Deal or No Deal: Are Coupons Good for Business?

How coupons can be good for business

Whether they’re distributed through websites such as Groupon or LivingSocial or mailed via Valpak, discounts and promotions need to be highly tailored to your business for them to turn a profit. Whether you use coupons to reward your best customers, find new ones or introduce a new product, these discounts should be used strategically. Some businesses deploy coupons as a way to introduce new features and upsells, and in those cases, they want to engage as many consumers as possible.

One advantage of coupons is that they’re easy to distribute. Businesses can share coupons with social media shoppers or via email marketing software, as well as on legacy marketing channels such as billboards and radio ads. You can even provide coupons via QR codes, allowing consumers to simply scan and download the discount and provide your business with key information on the lead. In this way, coupons can help you reach both new and existing customers.

How coupons can be risky for small businesses

The biggest risk with coupons is that they can deprive a business of necessary cash flow for survival. This can happen when discounts shrink margins below acceptable levels or reduce the revenue taken in from purchases that would have happened even without coupons.

Another risk is that if a coupon proves too popular, your business may not be capable of delivering the promised deal to every coupon holder. This can put off customers who expected to benefit from the deal.

Coupon do’s and don’ts

Here are a few tips to keep in mind when you’re considering coupons as a business tool:

Do be careful when you’re structuring the offer.

The type of discount — such as buy one, get one (BOGO) or a price cut — also depends on the business and the clientele. A retailer might want to offer a BOGO deal, but a pizza shop might do better with $2 off a pie, as fewer people need two pizzas.”

You really have to be careful about how you structure these deals if they are going to boost your bottom line,” said Mary Song, CEO of marketing technology company Propel Media. “As a small business owner, there are a number of things you have to consider if these deals are going to make sense for your small business.”

For example, businesses may “want to limit the deal to a certain number of customers, [or] a particular season or time period,” she said. “You don’t need to offer a deal on a Friday or Saturday night when your restaurant is already full, or a discount on a hotel room at a time when all of your rooms are normally booked.”

Do consider alternatives to discounts.

Not every coupon needs to offer a discount. Song said small business owners should consider alternatives to dollar-off and percentage discounts, such as adding free services. For example, a review of the latest Shein deals shows a mix of flash sales, discount codes, dollar-off and free services like shipping and returns.

“A small hotel that is concerned about keeping its rate intact could offer free parking or Wi-Fi at very little cost, or a spa could add a service to a package,” Song said.

Adding freebies that don’t cost the business much could incentivize full-price purchases that a customer might otherwise pass up. Be smart about which freebies you offer, though; they shouldn’t be labor- or resource-intensive giveaways.

Don’t overpromise and underdeliver.

If you’re going to offer discounts or giveaways, you need to deliver when customers attempt to redeem these offers. Julie Anne Mossler, chief marketing officer at NFT platform Metaplex, said small business owners have to take a hard look at their businesses and their customers when deciding the best way to promote themselves through coupons.

“Sometimes, business owners’ eyes are bigger than their stomachs,” she said. “They want 500 new customers, but they can only really handle 50. [Some coupon services] can work with them to put a cap on the number of offers that can be redeemed, for example.”

Mossler cautioned that small businesses can be victims of their own success if they make these offers too aggressive.

“If you’re a bakery and offering a free cupcake with the purchase of a cake, for example, be sure you can handle the increased volume, as you don’t want new or existing customers to show up and not be able to get the items that they are expecting,” she said.

In today’s world of social media and instant online reviews, customers are eager to share their opinions, good and bad, Mossler said. You don’t want to scramble to respond to online reviews from disappointed customers just because you promised them something for free or at a discounted rate and then failed to meet their expectations, she said.

To avoid this problem, Groupon worked with small business owners to construct the best offers based on a number of criteria, such as average sales and the busiest times, Mossler noted. [Check out our top choices for POS systems to help you track coupons and promotions.]

“But the business owners have to provide accurate data, so it all goes back to knowing your business,” Mossler said. “The profitability of the deal is dependent on accurate information from the business owner.”

Don’t wing it.

Coupons shouldn’t be offered on a whim; for this strategy to work, it requires foresight and planning. Vince Vigorito, sales director at direct mail coupon firm Valpak, said small merchants need to scrutinize every deal because they have a smaller margin for error than larger organizations do.

If a small business makes a bad deal, “it can break their business,” he said. “We go through a very extensive needs analysis with our clients. They need to determine the return on the investment that they want, and then figure in expenses, the cost of the discount and profit margins.”

Don’t forget to advertise consistently.

Another mistake small business owners make is not advertising consistently, especially when there is an active deal available to customers.

“Small business owners have to manage their expectations,” Vigorito said. “One problem I see is that they make commitments and then get out too early. They need to consider the frequency and the volume of the offer.

“If a roofing company sends out a coupon once to 10,000 homes, that is probably not going to work,” he added. “If they are going to do something like that, I encourage them to wait another month or two and make more of a commitment.”

When used well, coupons can be a powerful tool

Like so many of the tools available to small businesses, coupons can be powerful. Everyone loves a deal, and coupons are a great way to get new customers in the door or on your website. But be careful: Coupons can cause problems if they promise more than a business can reasonably offer. Follow the advice above to make your coupon campaign a resounding success.