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Earlier this year I wrote about Groupon and explored if it’s really helping businesses grow. This has been a pretty hot issue lately and I know I’ve seen a few businesses in Portland close shop because Groupon wasn’t the best decision for them. Others have been abused by some LivingSocial or Groupon customers and swear to never use them again for their business.

Michael Koploy of SoftwareAdvice.com recently emailed me to share a blog post where he laid down guidelines for businesses who want to consider Groupon or similar online coupons as part of their marketing plan. You can read the entire blog post here. Keep reading below for some general tips on what to consider when using an Online Coupon Service .

How Groupon works: A Brief Review

Groupon’s big pull is it’s wide reach of users. There’s a ton of folks signed up to get Groupon’s newsletter everyday. If you are willing to offer a product or service 50-90% off, Groupon will help promote it. If not enough consumers purchase the deal, you got a day of free advertising at no cost, no strings attached. But if the deal does sell enough, Groupon takes 30-60% of the coupon revenue after credit card processing fees. Groupon will then make payments in 3 phases over 90 days.

Two things Groupon promotes to businesses: lots of advertising and new customers. But does it work for every business?

3 Things to pay attention to when thinking about partnering with Groupon:

1. You don’t need cash immediately. Groupon pays out in 3 phases, so be prepared to offer a product or service without full revenue for up to 90 days.

2. You don’t need repeat customers: Groupon promises to bring new customers to your business and do repeat business. Studies have shown that 36% pay beyond the Groupon deal and only 20% return to the business.

3. You can handle a crazy amount of customers. Having days where you are having to scramble to make everyone happy, Groupon customers and your regular customers can be a nightmare. See below for some example of typical Groupon customers.

Different types of Groupon users (taken from the http://thecustomercollective.com/inboundsales/49613/does-groupon-work-your-business)

• The Economical Buyer

The “Economical Buyer” springs into action the minute he logs on his computer in the morning. He looks for a deal at a restaurant or bar he has avoided because he is too cheap to pay full price.  The “Economical Buyer” is very unlikely to provide repeat business unless you are going to continue these drastic discounts off your products/services.

• The Penny Pincher

These buyers are obsessed with trying anything and everything they haven’t yet experienced in their city. They treat Groupon like a giant buffet offering hundreds of businesses for them to sample. Normally a small business would be happy to have Groupons sold to people that like trying new places. But “The Penny Pincher” never thinks twice about going back to someplace a second time, they’re too focused on lining up plans to visit the next 10 places that offer a deal.

• The Coup-o-halic

These folks look at Groupons as free money. “Wait, you mean I spend $10 and get $25? That’s like $15 free!” As a result, they buy every single deal that is offered. Hoarding these Groupons to use at the absolute best, most useful, cost-saving moment, they drastically alter their shopping and living behaviors for months at a time in order to live off the stockpiled deals they have accumulating around them.  These are the same type of people that would go to five different grocery stores for the weeks groceries just so they can get redeem that weeks coupons.

• Your Current Customers

This guy isn’t going to waste his time trying new places or buying Groupons he may or may not use. He knows what he likes and sticks to the same routine and establishments each week. He doesn’t get caught up in the hype of Groupons for new or trendy places, but he watches the offers like a hawk. The moment a Groupon is offered to a place he visits regularly, boom! He’s on it like white on rice, buying the maximum allowable number of Groupons. Then he smugly but awkwardly spends the next 8 weeks using a Groupon for his $30 bar tab at his local watering hole.

The bottom line is take a close look at your numbers and costs before doing a deal with Groupon or Living Social. Think about the type of new customers you want to attract and how much you are willing to sacrifice or pay for each one. Some businesses have successfully launched their own version of Groupon, offering discounts on package deals of food, massages, pet-washes, etc. They are announcing them to the current customers and clients and are seeing a better return on investment. There’s no middle man and they make more money overall.

Related Posts:

• Are Yelp Deals better than Groupon Now?

Other Posts I Recommend Reading!

• Are Yelp Deals better than Groupon Now?
• Groupon, is it helping or hurting small businesses
• Groupon, Business Success, Facebook facelift and much more