An Inside Look at Groupon from the Merchant's Perspective

Groupon is not the only Daily Deal site out there, in fact there are 500 worldwide, however Groupon is certainly the largest with 50 million subscribers and 22 million "deals" sold since November 2008, as of January 2011.

Before you decide this is the way to grow your business, McKeon shares some advice and information from someone who's been there, done that.

First of all, Groupon is very selective about merchants it works with. McKeon says that he's not sure if he'd even pass the vetting process now (but he got in early). Groupon looks at FaceBook, Yelp, and City Search to check out your business. They reject 85 percent of the merchants that apply. McKeon says that sometimes getting a response back after applying can be problematic. He suggests contacting a merchant who has run a deal recently in your area and asking for the contact information of the Groupon account manager they're working with. This can help you "get a foot in the door."

Even before you are approved, you need to make sure it is financially viable for your business. Groupon takes 50 percent of the total deal price. So if your product is usually $100 and you offer a Groupon deal for $50, you're actually only going to receive $25 for it. McKeon explains that you must be willing and able to sell your product for a 75 percent discount, or this is not for you.

You must also be able to provide the same product six months from now. You will likely get a rush of orders in the first week or two, but then they settle down to a steady flow. However, the customer has six months to redeem the coupon, so you must be able to provide the exact same product at that price six months from when you run the Groupon.

You must be set up to handle the influx of calls and emails on the day your Groupon runs, and the subsequent weeks as customers redeem their coupons. On the day it runs, someone needs to monitor the Groupon forum where potential customers post questions and comments. It's very important for your credibility to be able to handle the calls, emails, and forum quickly and efficiently or you may lose sales, and certainly will lose repeat buyers (which is the whole point of running a Groupon deal).

On a positive side, there is no cost up-front. McKeon recounts a time where he spent thousands of dollars on an airline magazine ad that generated one sale. The advantage of Groupon is you pay a portion of what you sell.

According to McKeon, approximately 20 percent of all Groupon deal purchasers never actually redeem their coupon. He adds that anyone who redeems their coupon are then your customers.

As an online retailer, he doesn't have concerns about people driving long distances to get the cheaper deal but never becoming a repeat customer. It doesn't matter where in the country his customers are (and in fact, McKeon runs Groupon deals in local markets all over the United States).

Since running his first Groupon, his customer base has gone from 8,000 to 60,000. He offers his printing services on other unusual materials (such as metal), so he finds he gets repeat customers purchasing different types of products other than the canvas deals he offers on Groupon.

Groupon's payment structure is interesting. They pay one third of the total sales one week after your Groupon deal runs. Then they pay another third one month later, and the final third comes two months later. This helps to even out the funds in relation to when the coupons are redeemed, but you may get more than a third of the orders within the first week, so you need to be prepared for that.

Groupon is certainly not for everyone, but for some types of businesses, even those online like McKeon's, it can increase business exponentially. You do really need to have a very detailed plan before taking on something like this. As McKeon shared, "Growing this fast just isn't natural!"