Deal Sites: Your Business Has More Leverage Than You Think

The problems with running a coupon on daily deal sites like Groupon and LivingSocial have been well-documented: The swell of new customers catch unprepared business off guard, the revenue split is rough on shops with tight margins (not to mention those who have to absorb as much as 75 percent of the cost), and the increased exposure doesn't always lead to repeat customers -- in fact, sometimes it's your regulars who come in with coupons in hand.

But as the number of daily deals sites continues to balloon and small sites catering to niche markets (from pet owners to gay men to Jewish mothers) pop up all over the place, The Wall Street Journal is reporting that some savvy small businesses are finding they have a lot more leverage to make the terms of the deal work for them.

Here are some of the strategies they're using:
Don't stop at a 50/50 split: As competition among Groupon and its rivals increases, you have more bargaining power to keep more of the revenue. If someone calls and pitches a 50/50 split, find a site that will do you one better. Stand-Up NY, a New York-based comedy club, signed on to a deal with Gilt City when the site offered to let the company keep 70 percent of the proceeds. Customers bought a coupon that gave them two drinks and a ticket to a comedy show for $20, and Stand-Up NY walked away with $14. Though Gilt says the deal was a special pre-launch rate, Stand-Up NY was able to capitalize on the big sales of the first deal and pull in a few more bucks on the next one. So keep track of the offers you've gotten, and use them to leverage a better deal somewhere else.

Go niche: The main benefit of partnering with deal sites is the opportunity to bring in new customers -- you want to add more revenue, not subtract from what your regular customers are willing to pay for your services. If you partner with a Groupon or a LivingSocial, your coupon will be blasted out to a general audience of millions. Choose a smaller, more targeted site, and you're more likely to hit the demographic you want, whether it's people who can't eat gluten or residents of a small geographic area.

Keep customers coming back: If the big benefit of running a deal is the ability to reach new customers, the trick is to get them to come back without a discount. But don't count on help from the dealmongers -- Groupon and other sites won't pass along any customer contact information to you. Savvy businesses have figured out that they need to a way to get collect a customers' email addresses before they can redeem a deal. My fellow bloggers over at Business Hacks report that an online form-generating service called Formstack can help solve this problem pretty easily.

Meanwhile, it might be worth keeping an eye on a newcomer to the daily deals space: A company called Scvngr is betting that it can offer you more repeat customers by turning bargain hunting into a game, The New York Times reports. Its new daily deals service, LevelUp, offers not just one, but a series of discounts. If a customer buys a coupon and redeems it, she's then eligible for another deal. If she takes the second one, she gets an even bigger discount on the third deal. And to compete with all those other sites out there, Scvngr won't take any of the revenue from the first of the discounts. LevelUp plans to introduce its specials in Boston and Philadelphia.

That said, before you make any deals, do the math. Remember, it's not free advertising, it's just advertising that doesn't cost anything up front.

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