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Three S’s

What makes CapRock different from other alternative funding companies? The three S’s set us apart!  Take advantage of our new SNAP pre-qualification process just introduced for 2014 and see why you will want to turn to CapRock Services for all of your future Growth Capital needs. At CapRock Services, “Your Passion, Our Support” will drive the customer experience!

SNAP! As quick as snapping your fingers…Our Swift New Application Process allows for fast and easy offers within hours.

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SPEED – a new streamlined pre-qualification form and process requiring less supporting documents mean conditional offers in 24 hours or, often, less!  This new pre-qualification form can be requested by emailing concierge@caprockservices.com. You can start using it right away!

SERVICE  – The Office of the Concierge gives you unparalleled, boutique style service!  Your personal Concierge is always available for questions, status updates, and service help of any kind. No automated system here – you will always get a friendly, helpful Concierge to personally assist you with any issue.

SIZE  — We are the best source for funding larger than most in the industry can or will advance.  We tailor each deal to the best interest of your merchant with boutique style underwriting. One size advance does not fit all merchants – we understand that certain industries, such as restaurants, hotels, and auto dealers have unique needs for larger advances. We underwrite each submission upon the unique aspects of that merchant

Weatherproof Your Business

WeatherProofingImage courtesy of The Atlantic

The Insurance Information Institute (III.org) tracks catastrophic losses that are both insured and uninsured. Winter Storm claims rank third behind hurricane/tropical storm and tornado losses. As a business owner preparation will minimize a potential Winter Storm loss.
There are many precautions that a business owner can take to protect their valuable assets; be they property or life. Let’s break the business owner’s responsibility into three categories:

• Property – Personal and Real Property
• Employee Safety
• Customer/Guest Safety

Property

Almost every building in North America is subject to severe winter weather, such as blizzard conditions, ice storms and severe cold. This is true not only of businesses located in the central and northern portions of our country, but also can occur in areas as far south as Texas and Florida. In fact, loss history indicates that the area most vulnerable to damage is the southern portions of the US because they are not accustomed to prolonged cold.
It is very important that every business prepare in advance for the possibility of severe winter weather. The following are areas that need to be checked/secured to prevent unnecessary losses:

• Sprinkler System – they are vulnerable if building temperatures fall below 40°
• Water Supplies – into and out of the building – they are vulnerable if your interior temperature falls below 40°
• Building heating systems – should be checked and serviced each autumn
• Windows and Doors checked for leaks, broken panes or seals
• Roof and Gutters – checked annually for leaks and need for repair
• Temporary heaters – a plan in place to provide heat to the building if the power is out causing the interior temperature to fall below 40°
• Storage for Exterior Property(i.e. chairs, tables) that could be damaged if they are covered under ice and snow

Employee Safety

No one’s life or quality of life is worth an unsafe trip to or from work during a winter storm. As a business owner it is your responsibility to develop a plan for severe weather and communicate your expectations with employees. The plan should be outlined in your employee handbook as well as discussed with employees if bad weather is predicated. You should never leave it up to your employees to guess if it is safe to travel to/from their job.

Customer/Guest Safety

If you are open for business it is your responsibility to provide a safe environment for your customers to come into, purchase your product or service, and exit your business without physical harm. If you are not able to provide this safe environment then you should not be open for business until you can insure their safety. Risk evaluation:
• Parking lot(s) free of ice, snow, and debris
• Walkways to and from your business entry free of ice, snow and debris
• Ice or snow that could fall from your roof onto a customer while entering or exiting your business
• Dry floors inside your business
• Mat for customers to dry their shoes when they enter
• Help escorting customers to their vehicles if necessary
• All parking lots and walkways should be constantly checked to insure they remain in a safe condition
• All floors should be constantly checked and cleaned of water that may have melted off customer’s shoes
• Offer to call a taxi if the roads have deteriorated while the customer is in your business and they no longer feel they can safely drive home

A few simple preparations can help your business, employees, and customers survive a Winter Storm without damage or injury. For more information please contact:

