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Salt Lake City Bookkeeping Blog

Daily Deals: Will They Benefit Or Hurt Your Business

Posted by Joe Mazur on Oct 15, 2012 8:11:00 AM

Daily Deals have grown tremendously in the past few years.  With this growth, it has changed the landscape of e-commerce.  Almost every website that offers items for sale now has a subsidiary that handles daily deals.  Before you blindly jump into this, there are a few things you are going to want to consider for the better of both your sanity and your business.

Increase In Volume

Are you ready for a jump in your customer base?  At first, everyone's answer is YES!  But you might want to ask yourself a few questions first.  Can your website handle it?  Is your distribution center set up to increase from regional to national?  Is your office manager going to be able to handle all aspects of this new adventure?  Are you financially ready for this?  Will it have a positive or negative impact on your Profit & Loss?  We have experience with the financial impacts of daily deals.

Understanding This Beast

Not only does your business have to handle the growth you may achieve from this venture, but you are about to step into a world that may be much bigger than you think.  Take a look at the flow chart below.  Get ready to learn about e-commerce implementation, CRM, affiliate marketing, e-mail commerce, daily deal aggregators, and the list goes on and on.

It really comes down to understanding what you are getting yourself into.  At first, you will have a large amount of cash flow rolling in from the initial sale of the daily deals.  However, that cash flow will dry up and your business will still need to fulfill the orders until the vouchers expire.  Be prepared to be operating with a negative cash flow towards the end of the voucher life cycle.

How big of a profit margin are you operating with?  I ask because this margin will shrink considerably.  Your price will be discounted in order for it to be considered by the daily deal administrators.  They will also take a certain portion of the money collected from the customer before it is distributed to your business.   I feel the best way to looks at these discounts and costs is to consider then 'discounts given' and marketing expenses.   Using this mentality; is this going to blow your marketing budget out of the water? 

Feel free to reach out to us if you don't know what your current profit margin is, or if you want to have a marketing budget set up so you can evaluate your daily deal's decision making prior to jumping into it feet first.  From our experiences with handling the accounting for daily deals I have learned that if you don't have a dialed bookkeeping system in place prior to starting this, then you will aren't set up to realize the pros and cons of your new adventure.

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Topics: Bookkeeping Help