Due to a lack of repeat customers and slim chances for revenue, the vast majority of small businesses no longer choose to use daily deals to promote their products or services.
The relationship between businesses and daily deal sites like Groupon and LivingSocial has been rapidly souring over the past few years.
Back in 2010 when daily deals sites had risen to prominence, a Yipit survey showed that 93% of businesses that had issued a deal were willing to do it again. By 2012 80% of entrepreneurs were satisfied with daily deals, but 52% of business owners who had experienced Groupon or LivingSocial would not offer a daily deal.
By the end of 2012, a survey conducted by Manta revealed that a whopping 82% of small business owners would not run daily deals. The survey also revealed that 11% of small businesses had either lost money or broken even, 4% earned money but not repeat customers, and only 3% of companies actually garnered both profit and return customers.
There are several factors that may be contributing to this small business avoidance of daily deal opportunities. The business model for most daily deal sites is usually 50/25/25—the customer gets a 50% discount, Groupon/LivingSocial takes 25% and the business is left with 25% of the total value of their product or service. This margin can be extremely slim for small companies on a tight budget.
The idea that daily deals provide businesses with better exposure has also recently come under question. Not only do a miniscule amount of small businesses garner repeat customers, a university study revealed that companies who provide a daily deal end up experiencing a drop in their Yelp reviews. The actual number of ratings increased, but reviews that mentioned the word “Groupon” or “coupon” had a 10% lower rating.
With tight margins and minimal customer acquisition, daily deals appear to be losing some of their charm amongst bootstrapped small business owners.