– Mona M Carpenter

mcarpenter@innovativenationalrisk.com

The Profit & Loss Recipe

There’s little better than enjoying each and every savory bite of a made-to-perfection entrée at your favorite restaurant. But have you ever really sat and thought about how many ingredients go into creating that amazing dish? Looking at the dish, it doesn’t look that complicated. Like every entrée, it’s pretty straight forward. There’s a protein, a starch and some vegetables. Steak and potatoes, right? Well if you’re in the biz, or have a strong desire to be, then you know just how complicated it is to create something so pleasing that looks so simple. Because steak and potatoes isn’t just steak and potatoes when it’s an 8oz hand-cut filet with a hazelnut-espresso rub served with quattro formaggi gratinati, cippolini onions, oyster mushrooms, sweet baby carrots, plum compote and 20-year aged “Malvasia” madera demi-glace! There are many recipes that go into creating each component of this steak and potato dish. To get the perfect flavor and an emotional reaction to each bite, each recipe for each component must be followed perfectly and precisely. No corners can be cut. No guess-timations made. Every step must be executed perfectly in order for the dish to become memorable. No great chef or restaurateur will waiver from the standards that require every step, in every recipe for each component of this simple steak and potatoes dish be followed to the letter every time. After all, this unwavering executional standard is what brings in the rave reviews and repeat diners. It’s what causes one person to boast to another about how great the dish is, and how they haven’t dined until they try it. It’s what builds reputations.

For those of you in the business reading this, you are all nodding your heads in agreement. You would say that this is the foundation upon which all great restaurants are built. I would agree with you – I would, however, change the word foundation to the word pillar.

It would be fantastic if our businesses were simply built upon one solid foundation, but in reality they are built upon a couple of pillars. The one that is often over-looked and treated as an afterthought is our Profit & Loss Statement (Income Statement). It is a pillar that is often allowed to deteriorate because, in some operators’ minds, it does not affect the business today. Many operators only see the P&L as a look into the past rather than a tool to predict the future and plan for tomorrow. In truth, it has a similarly complicated recipe as our steak and potato dish. It has many ingredients. It has many steps – all of which need to be followed to a tee in order to receive the same excited reaction.

Like our steak and potato entrée has three primary components, so too do our P&Ls. There are Costs of Good Sold (COGS), Labor Costs, and Operating Expenses. The basic understanding of each is that if you hit 30% in each category, then you will have 10% left over as profit. But how do you hit 30% in each category? You follow precise recipes. Each category is broken down into very specific formulas (recipes) for success. For example, in COGS, hitting 30% means understanding how much of that 30% is food cost, how much is beverage cost, and how much needs to be allocated for waste. Then break it down further, how much of your food cost is in proteins? How much is in dry goods? How much is in dairy, fresh veggies … even freight? A purchasing tool will help organize all of your purchasing information and report to you on a weekly basis where the money is going once it leaves your bank account. Also, getting your hands on a pricing tool will help you understand which dishes cost more to create than others and allow you to adjust your menu pricing as the cost of commodities dip and spike in the market.

Similar to the recipe for COGS, Labor Costs have a specific recipe for success too. Hitting 30% Labor becomes easier when you know the target percentages for each component of Labor. Labor costs have multiple components, such as management salaries (static labor), back-of-house labor (BOH), front-of-house labor (FOH), payroll liabilities, insurance (worker’s comp), benefits, payroll processing, employee meal credits, etc. Each part has a specific target percentage of total revenue that needs to be realized in order to hit the 30% Labor cost figure. Utilizing a proactive tool for scheduling will help keep your hourly labor numbers in line with your forecasted revenues. That, combined with not over paying management salaries for the amount of revenue your restaurant brings in, is a good start to following the recipe for Labor Cost management.

As for a recipe to follow to ensure 30% (or less) in Operating Expenses, a few of the high points would be: 1) Ensuring total occupancy costs (rent, NNN, utilities, etc.) do not exceed 8-10% of total revenue; 2) holding marketing and advertising to 3% or less of total revenue; and 3) keeping maintenance and replacement costs to 2% or less on average.

