The MerchantCircle Blog

Can Group Deals Work for Sole Proprietor Businesses?

Small businesses such as restaurants, salons, auto repair shops, and fitness centers are becoming adept at using daily deals from services such as Groupon, LivingSocial, and Facebook Deals to attract new customers, but what about sole proprietors?

According to our most recent quarterly Merchant Confidence Index survey of nearly 5,000 local business owners across the U.S., only 8% of companies with less than five employees had tried offering a daily deal.

While group deals can work for sole proprietors, it just takes a bit of legwork and a clear understanding of the risks involved. Though the costs of doing a daily can be high – with small business owners turning over up to half of all revenues on already steeply-discounted deals to Groupon or another provider – the results can be worth it, if you manage the deal correctly. Some 77% of small business owners who’ve done daily deals said they’d be likely to do another – citing things like effective customer acquisition and profitability as benefits.

One MerchantCircle sole proprietor who successfully used Groupon to build his business is SchaOn Blodgett of Psinergy, a self-proclaimed “Tech Warrior” who offers computer diagnostics, repair, and upkeep in the St. Paul, Minnesota area. He offered a $99 system optimization and cleaning for $49 on Groupon and sold 50 of them in one day. But the best news was, of those 50 buyers, 37 redeemed the coupon and 12 became repeat customers. So many of the customers were happy with the service that Psingergy believes 95% of the Groupon buyers will eventually return for more services.

Why did Psingergy’s offer work so well? The bottom line is that he used Groupon to get them in the door, but then wowed them with customer service once they redeemed.

“I wasn’t that surprised that the Groupon customers came back, because I pride myself on fantastic customer service, guaranteed work, and reasonable pricing,” said Blodgett. “I treat all of my customers like human beings and answer any questions - even ones like ‘how do I turn on my computer’ – without making the person feel stupid or that it is beneath me.”

Sole proprietors that want to offer a group deal should think before they leap – because a deal done badly can cost owners a fortune without bringing in high-quality customers. Here are some tips from Mashable to get sole proprietors started with daily deals.

1. Shop around.

Groupon and LivingSocial may be the most well-known daily deal sites, but there are now a wide range to choose from. Yelp, Facebook, and Google have all tossed their hat in the ring, as most daily newspapers. Now there are also many vertical and niche deals sites focused on certain sectors, such as Daily Gourmet for foodies, Yuupon and TripAlertz for travel, and even a deal site for dog owners: Doggyloot. There are also business-to-business deal sites like RapidBuyr. These niche daily deal sites are often the right choice for sole proprietors because they reach a targeted audience interested in particular products or services instead of just “everyone in the local area.”

2. Set time parameters.

With most group deal services, you won't have much control over when your deal hits, and this can make it tough for sole proprietors to manage a sudden surge in demand. This is a big problem for “one-person shops” as your time is your most precious resource. Taking on too many new customers or clients all at once could leave you overwhelmed and lead to unhappy customers and bad reviews. The way to solve this problem is to put time constraints on your deal when possible – spelling out a fairly short time period during which the deal can be redeemed. You can also set up your deal so the value of the discount is greater on your slowest days or during off-peak times. If your business has significant seasonality, try running deals during your slowest months.

3. Understand the costs.

Group deals don't always result in an immediate profit – and may even result in a net loss to the business.

To do the math on what a Group deal will cost you, here’s the basic formula. People only buy group deals offered at a steep discount to the regular price – let's say somewhere around 50 percent off. You then need to share revenue from the deal with your service provider, at rates as high as 50 percent or more. So if you’re offering a $200 interior design consultation for $100, and you have to pay $50 of that to your service provider, you'll end up with $50 for your $200 service. If it costs you more than $50 to provide the service, you'll lose money on the deal. In fact, the better the deal does, the more it will cost you.

Still, since your company's name gets in front of thousands of local consumers and you hopefully acquire many new repeat customers, a daily deal can be well worth the immediate “loss”.

4. Make the most of each customer visit.

According to recent Rice University study, less than 20 percent of group buyers return again to make a full-price purchase. To improve these odds, most of each new customer visit by turning on the customer service charm, offering add-ons, and giving them a reason to come back. Think about potential up-sells for people who redeem your coupon. A party planner could offer customers a $10 giftcard to an online party supply store, or a personal fitness coach could offer a discount for new patrons who book a series of sessions.

And don’t forget to stay in touch with your new customers. Ask for their email address and/or encourage people to leave reviews of your service on Yelp, MerchantCircle, and other local sites. You could also remind people to follow you on Facebook or Twitter.

As a sole proprietor, you are a one-person band. But that doesn’t mean you can’t benefit from the same group deal services that larger businesses – and even national brands – use regularly to acquire new customers. Just play it safe and set up guidelines ahead of your offer, and this could be your chance to build your customer base.

Labels: groupon local business small business marketing daily deals merchantcircle

posted by MerchantCircle Staff at 7/20/2011 11:05:00 AM ,