Recently a business owner’s blog post about her experience with Groupon went viral. In the post, the author discusses here experience with Groupon for her business and how it was “…the single worst decision I have made as a business owner thus far.” We have had our own experience with Living Social for Erika’s photography business and can attest that many of the sales practices by the company are the same as detailed in the article.

Here are some important points to understand:

Groupon (or Living Social) is doing this for their own benefit, not yours. They seem to have little to no care about your business except how it can help their business make money. That kind of relationship is never a good one to get into.

The goal of a deal is not to make money from the deal itself, but recurring income from those customers coming back or buying more product/services than the deal itself. The deal company wants you to sell your product for 50% (or more!) off than it’s original value. Whatever profit you would make selling it so low, the deal company then wants to take 50-100% of that. This leaves you with nothing financially at the end of the deal.

The type of customers Groupon attracts are not customers that will help your business grow. Typically customers that are buying from Groupon are bargain hunting and not looking for the best quality product or service. Based on experience, customers that only care about a bargain typically are the most difficult to work with as they have the most demands or requirements of the product or service. According to the article, they also don’t even tip! If you are a very small, local shop that thrives off local business like the bakery in the article then getting new customers from 30 miles away will not help grow your business in the end. These customers are also more likely to cheat you even out of your already ridiculously low prices by taking advantage of the fact that it’s very hard to track the coupon usage.

Logistics of the increased business a nightmare. Tracking coupon usage, the sheer volume of customers can quickly overwhelm a small business. Although it may be nice to see people lined up out the door, trying to take care of them is very difficult – let alone in a way that will give them a positive experience about your business and want to come back. The end result could be a large number of negative reviews about your business which will never disappear from the internet.

Some businesses have reported huge successes as a result of using this new online marketing method so this isn’t the case for everyone. However, you should really consider if this is right for your business. For Erika and her photography business, she would have been so busy for about a full year before she would be able to come out from under a daily deal promotion after she did all the photo sessions, post processing, managing print orders and more. We did some math and she would have ended up making about $1/hr for that year – clearly not worthwhile for her.

Is Groupon a good idea for your business?