Some of our consumer clients ask whether they should make daily coupon deals, through companies such as Groupon, Google Offers and LivingSocial, as part of their marketing mix.

In these deals, your business offers a discount on food, services or products. If you’re a spa, for example, you can offer an all-day beauty package at a reduced price. A restaurant can offer dinner for two at a special rate and a bagel place can offer a free bagel with the purchase of a cup of coffee. A karate club can offer “trial” lessons.

You then contract your special offer with one of the daily deal companies. The company promotes your offer to their subscriber base. (Groupon, for example, has over 35 million registered users.) These deals also get passed around on social networks, such as Facebook.

Consumers can then purchase your deal. You get new customers in the door and everyone is happy. Right?

Not exactly.

Many businesses learn the hard way that daily coupon deals are expensive, both in terms of upfront and long-term costs. Smaller businesses can get slammed with the sheer number of people who come through the door. And, there’s no guarantee that these new customers will become repeat customers.

If you’re considering a daily deal for your business, it pays to do your homework first. With that in mind, we’ve compiled a list of best practices to help you get the most from daily deals and maximize repeat business – without losing your shirt.

1. Do the math first.

Let’s say you offer a spa package normally priced at $150 for $75 (50% off). Groupon and other daily deal companies generally require 50% of the revenue generated, so for every $75 spa package, you have to pay the brokering company $35. This means that for every daily deal spa package you sell, you gross $35.

In addition, you have to consider your “hidden” costs. Whether you charge $35 or $150, you still have to pay employees, taxes, utilities, supply costs, etc. If you sell more daily deal packages than you anticipated, you may have to pay employees overtime, order more stock, and incur other costs.

The bottom line? A daily deal may cost you much more money than you anticipate, so run your numbers first to ensure you can handle and afford the onslaught of new business.

2. Read the fine print – twice!

You can find many articles online that discuss how daily deals benefit the brokering company more than the merchant. One issue is the revenue model – you don’t receive your revenue right away. Another issue, as cited above, is that you pay a huge percentage to the deal company. As a result, you’re effectively offering your product or service as a loss leader.

If you decide to do a daily deal, read the contract carefully and ask questions, such as:

  • Will you get the names and email addresses of the people who purchased your package? How will this information be delivered to you?
  • When do you receive revenue payouts?
  • How long do you have to honor a daily deal?
  • Can you limit the number of daily deals sold?

3. Determine how you’ll manage the influx of new business.

We all love getting new business. However, too much new business too quickly can leave you scrambling. Before you sign up for a daily deal, work out how you’ll manage the new business, including extra hours for employees or more inventory.

Don’t forget “extras”: Will your spa need more towels, candles and laundry detergent (to wash all those extra towels!)? Will your karate club need extra uniforms for trial lessons?

4. Limit the number of deals honored and the redemption period.

Some businesses fail to ask if they can cap the number of deals sold. You can state in your contract if you want your offer stopped once you’ve sold a specific number of packages. Your contract and the deal copy should state how long you’ll honor redemptions – e.g., “This offer valid until [date].”

5. Determine how you’ll track daily deal buyers and their repeat business.

As stated in Tip #1 above, ask the daily deal company if you get customers’ names, email addresses and phone numbers. If you don’t (and you may not), you’ll need to devise a plan for collecting this information when daily deal customers walk in the door.

After all, what’s the point of going to all this effort if you can’t turn new business into repeat business? Some things to consider include:

  • Contact information – How will you collect contact information and where will you store it?
  • Coupon redemption – Which methods will you need to ensure people redeem coupons only once?
  • Ongoing communication – Do you have an e-newsletter or Facebook page where people can receive ongoing messages from you?
  • Repeat business – How will you track new business to see if it becomes long-term repeat business?

Daily deal sites can be a boon to consumer-based businesses. However, to make them work for you – and to turn new business into repeat business – it pays to do some homework and planning up front.