If you’re a small business and think that giving away 200 or so 50% off Groupon coupons will help drive revenue, you’ll want to proceed with caution.

Your deeply discounted feature might lead to no margin or even a loss

Is Groupon a good deal for small businesses?

Online discount buying services (Groupon, Living Social, Qnanza, Scoutmob) drive people to your store and are a no-up-front-cost advertising solution. These services are designed to drive people to your business not drive revenue or better profit margins. Don’t let anyone tell you otherwise. They are also perceived as a couponing service, which can cheapen your business’s image.

Posie’s Cafe owner Jessie Burke called doing deeply discounted online coupon deal, “the single worst decision I have ever made as a business owner thus far,” in a blog post explaining her experience on Sept. 11, 2010. Her Portland, coffee shop sold over 1,000 Groupons this summer, but because of the service’s unmentioned costs, Burke was left holding an $8,000 monthly shortfall.

The lesson learned seems to be that you can’t trust a sales reps that needs to account for their commission when devising your deal. Sure, a coupon of 50% or more sells a lot better than one for 25%. But when the sales go to the coupon store, not your business, the bag left held is in your hand, not theirs.

And Posie’s isn’t the only example. There are more out there. And there are even some frustrations from the customer perspective when these fast follower coupon deal sites and the retailer aren’t in sync.

So long as you account for your overhead and do things to entice those newcomers and coupon hounds to get to know you, so that they want to come back or even up-sell them while they shop, it’s a potential profit center. Potential. Don’t count on any real profit for several months.

Do they consider or even care about your overhead business costs?

And when small businesses are counseled and cajoled into their deals by anxious multi-level Qnanza sales people … (yes MLM) sales representatives who get all profit and no overhead out of the deal, I’d stop and consider working with a true strategic marketing partner to structure and promote your daily deals. Not only does Qnanza almost insist that a business’s deal be at least 50% off or better,

…they take 50% of all revenue as commission. Also realize that they stick you the business owner with the credit card fees and overhead costs.

If you are thinking about using one of these services to drive traffic or business for your company, be sure you know 1. what you’re offering, 2. how much it’s costing you and 3. how much $$ you will actually get back.

Are you using a daily deal site to drive business? Tell us about your experiences in the comments.

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