The Three Worst Daily Deal Mistakes and How to Avoid Them

Is it time for your business to get in on the daily deal trend? If you're thinking yes, you'll want to move carefully.

Sites including Groupon and LivingSocial offer small-business owners a tantalizing value proposition: Find new customers by offering steep discounts to prospective clients that commit to purchasing as a group. But small firms are right to be skeptical about the benefits of social selling.

One downside is that the wave of new customers generated by these deals can stress capacity. Take, for instance, the baker in the U.K. who had to make 102,000 cupcakes, at a financial loss, when an unexpected flurry of people took her up on her highly-discounted Groupon offer.

Additionally, social marketing firms can take a significant cut of the revenues. In Groupon's case, that can be 50 percent.

But despite the major hurdles, daily deal campaigns can work. Knowing where social sales can turn ugly is the key to success. We looked at the major mistakes entrepreneurs make with daily deal sites and found these ways to avoid them.

Mistake No. 1: Assuming that any new customer is a good customer.
The concept of the "daily deal" is not entirely new. Strictly speaking, Groupon and LivingSocial are similar to job lot discounters. That is, they take unused capacity and sell it at a discount. The high-tech twist with daily deals is that businesses use the social web to pre-sell this excess inventory in hopes of luring new customers.

But altering traditional retail discounting can lead to unintended consequences. The daily deal customer may -- or may not -- turn into one capable of generating lasting profits for a firm. A daily deals study conducted by Rice University found that only about 20 percent of "new customers" returned to make a full-price purchase.

The Fix: Know how to convert daily deal customers to full-paying clients.
A daily deal isn't the beginning or the end of your marketing efforts, there is plenty of work to be done before and after a deal runs. Before a deal runs, you must have a step-by-step marketing plan that converts social coupon-bearing customers into full-paying clients. That plan should include capturing customer demographic data, grabbing email, social media presences and other contact information and clarifying a customer's need for new services. From that information, sales leads must be qualified, the probability of success with each lead broken down, and active marketing steps begun.

And don't forget to analyze your return on investment. If you can't make daily deals a loss leader, they're just a loss.

Mistake No. 2: Expecting a daily deal campaign to be anything less than hard work.
It sounds obvious, but small firms often don't anticipate the production pressure of offering deeply-discounted products. When Austin, Texas-based Arboretum Spa 505 sold some 5,000 LivingSocial vouchers in early 2011, the company was subsequently booked solid for an entire year with low margin business. This compounded the spa's previous financial troubles and it went out of business.

The Fix: Plan as early as possible.
In addition to hard costs for the discounted sale, it is critical to anticipate the costs a social marketer adds to a deal. Employees, for example, must be trained to redeem daily deal codes. Keeping your products in stock can also be an issue. In Groupon's case, the company recommends having up to three times as much product on hand as you might during the first and last months of the deal.

To help organize your planning, consider using a project planning tool such as Basecamp, LiquidPlanner or Manymoon. Fees start $19 per month for entry-level versions of Manymoon and increase up to $29 per seat per month for LiquidPlanner. Basecamp also offers free plan for basic project planning.

Mistake No. 3: Assuming that one daily deal site is better than another.
Groupon, LivingSocial and daily deals from big Web players like Google might be the marquee names in social sales, but there are hundreds of other options out there -- all catering to different businesses. Find the right platform that matches your marketing goals.

The Fix: Shop around for the right deal with daily deal sites.
Daily Deal Media is one resource we found that's dedicated specifically to social commerce. It tracks about 600 daily deal sites, which it has compiled into a searchable database.

One example is San Francisco-based Womply, which links its deals to credit card purchases, cutting out the cost of processing coupons. By offering the discount as part of a credit card charge, the number of people aware of the deal can be more tightly managed and there's no need to socialize the coupon over social media.

Social sales can be a critical component to the small-business market mix. If you decide to give it a shot, know how to turn your daily deal clients into ones that pay full freight, plan ahead and make sure you use the best daily-deal service for your needs.