Like an amazing entrée, an amazing P&L statement won’t appear out of thin air. It requires knowing what the recipes to each component are, and the sternness to hold firm to the decision-making that requires those recipes to be followed. Also like an amazing entrée, once your company becomes known for having consistent and profitable financial statements, word will spread of the quality of your financial results. It will be what causes one person to boast to another about how great the investment in the growth of your business could be, and how they haven’t experienced a restaurant industry investment until they’ve tried you. An amazing P&L statement will be what builds your reputation and what leaves them wanting to come back for more.

If you would like more information on Restaurant Consulting Services provided by Caprock, please feel free to email Zach Hopkins at zhopkins@caprockservices.com.

You Might Need a Payroll Service If…

You chose to not become a CPA or a bookkeeper because you had other dreams and passions.  You are building a thriving business around those dreams and passions. Unfortunately, the mundane details like taxes, accounting, and payroll are a necessary evil.  Payroll and tax administration are time consuming and sometimes unpleasant endeavors to small business.

There are so many regulations and agencies that need to be accounted for in the payroll process:  SUTA rates, FUTA rates, Federal taxes, Social Security, and FICA are just the beginning.  However, this is not an area of business that you want to neglect! Withholding taxes is one area in which the law will allow the Internal Revenue Service to pursue the business owner personally for any unpaid liabilities.

Focusing on these items takes valuable time away from your passion — your guests and their experience in your establishment. What if there was a simple and easy way to avoid these tasks?  You could then re-invest that saved time back into building the business you love! Maybe more importantly, what if there was a way to know your business and your family were safe from tax penalties and levies by knowing that all returns were filed and taxes paid accurately and on time?  How do you keep “employee business” from getting in the way of your real business?

The answer is a qualified payroll service.  It will not only free you up to spend time on your core business, but they will also ensure that returns are filed promptly and payments made when due. Because the payroll service will take the necessary taxes when taking the funds to pay employees, you know the funds have been set aside without having to plan for it yourself.  It feels almost “automatic” to you as this myriad of details is happening “behind the scenes” in what feels to you like one easy transaction each payroll period. Then, there is the security that, in the event of an error, a qualified payroll service is responsible for correcting any issues with the agency involved.

There are two types of payroll service platforms.  Both the Professional Employer Organization (PEO) model and the Administrative Services Organization (ASO) offer comprehensive administrative payroll services. However, they differ in level of service and in level of responsibilities for the employer.  They can also have different pricing structures.  How to choose? A qualified expert with years of experience can evaluate your unique business, situation, and experience and guide you to the right service model. Like everything in business, it comes down to an informed cost-benefit analysis.

At CapRock Services, we can decrease your workload and your worry by handling your payroll and tax administration with our nation-wide payroll platform. Whether you are brand new to the industry, or a seasoned professional, we have payroll and workers’ compensation solutions that allow you focus more time on your business. Our service even allows you to greatly minimize the impact on your business from future unemployment and workers’ compensation claims. Plus, you will have access to support 24 hours a day, 7 days a week with our comprehensive Human Resource hotline.

If you would like a quote or more information on Payroll Services provided by Caprock, please feel free to call us at (866) 962-4922, or email CRPayroll@caprockservices.com.

If you would like more information on Payroll Services provided by Caprock, please feel free to email John McAchran at jmcachran@caprockservices.com.

Liquor Liability – The Facts

Liquor liability insurance is defined as coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder. The breadth of liquor liability coverage varies by state because each state has its own interpretations and evidence requirements of who is legally liable in the event of an injury to a third party.

