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Should you start a daily deals site?

Ever wondered about starting your own daily deals site? Inspired by the growth of GrabOne and 1day? Building a successful daily deals site is not for the faint hearted - but that hasn't stopped hundreds trying.

I've watched the daily deals industry since it's infancy - from just 3 sites back in 2008, to over 100 sites in 2011. These days there are less than 50 daily deals sites, and I've seen them all come and go. Along the way I've seen what works, and what doesn't.

I've written down a bunch of tips, and things to think about for those who are considering jumping into the fray. Rather than write a long article where key points might be missed, I have listed things to think about, so you can easily read and refer to them when planning or brainstorming ideas. Have fun, and contact us if you'd like any objective advice about your plans.

To anyone wanting to start a daily deals site:

1. Don't Start a Voucher/Group Buying site. Products only.

There are two types of daily deal business models. The Group Buying Model like GrabOne where the sites organises deals with merchants and sells vouchers. The Daily Deals model where you sell a few products cheaply for just one day. The group buying/vouchers model is already done. GrabOne has 65% of the market, and the second site has around 15%. Do you really think you can do a better job than Groupon? It won't happen. The Group buying market has no room for new entrants, it's a cut throat business best left to well funded corporates with the money to hire dozens of full time sales staff. There can really only be one main player, with a few smaller (but still big) sites fighting over the scraps.

The daily deals model that has plenty of room for more players is the selling physical products model. The concept is simple, get products, sell them cheaply for a limited time. Any one can start a website like this. But it's the quality of the products (read brand names) and the prices (breaking even) that will make your site grow. There is almost unlimited room in this market. There are always new products coming on to the market that can be discounted. Whereas with the vouchers model, there are a fixed number of restaurants in a city. You have a ceiling on the number of deals you can offer before saturation, or people get bored. Products you can eat your heart out with deal after deal - but the products have to be in demand, not cheap junk for a few dollars.

2. Do 3 Deals per day. Don't fill a whole page of products.

1day made this daily deals concept popular because they kept it simple. They offered 3 new products each day, all popular, all at a great price. They offered stuff so cheap that it was below cost sometimes. They really grew fast because people could not belive stuff was so cheap. They may have lost money certain days, but they have made it back in the long run by being talked about, and not spending money on marketing. Word of mouth is free, and it built 1day. You should aim for you business to do the same - they only way is to offer simply amazing deals. Deals that people will tell their friends about right away. People aren't excited by your cheap generic yoga mat for $9, and they won't tell their friends so you need to constantly be sourcing popular products, and selling them for next to nothing to stand out.

3. Get at least 6 different suppliers before you launch

You cannot run a successful daily deals site only dealing with a few factories or suppliers. You need an ever expanding range of goods, and most suppliers are slow to add new products. The other main reason for needing dozens of suppliers is the need to avoid relying on a few key suppliers. If one supplier goes out of business, you don't want it to affect your plans. So use as many suppliers as you can.

4. Hunt for new suppliers every day

Following on from the previous point is the need to constantly be finding new suppliers (and new products). Every day you should be seeking out new suppliers. It's famous saying in business that "if you are not growing, you are dying". Be sure to always be growing, and that starts with contacting new suppliers every day. No resting on your laurels. The ideal state is to have a team of people in your business hunting everyday for new suppliers. How badly do you want to build a big business?

If you have all your deals coming on one container, that is a sure sign you haven't got a good diversity in products. No one supplier is going to have a good range of products. You need multiple containers, from different suppliers. Customers don't want to see the same types of deals every day, they want variety.

5. Travel to international Trade shows every quarter to build contacts

This goes without saying. International buying trips should be at least once every 6 months, preferably every 3 months. You can build supply contacts over the phone, but the best way is to meet people face to face. People do business with people. Which customer will a supplier help more, something they have met, or someone they have spoken to a few times on the phone. Build relationships, network and get people talking about your business.

6. Using Brand name goods effectively as Loss leaders (at least initially)

The way to get noticed by customers fast is to offer them what they want, at a price they can't believe. Say a pair of brand name shoes normally sell for $149 in the shops. Sell them for $79 on your deals site. A deal this good will spread word of mouth like wildfire. It's not about making profit, it's about gaining new customers, and spreading the word. It will all pay off later. 50% China goods (New Products/In demand), 50% brand name goods is fine.

