Groupon can be great for start-ups but use it carefully

It pained me to see the article in the Metro this morning about the near-bankrupt situation Rachel Brown of Need a Cake got into, but small businesses getting burned is a common occurrence, and it frustrates me  as there really is no need for it with proper planning.
Rachel “only expected to get a few hundred orders” but instead got thousands. On the face of it, this looks great – but of course if this is beyond the capacity of your business it can spell disaster. Unfortunately this is exactly what happned to Need a Cake whose total annual profits are reported to have been wiped out because Rachel had to hire short term agency staff and distribution to fulfil the orders in a short period of time.
I completely understand why small businesses and start-ups turn to Groupon: It certainly can be a useful tool to drive trial of your brand or business with the hope that initial trial will result in returning customers – but don’t be disillusioned that this will happen. There are probably as many success Groupon stories as there are disasters – the difference is in how they are planned for. I cannot pretend to know the details of this individual case – and I believe that more could be done on both sides (Groupon and Groupon client) to help prevent occurences like this.
Here are a few thoughts on having a positive Groupon (or equivalent) result:
1. NEVER justify making a loss because you believe ’customers will come back’. Run the numbers and be confident that the offer you are giving hits breakeven point. You don’t need to make profit, but don’t make a loss.
2. Run these numbers including the 10 to 20% commission that the deal site will take (i.e. for every £10 offer sold you will only receive £9 from the deal site at 10%)
3. (That commission amount is negotiable – so identify what you can offer and negotiate)
4. Know what you can fulfill – cap the amount of deals you offer and give yourself a clear date range when you will fulfill. This is the main area that small businesses struggle. Perhaps this is due to the volume expectations of the deal sites, but I can’t comment.
5. The most important trick and the central strategy to making deal sites work for you… use deals to fill your dead time or use resource you already have to pay for. The secret to this trick is working out the best way to use this for your business, so I’ll present some examples:
If you are a salon, or similar, then you will pay staff full time (a constant overhead) but you probably don’t have customers full time covering that overhead. Review your business, identify when the salon is not full, and write into the deal T&Cs that deal customers come at these times. If you have premises that aren’t in use at weekends or evenings, identify what product or service you could offer during these times, and do a deal around that. For example, run a  mini workshop or event giving a taster of your full service in the evenings, with a retrospective value.
This central strategy is the most secure and fruitful way to work with the deal sites, and will enable you to offer a deal that is compelling to both the deal sites and their customers, whilst protecting and benefitting you.
Tell us what you think, or share your deal site experience by commenting below.