As a consumer sites like Groupon and Sweet Jack are awesome. About once a month I find a great deal. But as a business owner those sort of sites terrify me. I’ve read far too many stories about businesses putting out a deal then losing their business because the deal actually costed them a lot of money. They didn’t do the math to figure out what each deal would cost them, what the deal site takes, and if/what they have to pay in taxes. Or they didn’t limit the deal and sold far too many. But it seems like every business I know that has put out a deal, for the most part they don’t gain back what they expect, people buying more than just the deal to offset the cost of the deal.

But I had an interesting conversation with a business friend that put a nice spin on the deal site. The business he works for is a local specialty shop. You can get the same type of products at a lot of stores but not the same quality. So getting people to come into the shop has always been a struggle.

They put up a deal on a deal site. They were smart, they did the math and figured out that they needed to limit the deal to 300. When the deal was done and over with they actually lost about $2000. About 95% of the deals were turned in. That’s 285 deals used.

When each deal was turned in if they didn’t recognize the customer, they asked them if that had shopped here before. Around 196 out of the 285 were new customers that came in from the deal. For $2000, they acquired 196 new customers. In advertising terms, that is cheap. That’s about $10 spent per new customer. But the best part those 196 people who were exposed to their business and their products. Something advertising alone can’t really do. That was the spin.

Grant it not all 196 of those new customers will come back. But if half of them do or even a fourth, that is still a better return than traditional marketing.

Thinking about it that way makes it worth putting up a deal. Traditional advertising just won’t cut it anymore and it costs a lot of money for little return. That $2000 that business spent was a fourth of their marketing budget for the year. Their return was much higher than any traditional marketing campaign they have ever done. They didn’t look at it as a loss of $2000. They were going to spend the money on advertising anyway, why not make the most of it.

I suppose they were lucky that so many non customers bought the deal. But even if they only got 150 new customers or even 100, those numbers still aren’t that bad. Then again it is advertising which is always a gamble.

I’d love to hear from other business owners about your thoughts on all these deal sites like Groupon or Sweet Jack. Have you as a business owner put up a deal? If so, how did you fair?