You’ll likely take a revenue hit and strain your operations. So make sure you’re doing a daily deal for the right reason.

Dear Jeff,

Everything I read seems to say daily deals are a bad deal for the business. I’m a contrarian by nature, so are there any situations where running a daily deal can make sense?—Name withheld at request

Daily deals don’t work for a lot of businesses. Aside from the revenue hit, the short-term customer influx and strain on operations can push away existing customers.

But you can still make a daily deal program work, especially in situations like these:

You can fill open capacity with minimal incremental cost. Say you run whale watching tours. If you have open space on the boat filling those seats with daily deal customers doesn’t add to your cost. The additional revenue, while incremental, is still revenue. The same principle holds true for a yoga studio, or a theater, or any business where fixed costs are the bulk of your expenses.

The key is to structure your offer so you have a better likelihood of filling those seats during your traditionally slow days or periods. That might take some finessing when you negotiate with the daily deal provider, but it’s worth it.

You can share the cost. Some businesses, in retail especially, get advertising subsidies from manufacturers. (Like jewelry manufacturers who subsidize billboard costs for local jewelers as long as the manufacturer’s products are prominently featured.) Some will share the “cost” of a daily deal, seeing the deal as a form of advertising. Instead of eating a 50 percent price reduction, you might only need to foot 30 to 40 percent of the discount. That could make an otherwise break-even deal at least marginally profitable.

Your customer lifetime value is high. A daily deal can be a customer acquisition cost—if you actually acquire a long-term customer. Health clubs, music instructors, personal trainers, even therapists (hey, why not?)… any business based on memberships or a series of engagements can benefit from a daily deal investment in new clients.

Many of those businesses already offer their own form of a daily deal, like a tanning salon that offers the first three sessions for a drastic discount. For those businesses, a daily deal is a natural extension of their current marketing efforts.

Just be sure to limit the total number of deals you will sell, either in total or by time period. Otherwise you run the risk of squeezing out current long-term customers.

You can further monetize Web traffic. If your deal is Web-based, you can turn the increase in Web exposure into social media connections you can market to later, outside of the daily deal.

You routinely deal with product obsolescence. New models, new versions, new releases… all are great, but if you are required to purchase inventory outright, obsolescence is a killer.

Instead of simply marking down nearly out-of-date product, offer a daily deal and focus on up-selling the influx of customers.

You desperately need quick revenue. If you’re in a cash flow crunch, a daily deal can generate significant sums within a short period of time (typically two to three months). Sure, very little of it is profit… but at least for now you can still pay the bills.

Make sure you have a longer-term plan in place, though. If you have a major outstanding receivables, fine. If you’re certain you will land sizable contracts soon, great.

Otherwise, running a daily deal with a break-even margin is just a cash-flow crunch delay tactic.

You want to make a splash. Daily deals are in part a form of advertising and can generate positive word of mouth (as long as you’re ready to handle the influx of customers.) Plus, if you have very few existing customers, you don’t have to worry about a daily deal coupon redeemer cannibalizing a sale that would have been made at full price.

When you don’t have customers there are no sales to cannibalize.

You’re already in a “haggle” business. No one pays full price at, say, a furniture store. The display price is intended as an anchor to influence negotiations in favor of the merchant. If your bottom line price is a huge percentage off your display price, a daily deal is just another, more passive form of negotiating, one where you decide to give in ahead of time.

Before you run a daily deal, do the math. There are a number of hidden costs. For some businesses there are definite advantages, but make sure the costs and potentially negative outcomes are worth it.

 

Have a question? Email questions@blackbirdinc.com