancouver, Washington, featured in September 2010
4. Sally @ Pin Me Apparel (visit) - Portland, Oregon clothing boutique featured in July 2010
5. Shelby @ Platform Artistic Salon (visit) - Hair salon in Portland, Oregon, featured in December 2009

Maybe

1. Sandra @ Emerge Medical Spa (visit) - Spa featured in March 2010. Sandra says she probably wouldn't do it again, but depending on the business, she might recommend it to brand new businesses that need customers.
2. Mary @ Boulder Quest (visit) - Colorado Martial arts studio featured in September 2009. Mary would recommend Groupon for businesses selling products, but says service-based businesses like hers are hit or miss. She isn't sure if she would do it again.

No

1. Noho @ Noho's (visit) - Restaurant in Portland, Oregon, featured in August 2010