  • Dram shop liability or social host liability, holds a social or commercial host liable for injuries inflicted on a third party by an intoxicated guest of the host’s event or establishment.
  • Forty-four states and the District of Columbia have enacted dram shop liability laws or statutes that extend to social or commercial (retailers) hosts.
  • In some states, every bar in which an intoxicated person drank can be pulled into a lawsuit if the person causes bodily injury to a third party. The establishment must prove that the patron was not or did not appear intoxicated while there.
  • Other states require proof that the establishment sold alcohol to the intoxicated individual, injuries were sustained, and the injury was the direct result of the individual’s intoxication.
  • The Center on Alcohol Marketing and Youth (CAMY) report states that 54.3 percent of binge drinkers who reported driving after their most recent binge drinking episode drank in an on-premises, retail alcohol establishment such as a bar, club or restaurant.
  • In February of this year, ISO (Insurance Service Office) revised the liquor liability exclusion contained in its general liability forms to address “bring your own” alcohol establishments. The new exclusions now have an exception for insureds that are not considered to be “in the business of serving, selling or furnishing alcohol under the scope of the liquor liability exclusion simply by allowing someone to bring and consume their own alcohols on its own premises.
  • Many insurance companies offer discounts on liquor liability coverage to establishments that provide alcohol awareness education and training to employees.

The bottom line for business owners who serve alcohol – You will be held responsible if guests are served alcohol in your business and then go on to cause property damage or bodily injury. So, what can you do to protect yourself?

  • Train your employees above and beyond what your state requires for alcohol awareness.
  • If you don’t have video surveillance in your business consider getting it. It may give you a defense for liquor liability, general liability, and employment practice litigation.
  • Empower your employees to follow all state regulations to avoid over serving any guest in your business, including employees/owners who are off duty.
  • No patron’s business is more important than strictly following state dram regulations. A few extra dollars in the till at the end of the night will never be worth the devastation from a drunk driving incident.
  • Please contact us at 214-216-0225 or email Mona Carpenter at mcarpenter@innovativenationalrisk.com if you have any questions.

Credit Card Split Funding Advantage

As alternative financing options proliferate, payback in the form of credit card split funding is still the way to go for a variety of reasons. The most compelling are:

• No risk of overdraft

• Payback ebbs and flows with business swings

• It’s the best leverage of future sales for merchants that process cards.

There has recently been much buzz about ACH funding platforms. The buzz seems to ignore the pitfalls of ACH funding:

• There is always a risk of overdraft,

• There are no adjustments for sales swings.

• Funding amounts are limited by stricter underwriting requirements.

It can sometimes be tough to manage all of your once-monthly fixed payments such as rent, vehicles, or suppliers. Stop and imagine adding 22 more such fixed payments. The beauty of credit card repayment is that a few NSF’s will not disqualify funding, and moreover, merchants need not worry about sales slumps as repayment flows with sales volume.

Starting at the Core: The Importance of Core Values

Starting at the Core:

The Importance of Core Values

The other night at one of our restaurants a young family had just come to the end of an enjoyable dinner experience for their family.  The server had done a fantastic job.  All food arrived on time and all orders were exactly the way they had been placed; even the complicated vegetarian order from the family’s young teenage daughter.  Adorable girl.  The family had praised their server and their experience to the manager at a point close to the end of the meal.  The manager could tell that this was a genuinely enjoyable evening and that dining out as a family wasn’t a weekly event for this family, but possibly more of a monthly or bi-monthly occurrence.  The server was of the personality that truly enjoyed delivering a memorable experience, so it was good to receive the positive feedback.  All roads were pointing to the creation of a great memory for the family.  At the conclusion of the meal the server dropped the check and said that she would be happy to take care of it whenever they were ready.  Moments later she returned and could see dollar bills poking their way out of the check presenter.  The server informed the guests that she would return in just a few moments with their change.  The content family let her know that no change was needed and they all exchanged big smiles and gratitude for the experience.  Upon returning to the server station, the server began counting the money that was left for the tab and found that a $100 bill was stuck to one of the $20 dollar bills.  Without the inclusion of the extra $100 the tab had been covered and a very generous tip was left.  The server instantly knew that the stuck $100 bill was not intentional.  She was instantly faced with a moral dilemma … to return the money, or to keep it?  Who would ever know?  Only she knew that a mistake had been made.  Moments later the server catches the still smiling family as they are walking out the door and hands them the $100 bill.         