You won't get very far selling only cheap Chinese junk. If you want to be like the market leader (1day) you need to sell stuff like them. What has set them apart is the well known brand names. Don't forget it - Brand. Name. Goods. Household name brands. Period.

7. Build an email list. Don't start until you have at least 1000 signups.

Daily deal sites primarily market through daily emails. While this may change over time more towards social media, email is still the bulk of where customers get their info. Don't think that Facebook will cut it, you need a daily email. And it to be worth your while, you need a database of customers and prospects. Offer incentives for people to sign up, a free shipping code, epic competitions etc. Build your list at every opportunity, and don't start your site until you have a minimum of 100 signups. (Oh and don't buy email lists, build them yourself with people interested in what you are launching).

8. Map out your first months deals before you start.

That's 30 - 90 deals depending on how many deals you offer per day. I would even stretch it out longer than that. It will take capital, but are you serious or just kicking tyres? It might sound like a lot but remember you are starting a new business - you will have a lot on your plate. Preparing ahead of time serves two purposes. The first is getting prepared so that you can have a head start. (You don't want to be scrambling to get a container over 2 weeks before your deal is supposed to run).

The second is to prove that you can actually source deals effectively. You need to be running a deal mill. Constantly sourcing new products, but more importantly, new suppliers. Suppliers are the key to dozens of new product lines. The more suppliers you add, the more product opportunities there are.

9. Have the first months products ready to ship before you launch

There's nothing worse than waiting for a container that you need now! Imagine if your container has 30 deals in it and it gets damaged or lost. That's your business ruined because you weren't prepared for the worst. You can't sell products you don't have and being 30 days behind on your deals schedule is likely to severely affect things.

Be prepared, expect delays, and most importantly leave a big buffer of lead time ~ 60 days is ideal from ordering to running your deal. It will take a lot of capital, but the alternatives are stress and bored customers. And bored customers go away pretty quickly.

10. Be well financed. Don't plan to make a profit for the first 6 months.

Find an investor who is in for 2 years. Don't get a loan, the interest will cripple a new business. You are going to need at least 200k to cover your stock holding so get some rich mates fast.

You are going to be running a lot of loss leader deals, so expect to make no money for 2 years. Perhaps longer. But imagine, if you are turning over 2-3 million after a couple of years. You can then start to tweak things so that you make a lot of money. By that time you'll have the buying power to buy up vast quantities and get the very best prices. That's where your profit comes in.

Think you can't afford to run loss leader deals. Well you better reconsider the whole thing. That is how the big boys did it, you have to do it too, otherwise how will you compete. There is no middle ground, you either make $1000 a week for several years, or you shoot for the stars. The more customers you can attract, the faster you can grow.

11. Budget for advertising costs.

You must advertise. If you aren't spending at least $500 a week on Google Adwords, you are losing. Budget for $1000 a week on Google. Google is just the start of your marketing. But it's usually the bets ROI and it can be tracked. You cannot grow organically, and advertise - you need capital to tide you over. And don't be dumb with your advertising. Forget print, papers, circulars. Online only, measurable, and cheap.

12. Have a minimum of 3 people working from day one.

One man band? Two man band? You're dreaming. You are going to need as an absolute minimum: 1 packer, 1 buyer (you), 1 customer service. Plan how you will pay these people for the first 6 months. Family is good as you can pay them next to nothing.

You are the buyer, you will source the deals. You cannot hire someone for this, until you are an expert. Deal sourcing is the most important aspect of your business (behind customer service).

13. All these sound tough? Sound like too much?

It's a tough industry. Re-read them. I hope they are a wake up call. I have laid it all out for you. Learn from others, learn from others mistakes. If you can't meet the above criteria, then you are going to struggle, then give up. And likely lose a bunch of money. If you can meet all these points above then you are well on your way to building a great site.

14. Contact Me.

I have been watching the daily deals market since 2008 when there were only 3 deals sites. I watched it all grow to over 100 sites. And now we are back to under 50 deals sites with over 50 casualties. You can still launch a daily deals site today and make money, if you get your strategy and product mix right.

The underlying secret is funding, you need to have money behind you to get scale fast. If you don't have a crap load of funding then you are going to be a small site. You can make a nice living, but it will be a lot of work.

Give us an email, we'll set you right! We've seen all the sites come and go, and we know what business models, and what product mixes work.

Posted: Tue 02 Sep 2014


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