A new report from Rice University offers a number of very interesting findings and generally positive news for the daily deal industry. Based on surveys and interviews with 641 small businesses in late 2011 and 2012, it explores SMB attitudes and deal performance in a broad range of local business categories:
- Restaurants or bars
- Salons and spas
- Retailers (including store-fronts and online),
- Automotive services (repair and maintenance),
- Cleaning services,
- Doctors and dentists,
- Health and fitness services (e.g., yoga classes, gyms, fitness camps, outdoor activities, etc.),
- Education services (e.g., language classes, software training, etc.),
- Tourism-related services (tours, sight-seeing, etc.),
- Special events (concerts, shows, movie screenings, etc.),
- Photographers (including portrait, wedding and boudoir photography services)
The data are all presented in the aggregate and there are no data specific to any individual deal providers. Deal vendors are treated as a group. I’ll excerpt a number of the key findings, but you can download the full report from the link below.
The following chart indicates loyalty to a single daily deal site based on the number of deals offered. In other words, for the second deal just over half of SMBs used the same provider. The more deals issued the more likely multiple vendors were used by the majority of local businesses.
Rice found the greatest predictor of continued usage of daily deals, as one might expect, was whether the deal made money. As the chart below indicates, the number of SMBs making money with deals has increased (61.5%) since last year vs. those who lost money or broke even (38.6%).
The Rice report also found a positive correlation between deal experience (number of deals run) and profitability:
Whereas less than half of the businesses (45%) that have run their first daily deal report profitable promotions, more than three quarters of them (76%) do by the time they have run seven or more deals. The greater is the number of prior daily deals that the business has run, the higher is the likelihood that it will have a profitable daily deal
Another interesting and perhaps counterintuitive finding is that newer businesses tend to have more profitable deal experiences than older businesses, except the most established SMBs.
The was a similar distribution when Rice looked at deal profitability and firm revenues. The firms with $100K or less in annual revenue and those with $5 million or more had more profitable deals than those in the middle.
Deal profitability wasn’t at all correlated with marketing spend, however. In other words, firms that spent almost nothing on marketing were just as likely to have profitable daily deal experiences as firms that spent considerable amounts on marketing. That’s a curious finding because one would assume more sophisticated firms would have better deal experiences all other things being equal.
Finally the following chart indicates the percentage of businesses in the category that had profitable deal experiences. Photographers did the best, cleaning services and restaurants had the worst experiences with daily deals.
There’s a good deal more information and nuance in the full report, which can be downloaded here (.pdf)
July 6th, 2012 at 11:45 am
[...] commerce, and technology.Report: Most Daily Deals Now Profitable for SMBs, but Not Restaurants (Screenwerk) A new report from Rice University offers a number of very interesting findings and generally [...]
July 6th, 2012 at 3:30 pm
Great data, very useful for decision-making. I am a website publisher in a rural/tourism area, and my customers are mostly very small businesses. This data confirms my suspicion that the customer (vendor) education needed to get these deals up and running, combined with the diminishing returns to both the vendor and the publisher after the platform takes its cut, makes the daily deals channel a race to the bottom. I fear it is not a sustainable part of a long-term revenue strategy. It’s marginally profitable and probably a good thing to offer to start-ups, but it is far, far from a comprehensive marketing plan.
July 6th, 2012 at 3:38 pm
[...] Most Daily Deals Now Profitable for SMBs — But Not Restaurants (Screenwerk) A new report from Rice University offers a number of very interesting findings and generally [...]
July 7th, 2012 at 5:20 am
Julie:
You’re right that deals can help jump start things but they’re only an aspect of a more comprehensive marketing plan.
July 9th, 2012 at 11:09 am
Great data! Great to see the industry maturing.
Would be fantastic to see how the profitability of the actual daily deal sites is going. It feels that whilst the big players might be able to survive the hundreds of “me too” sites will not.
July 16th, 2012 at 6:49 pm
[...] Do they make sense for your business? If you have a huge market up, and or no incremental cost to add a customer then they probably do make sense. If you have normal margins, and hard costs associated with each sale, the analysis becomes a bit more complicated. You will probably need to be able to increase the average sale for a percentage of the deals, and convert a percentage of the deal customers into repeat customers for a daily deal to make sense. For more detailed information, professor Utpal M. Dholakia of Rice University just published a follow up report of the daily deal industry which can be downloaded here. Or for a good summary of the report check out the blog post by Greg Sterling at ScreenWerk. [...]
December 6th, 2012 at 12:48 am
[...] The profitability of restaurant daily deals promotions is consistently questioned by merchants and members of the media, but rarely does anyone define [...]
March 5th, 2013 at 6:12 am
[...] Report: Most Daily Deals Now Profitable for SMBs, but Not … [...]