We all want to believe that our restaurants are built of teams that all possess a great set of internal values that drive their decision making.  But how do you really know whether the values you want to believe exist within your restaurant are actually there?  The only way to know for sure is to put them there.

One important fact to remember is that our restaurants are entities of their own.  And like any entity, they have their own unique and individual purpose.  That purpose is driven by a set of core values, in the same way that any individual’s purpose is driven by a set of morals or values.  But we, as the business owners and leaders, have to define those values and then ensure that the values are not simply known by the teams that run the restaurants, but that they are living and breathing day by day.

Often, restaurant owners will try and retro in a set of business values based on the characteristics of the individuals that they select to their management team(s).  Essentially, the values and culture are determined by the values and culture set forth by the GM’s unique personal values. For example, if the GM is always 30 minutes early to work, then punctuality could become a de facto core value.  Whereas punctuality is not a bad thing, it may not be a true driver of the business or as strong as Integrity, Commitment or Passion in terms of deep and meaningful core values.  And then what happens when the GM moves on to another opportunity? A new GM arrives that believes coming in 15 minutes early for a shift is more than sufficient.  Now culture confusion sets in because the values of the restaurant were tied up in the exiting GM’s characteristics.  They were not clearly defined and attached to the restaurant. Therefore, the restaurant’s values begin to shift with the passing of each leadership team.  The long term result of this is often cultural paralysis that leads to high turnover and eventually a fractured and unidentifiable brand in your marketplace.

Successful restaurant owners will begin with their brand’s visual identity to the public (both potential team members and guests) in mind, and then work backwards.  They relate their restaurant entity to themselves.  They ask themselves, “If the restaurant was a standalone person, how would it want to be viewed?  How would it want others to perceive it?  Would it want the world to see it as honest?  Consistent?  Reliable?  Passionate?  Committed to excellence?  What makes it a brand people will believe in?  Why would a guest return, and moreover, why would they recommend it to someone else?”

From there, 3-5 core values are established that clearly define the restaurant’s purpose.  These core values are then etched in stone for the life of the restaurant.  They become the foundation for the culture that will grow to support that unique and individual purpose.   All managers will be recruited and hired based on their alignment to these core values.  The best fit managers will be those who already embody the same values in their own personal lives.  This makes value alignment much easier.  All of their future decision making for the restaurant will then pass through the filter of the restaurant’s core values.

Now a team of 3-5 leaders (managers) will develop a “culture-fit” hiring process that empowers them to recruit and hire staff members that also embody the same values as the restaurant.  Once a full staff is aboard, and all have taken up the cause of the restaurant as their own; over time, through constant reinforcement of the core values, a sustainable culture which is rooted in those simple, yet powerful values will be what defines the restaurant’s brand out in the market.  If successfully executed, what emerges is a customer base that is grounded by the same values. People who believe in the same set of values traditionally support each other.  Alignment now exists from the founders of the restaurant brand, all the way through the business, to the guests dining at each table.

If your ultimate goal is for your restaurant to be known as a reliable place which guests can trust to deliver a consistent experience every visit, and prompt them to share their experience with their friends and family, generation after generation, then you have to start at the core.

If you would like more information on Restaurant Consulting Services provided by Caprock, please feel free to email Zach Hopkins at zhopkins@caprockservices.com.

5 Tax Tips For Small Business Owners

When it comes to taxes, very few people are excited about paying them. From the rates, to the paperwork to the time and hassle, it is simply not something most of us like to deal with. For the small business owner the issues are multiplied. In addition to personal income tax, a business owner is faced with filing and paying income taxes, sales taxes, and payroll taxes for the business.

Unfortunately, failure to properly manage taxes has been a downfall for too many small business owners. From failing to file all necessary returns, failure to file returns properly, and failure to make prompt payments, many business owners find themselves in positions which put not only their business’s financial health, but also their personal financial health at risk. And while we all know taxes are unavoidable, too many business owners procrastinate and delay addressing problems while still manageable. They wait too long and the situation becomes dire.

But there are many things business owners can do to make it easier to manage their taxes.

