Friday, 14 September 2012

Small business offers and how to stop them crippling your store

When starting up an small online store, we all want to see customers flooding in and sales being made so that we have a general idea of how successful the business is going to be. To try and generate interest, many small businesses are now looking to run a number of different promotions, offering products at a reduced price in the hope of enticing people to make a purchase.

However, while increased sales are a positive for any business, you must make sure that you don't overreach to levels that you are currently unable to handle. What I mean by this is that yes getting sales is of the utmost importance if your business is going to be successful and you are going to make a profit, but the size of your promotion should be based on the size of your business.

If you are the only person working for your business, you do not want to run a promotion on offer sites such as "Groupon" as although it will result in you gaining a significant increase to traffic, brand awareness and probably sales, it is most likely going to result in you having more business than you are able to handle. The best example of this is the story of Rachel Brown, a baker from London who decided to place a promotion on Groupon in 2011.

Rachel thought that she would try and increase sales for her bakery by placing an offer on the site allowing customers to purchase 12 cupcakes for the price of £6.50, a saving of £19.50 on their usual retail price. The offer proved to be successful, in fact it was far more successful than she could have ever imagined, as she ended up with over 10,000 orders. When she added up how much it was costing her to produce the cupcakes and compared that with how much she was making from the sales, she found that the whole promotion left her with around a £13,000 loss.

However, Rachel isn't the only small business to experience a Groupon offer gone wrong. Posie's Cafe in the US offered a promotion on the site where they were offering users $13 worth of products for the price of $6, a saving of over 50%. They made a deal with the Groupon site where the proceeds from the offer would be split 50-50 with themselves and Groupon, as Groupon take a percentage of the transaction. This resulted in the company losing around $8,000 dollars from the promotion.

If you are small ecommerce store looking to generate extra sales through a daily deals promotion, there are a number of different things you should first consider before evening beginning to put the wheels in motion:

  • Factor in your costs - Work out not only how much it is going to cost you per each sale, but also work out how much it is going to cost you should the promotion prove to be very successful. In the examples shown above, this is where they met their downfall as they didn't factor in how much it was going to cost them to run the promotion.
  • Set the right price - Obviously with it being a daily deal offer, the price needs to be less than what you are currently selling the product at and it's tempting to offer the best possible discount in order to make it as enticing as possible for customers. However, you must factor in every one of your costs and then choose a price that ensures you are going to make a profit off each transaction. The costs you should factor in aren't just the costs to produce the product, they should also be the cost of any staff, property rental costs and equipment costs. Pretty much all of the overheads you have. If you don't factor in these costs when deciding to set the price, you are going to see your overheads eat away at your profits, probably resulting in you making a loss. 
  • Look at your production line - You need to realistically look at how many orders you can complete on any given day. Like I said at the start of the article, if your business has only one employee; you, then a Groupon offer may be too much for you right now. If your offer proves to be successful and results in 1000 orders, but you only usually complete 20-30 orders a day, you are going to be left with a huge backlog of orders waiting to be processed. Not only will this result in your brand image being slightly damaged as customers get fed up waiting for their order to be delivered to them, it will most likely leave you stressed, annoyed and probably thinking that the offer as a whole was more trouble that it's worth.
  • Look at your product - The example cases we looked at for this article were both food products, meaning they are products which a person would have to produce from scratch to then ship out. The easiest offers to run are those that don't require you to spend time making the product, the easiest promotions to complete are going to be where you can just simply pack the product and ship it out as soon as the order comes in. 
  • Set a cut off point- The last thing you want to do is leave a promotion running over a long period of time because if the promotion does prove to be too much to handle, it is going to leave you with orders still coming in despite struggling to handle the current lot. Having a cut off period allows you to look at how successful the promotion has been without you having to commit to a substantial length of time. If the promotion has proved to be a failure, then you may have saved yourself from losing too much time and money. On the other hand, if the promotion has been a success, then you can simply list the offer again. 
  • Draft in help - Whether the promotion is a huge success or just mildly successful, either way it is probably going to result in you seeing a large increase in your orders. For this reason you should look to have people on hand ready to pitch in should you need any help in getting orders out. If you run the business yourself this could simply mean getting friends and family to give you a hand completing the orders. 
  • Consider the intangible factors - While you need to consider how much it is going to cost you to run the promotion and how much you are going to make by way of profit from each sale, you should also consider the other factors that will be difficult to measure. What I mean by this is that you should look at how many repeat customers this promotion could bring in. Meaning that while you may only make a small profit on each transaction through the daily deal, it could result in receiving great levels of revenue through future transactions that these customers will carry out in your store. 
If you are unsure as to how successful a large scale daily deal promotion may be, you could try testing the waters by offering the same type of daily offer on your social media sites. If the promotion results in increased sales and are at a level that you can easily handle, you can look to take it to the next level and try placing the offer on a daily deal website. 

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