Analyzing Flash Deals
Profit Center: Are discounted offers really effective for your business?
Fitness professionals around the world have jumped on the flash-deal bandwagon to try to generate more business and attract new clients. It looks like an attractive arrangement: Flash deals, such as Groupon or LivingSocial offers, put your business in front of a whole new audience, bring some new faces through the door and help you grow and expand your client base and revenue.
The everyone-is-doing-it mentality has encouraged many personal trainers to offer their services at deeply discounted rates, in the hopes of attracting and retaining new clients. It’s true that as a marketing tool, daily deals are a quick and dirty way to get your name in front of masses of potential customers. The bumps in your website traffic and social media following are nice perks, too. What gets overlooked, however, is that deals can impact the health of your business in ways you may not anticipate.
Here are four questions to ask yourself before you decide to offer a flash deal for your services.
Type of ClientsQuestion #1: Will the deal attract the kinds of clients I want? Because deal sites typically cater to broad audiences, there’s no guarantee that the people your deal appeals to will be the same ones who will fall in love with you or your business, and who will purchase full-price services after the deal ends. You may find yourself with a slew of new clients, but you may also end up taking a pay cut without many rewards.
The wide variation in conversion rates means that offering a deal is a gamble. Customers who find you through daily deal sites are often chronic deal seekers, and after groaning through your 70%-off personal training package, they’ll move on to the next deal for a $10 month of unlimited yoga.
Rocky Patten, owner of Rocky Bliss personal training in Oakland, California, had only one new client purchase a full-price service after she offered a deal. “Most of the people who came in through the deal were just deal seekers,” she said. “You can usually spot them right away, and it’s frustrating to provide your best service when you know they aren’t as invested as you are.” The deeply discounted services she provided not only didn’t reap many new clients; they also ended up being an out-of-pocket expense for her. “When you factor in the rental fees I was paying my training gym for clients who didn’t show up or didn’t continue past the deal, I ended up losing money,” she said.
Patten’s experience isn’t unique. We saw a similar conversion rate with our own business: Of the 500 deals we sold, only about 80 of the buyers registered for a class, only 19 actually showed up and only four converted into repeat, paying customers. Another handful or so contacted us after their deals had expired, requesting refunds, an extension, or permission to transfer their deeply discounted service to a friend in Minnesota (a state we’ve never even visited, much less have offered services in).
Debi Condon, owner of Evolution Fitness in Clifton Park, New York, saw higher redemption rates with the deals she offered—up to 82% redemption with a Groupon discount she offered in 2012—but Condon also acknowledged that 10%–15% of the clients she attracted through LivingSocial deals were “not the right fit; they expect too much, and those are the ones who don’t stick around.”
Financial ConsiderationsQuestion #2: How much will this deal impact my finances? The fact that deals last a limited time can lure businesses into thinking the impact will also be short-lived—in other words, that deep discounts can be a low-stakes experiment in advertising. We heard from a popular personal trainer in San Francisco (who asked to remain anonymous) that her experiment with a daily deal left her calendar booked out for months in advance, filled with new clients who more often than not failed to show up for their deeply discounted appointment. That meant she was not only operating at a loss but also missing out on opportunities to book clients who were actually interested in working with her. Her 1-day deal turned into 4 months of an impacted schedule and a severely reduced income.
Financial considerations should definitely play a key role in your decision to run a deal or not. Jennifer Sobel, a personal trainer and belly-dance instructor in Oakland, decided against it for those very reasons: “If I [ran] a deal for my personal training, it ultimately wouldn’t be financially rewarding because I would be so limited in time. If I deeply discounted my hourly rate, I wouldn’t earn much money and then would be committed to all those hours at this discounted rate.”
Before deciding to offer a deal, be sure you are comfortable with making less money, or working more hours, for a few months.
Current Client RetentionQuestion #3. How can I make my existing clients feel taken care of? One consequence of offering deals is that, because existing clients typically aren’t eligible, your longtime clients can feel their loyalty isn’t appreciated or rewarded.
Chadd Schaefer, owner of Body Temp Yoga in San Francisco, said that a studio where he used to teach actually lost some of their most longtime clients because of a Groupon-driven influx of new students. “Everyone hated it,” he said. “Classes were so crowded it was hard for our most loyal customers to get in. And then the new people didn’t know Bikram etiquette, so they really changed the class environment.” Those once-loyal customers were especially irritated because having so many new people in class slowed down the pace and altered the culture they’d come to love.
When she offered a Groupon for new clients last year, Condon chose to offer her “old-timers,” as she calls them, a special discount of their own. Her longtime clients didn’t just accept her offering a Groupon without question—they even helped those new clients succeed. She believes the “camaraderie they’ve developed means they encourage and help [new students] with advice, which motivates them as well, because they’re empowered to help someone else.” Showing some appreciation for existing clients, even if it wasn’t as deep a discount as the flash deal, helped her acclimate new students to classes more quickly and gave those students a better, more welcoming experience in class.
Your Own DiscountsQuestion #4: Could I set up my own deal instead? Since deals administered through external companies can be expensive, many fitness pros have begun offering their own deals. For example, Suzi Fevens from Confessions of a Fitness Instructor in Waterville, Nova Scotia, provided deals through her newsletter and on her Facebook page. She found that offering a discounted punch card during a traditionally slow time helped bump up her business: “June is a slow month, with school ending, and concerts and vacations and everything else happening,” she said. Running a deal through her newsletter gave her a boost for that month. Despite the discounted rates, her income for June still ended up higher than she had anticipated.
Crystal Honeycutt, owner of Train Dirty Fitness in Johnson City, Tennessee, suggested adopting the same strategies as flash-deal administrators, but keeping all the revenue for yourself. “I’m not a fan of working for free, so I opted out of doing Groupon,” she said. “I started doing my own [version] and offered a deal for a specific month.” As a result of offering discounts for a limited time, Honeycutt said, she nearly tripled her income in only 3 months.
Discounted rates like these enable fitness professionals to attract new or lapsed customers and hang on to all the profits. Of course, self-created deals don’t function as advertising in the way that Groupon does; you won’t get your business in front of hundreds or thousands of potential clients.
Think Before You Leap
Deals can have their place in a marketing strategy, and they are often an efficient way to put your name out there. But just as you tell your clients there are no shortcuts to fitness, the same is true for building your client base. When it comes to offering a flash deal, make sure you’re strategic about how and why you choose to offer it.
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- Be strategic about when and why you offer a deal.
- Read the fine print in all contracts and communications.
- Clearly communicate the terms to your clients.
- Negotiate the terms.
- Think of the deal as an advertising expense.
- Make sure you can afford to take a pay cut for the next few months.
- Communicate early and often to your existing clients.
- Run more than one deal simultaneously.
- Once a year seems to be the sweet spot.
- Reduce your rates more than you are comfortable with.
- Feel pressured to continue offering discounts after the deal is over.
- Run a deal just because everyone else is.
If you’re considering a deal, be sure to read the contract carefully. Watch out for these key items:
- What percent of sales do you receive? What percent does the deal administrator take?
- Who pays the credit card processing fees?
- When will you receive payment? How?
- What is the refund policy?
- Is there a minimum number of deals that must sell?
© 2013 by IDEA Health & Fitness Inc. All rights reserved. Reproduction without permission is strictly prohibited.
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