Vote on the benefits of Groupon

Should Your Business Be on Groupon?

The popularity and rise of Groupon and now other similar coupon sites such as Living Social, Dealfind and WagJag, have made many businesses look at these sites as part of their marketing and promotion. I myself have considered using these sites to give a boost to my business, especially during slower periods or to promote a specific product line.

As part of my analysis I looked at the pros and cons of Groupon to identify whether it would be a good fit for my business.

Pros:

1. Get a bunch of exposure FAST - the sheer numbers of people who have subscribed to Groupon and other coupon sites is astounding. Getting your name or brand in front of this many people would normally cost in the thousands of dollars. Groupon promotes your business for you with no up-front cost to you.
   
2. Acquire new customers - your advertising often hits the same people over and over again. Using Groupon you have the ability to get a whole slew of new customers that may have never been in your business or website.
   
3. Increase sales immediately - many businesses are overwhelmed by the sheer number of customers in the first day after their Groupon campaign ends. A Groupon campaign can quickly change what would normally be a slow month to a big sales period.


4. Many Groupon customers will become your customer - a number of the Groupon customers who visit our business may become loyal repeat customers. Being able to convert these Groupon customers is key to making this type of promotion work for you.


5. They will spend much more than their coupon face value - one of the important things to consider when planning your Groupon coupon is the face value of the item. If you can provide a face value that is often less than what most people would spend or if you have an opportunity to sell add-on products or services then your overall discount will be less than the Groupon discount.


6. No up-front cost - the attractiveness of the Groupon scheme is that there is no up-front cost to the merchant. They only pay from the proceeds of the promotion sale and have no other expenses to worry about.

Cons:

1. Giving away margin - the minimum discount required to be listed by Groupon is 50%. On top of that Groupon will take from 40% - 60% of the net proceeds as part of their commission. That means that you are giving away from 70% - 80% of the face value of the offer. Unless you have huge mark-ups on the product or you intend to up-sell other products or services, you will go broke using this model.


2. Groupon has all the information - because Groupon customers sign up through Groupon and not through you, Groupon has all of the valuable customer information such email, address and demographic data. You will need get many of these customers to sign-up for your mail list or loyalty program to justify the promotion.


3. Everyone wants a discount - do you really want customers who may never buy at regular price and only want to buy at below cost? The Groupon customer is very focused on getting a deal. Once they use up your deal they go on to the next and may never come back to you (unless you offer another deal).



4. How does this look on me - using Groupon and other coupons sites can help create an image of your business that you may not necessarily want. Do you want to be seen as a discounter, always on sale or as someone that provides value even at regular price?

The bottom line is that you have to decide whether Groupon is right for your business. The pros and cons listed above have led me to take a wait and see approach on Groupon. For now I will resist but I have to admit the thought of having 1000's of customers knocking at my door is very inviting.

Cash is King

If you are one of the lucky retailers who have maintained or increased sales during this tough economic period then you can skim through the rest of this post (although you may still need find it useful).

In today's economy retailers have to be adept at keeping their head above water and when sales are tough to find and the dollars are not flowing in as they once were you may find yourself a little short on cash. This may sound obvious but shortage of cash is one of the leading causes of retailers declaring bankruptcy. Many successful companies can be very profitable and show good sales gains year after year but if they fail to manage their cash they can still go bankrupt.

There are two main areas to conserve cash: 1) reduce or slow the amount going out and 2) increase or speed up the amount coming in.

Improve Cash Flowing Out
One of the biggest drains on your cash reserves is having to pay for product too early before the product has a chance to sell through. Make sure to set realistic shipping dates on all orders so that the goods arrive no more than 30 days before they are expected to sell. This way you are not paying for something before you get the sales for it.

Talk to each and every vendor when placing an order about getting extended dating for larger orders. Lots of vendors are willing to extend 60 or 90 day terms if you give them a sizable order and are willing to take an earlier delivery.

Review all of your expenses especially payroll. Your staffing is one of the biggest expenses in a retail store and reviewing what your busiest days are, what times of day you need more staff and scheduling accordingly can save you thousands of dollars over time. Make sure you schedule shorter shifts to avoid having to give lunch breaks or extra coffee breaks. Most local labour laws stipulate a minimum numbers of hours before staff are entitled to a break or lunch. By keeping your shifts at or below this minimum you ensure you are only paying for work and an employees break time.

Some expenses such as certain types of marketing are often left on auto-pilot and can be costing quite a lot of money. An example is online pay per click campaigns. These often cost a business a monthly fee but should be adjusted to save dollars during slower sales periods. Postpone print ads that may have previously been booked to stretch out your marketing budget over an extended time.

Improve Cash Flowing In
To improve your incoming cash review your accounts receivables and follow-up with any customers that are delinquent and even those that are still within terms to remind them of upcoming payment due dates. A simple phone call works best and is more personal than a form letter. You would be amazed at how many businesses get paid first simply because they called and not because they would have been the first ones paid.

If you have new customers offer incentives for them to pay up front or by cash. A small discount of 2 - 3% for a cash payment is often enough to convince someone to pay now instead of taking terms or using a credit card.

If after implementing some of the above suggestions you still find yourself cash starved and are having trouble paying bills then follow these guidelines:

1. Talk to your vendors - tell them your situation and ask them for a little more time. The more dialogue you have with them the better. DON"T shut down and stop answering the phone. This will not send your vendors a good message and will not help your situation.
2. Speak to you bank or credit facility. While they may not be able to extend you additional credit they may be able to restructure your existing debt or offer different payment terms to help improve your cashflow situation.
3. Make sure you always pay government agencies and tax remittances on time. These vendors are not negotiable and can cost you significant penalties if not paid in full on time.

Managing Your Biggest Expenses - Payroll and Occupancy Costs

After your cost of goods, a retailer's largest expenses are payroll and occupancy costs. These two areas if not controlled, can choke a retailer's cash flow and eventually lead them into bankruptcy.

While the retail industry standards for these expenses vary greatly, they should fall within the following ranges:

• Payroll Costs: between 10 - 15% of gross sales
• Occupancy Costs: between 7 - 10% of gross sales

Controlling Payroll
Some things you can do to make sure your payroll costs are being controlled:

• Monitor your payroll costs monthly to make sure they are in-line relative to gross sales. On a month-to-month basis your payroll costs as a percentage of gross sales will vary but on a yearly basis your overall labour costs should fall within the industry guideline.
• Review your sales trends by day of the week and hours of the day to determine when you need to add extra staff or where you can cut back.
• When scheduling use shorter shifts instead of full days across the board. This will give you more flexibility to have more staff at peak periods of the day or react to cut back on staff on slow days, especially due to bad weather.

Controlling Occupancy Costs
Unlike payroll costs, your occupancy costs are often not controllable other than at the time of negotiating your lease. However, there are a few things you can do to make sure your occupancy costs are within the industry guideline:

• Make sure that you understand all of the lease costs you are responsible for when negotiating your lease. Common area costs, management fees or rates based on gross sales often become contentious issues if not clearly understood at time of signing.
• Review your controllable variable costs such as utilities. Install efficient thermostats that reduce the temperature at off-hours. Use timers for your outdoor lights so that they are off for a few hours in the middle of the night.
• Maximize the space you are renting by reducing non-selling space: storage, office, or any other use other than selling floor.

If you can contain your occupancy and labour costs as well as your inventory levels, you should be on your way to a profitable year!