Daily-Deal Secrets: Get the Best Possible Deal for Your Business

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Growing kids, Web-savvy moms, and a daily-deal site promising national exposure with no up-front investment. For ThredUp, an online swapping service for children's clothes, these three ingredients sounded like a sure recipe for success.

Karen Fein, ThredUp's marketing director, spent weeks comparing deal publishers before settling on DealPulp, a site that specializes in national online offers rather than local merchants. ThredUp decided to offer a box of "preloved kids' clothes" for $6 -- or a 62 percent discount off the regular price.

Fein said ThredUp was prepared to lose money on the initial deal, calculating that a few hundred happy new customers would pay off in the long run. But when the offer went viral almost immediately, nobody was prepared for the response.

Orders flooded in, and the initial cap of 1,000 deals was hit in no time. Rather than risk thousands of disappointed customers, both sides agreed to lift the cap and adjust the revenue split in order to keep the offer alive. Buyers eventually snapped up nearly 8,500 boxes of clothes, setting a new record for DealPulp and bringing in thousands of new customers for ThredUp.

Of course, not every story has such a happy ending. Many small businesses complain that flash-deal contracts carry restrictive terms that strain their cash flow while offering them little flexibility and few long-term benefits.

The good news is that the standard contracts daily-deal sites offer are almost always a starting point. Savvy business owners can usually obtain more favorable terms -- provided they know what to look for and how to negotiate.

If your small business wants to hammer out the best possible agreement with a daily-deal site, you'll need to pay special attention to some key issues.

The revenue split: Many novices assume that deal sites automatically take 50 percent of the proceeds from coupon sales, but veterans quickly learn that figure isn't set in stone.

At Victory Auto Service & Glass in Minnesota's Twin Cities area, Stephanie Gutierrez said four different coupon sites called seeking a deal -- a sure sign they were hungry for business. In each case, Gutierrez was able to negotiate better terms than the standard 50/50 split.

With Groupon, however, the process was different. "I sought them out, whereas every other company sought us out," she said, explaining her weaker bargaining position. "They didn't need to negotiate, because they are in such high demand as the industry leader."

Negotiations aside, newer entrants and niche sites in the daily-deal space frequently offer a more favorable split as they seek to gain traction against the dominant players in the field. At DealPulp, for instance, "all the merchants get better than a 50/50 split," according to a company spokesperson.

No matter which site you're dealing with, experts say some businesses will have more built-in leverage than others. "If you are a tier 1 restaurant in your city and are just fine without running a deal, you will get whatever you want," said Chris Leithe, cofounder of Redeemio, a daily-deal metasite that organizes offers from dozens of publishers nationwide.

"Publishers are more willing to negotiate with businesses that are in this tier because it means immediate viral spread of the deal," Leithe stated. "If I were a business in this category, I wouldn't accept less than 65 percent to 70 percent of the deal revenue."

Discounts: Deal publishers love to tout savings of 50 percent to 90 percent off retail, but it's the merchant who ultimately decides how much of a discount to offer.

In general, this may be the one area where businesses don't want to drive a hard bargain. "The bigger the discount, the bigger the distribution," Leithe noted. "In many cases it's best for the merchant to go along with the typical discount percentage, while manipulating only the actual dollar value." In other words, if you can't afford a $25 loss on every $50 sale, then cut back the offer to $10 for $20 worth of goods. Customers and publishers still get the 50 percent discount they like to see, but your bottom line takes less of a hit.

If you can afford it, use the discount percentage as leverage for negotiating other parts of the deal. That tactic has worked for Gutierrez: "If we have been willing to offer a deeper discount on our offer, publishers have been more likely to negotiate a better revenue split for us," she said.

Exclusivity: At many deal sites, a standard contract stipulates exclusivity for up to six months. "This may be OK for some businesses that enjoy the daily-deal partner they're working with and are only interested in running one or two deals each year," Leithe said. But if you discover that daily deals are great for your business and other publishers come calling, "your hands will be tied."

You can often get the exclusivity clause waived simply by asking -- or use it as a bargaining chip to negotiate more favorable terms elsewhere in the contract.

Other terms: Contracts from daily-deal sites sometimes run up to a dozen pages and cover a wide variety of policies and terms. Read the fine print carefully, experts recommend, and make sure you can live with the publisher's terms on at least four additional items:

• Payout schedules
• Expiration dates
• Coupon caps
• Access to customer emails

In many cases, "negotiating" a more favorable contract means nothing more than asking for a change. "Each publisher has given us whatever we asked for, so we haven't had to barter around, with the exception of the revenue split," said Gutierrez."They've added on whatever stipulations we need. With some of the smaller companies, I've even asked if we could write the subject lines of the emails ourselves, and they've let us."

Now that she's a veteran of the daily-deal game, Gutierrez finds she can bring some additional leverage to bear, if necessary. "Once we had a few offers under our belt, I've also been able to pull something like, 'This company gave us a 70/30 split; can you give us the same or something more competitive?' "

For first-timers determined to get the absolute best deal, James Sinclair of OnSite Consulting says volume is the key. Team up with other business owners in your trade association or chamber of commerce, "then go to Groupon or LivingSocial and say, 'Look, I have six different businesses that all want to advertise with you. What can you do for us?' "

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