1)      Utilize a payroll service

Most small business owners didn’t go in to business hoping for an opportunity to do accounting, let alone payroll accounting. Additionally, withholding taxes is one area in which the law will allow the Internal Revenue Service to pierce the corporate veil and pursue the business owner for any unpaid liabilities. A qualified payroll service will not only free up the business owner to spend time on their core business, they will ensure that returns are filed promptly and payments made when due. Because the payroll service will take the necessary taxes when taking the funds to pay employees, the business owner knows the funds have been set aside without having to do so themselves. In the event of an error, a qualified payroll service is responsible for correcting the issues with the agency involved.

2)      Escrow your tax payments

One of the simplest things a business can do to ensure tax compliance is to escrow funds for payment. By simply setting up bank accounts outside the main operating accounts to hold the funds, a disciplined business owner can avoid coming up short when it is time to make a deposit. One strategy is to escrow payroll taxes as employees are paid and to escrow sales and liquor taxes on a weekly basis. By segregating the funds a business owner can better manage their day to day cash flow while also preparing for future obligations.

3)      File returns promptly

Many times when a business owner is concerned they will not be able to pay taxes due they simply fail to file the return. This only makes a bad situation worse. By failing to file not only will the unpaid taxes accrue interest, but also penalties will be added to the balance. The amount that is eventually paid will be much larger, and this larger balance can increase the priority level at the agency.

4)      Don’t ignore tax notices

When your business receives a notice from any taxing agency it is important to deal with the situation promptly. A business owner who is working with the agency to resolve an issue is more likely to reach an amicable solution than one who fails to open a dialog. By nipping the problem in the bud it may be possible to avoid liens and levies, as well as to implement a payment plan that is achievable.  On the contrary, ignoring the notices may increase the likelihood of more aggressive actions and necessitate a plan with large, hard to make payments.

5)      Get help

Regardless of the situation, when the problems escalate it is best to have someone with experience to help you work through them. Ideally, it is best to use an individual or firm that specializes in resolving tax issues. While it may be tempting to go it alone or stick with your accountant, there is value in working with someone who deals with the agencies, the legal issues, and the necessary documentation on a daily basis. Tax resolution is a very specialized area, and just as one wouldn’t want a General Practitioner to perform open heart surgery, it may be best to utilize an expert to help you evaluate the issues and come to a resolution.

Taxes can be one of the least enjoyable aspects of being a small business owner, but managing taxes properly is a key to running a successful and healthy business. Whether you are paying sales and use tax, liquor tax, withholding taxes, or income taxes, failure to manage the process and payments can ruin any small business, and often results in serious consequences for the business owner. Utilizing these 5 tactics can assist you in keeping your business healthy, and reducing your tax related stress.

But My Agent is a Good Customer

We hear this statement from restaurateurs every day. While patronizing our clients is very important, we do that not because they are clients, but because they provide an extraordinary dining experience.

For the most part, the restaurant industry has narrow margins (10% to 15% is average). Below are the primary costs and optimal percentage of total sales that most profitable restaurants strive to maintain:

• Prime Costs          (Food and Payroll) 60% to 65% of total sales
• Management Salaries         10% or less of total sales
• Occupancy         10% or less (rent, CAM, Insurance, and taxes)

Let’s look at Occupancy costs since that includes the cost of insurance for the business. Those are the costs most business owners find the least “interesting,” however, a shift in just a few percentage points can quickly rock your profitability up or down.

Here is a real example of a recent situation we had in our agency. The owner of a fine dining restaurant in our city was contacted to discuss the insurance on his business. He said he would allow us to “bid” his insurance even though his current agent is a friend and a “good customer.” While meeting with him we did a risk assessment and gathered all of his insurance policies so that our team could review his current coverage. The following was the result:

• Double coverage that was costing him $3,500 per year
• Grossly under insured limits on Employment Liability protection
• Inaccurate sales figures
• Inadequate property protection
• No risk management training of his management team for Employment Liability
• No training of his management team for emergency situations
• No procedures in place for reporting and capturing incident reports for potential lawsuits
• Insurance cost savings of 17% or about $13,000 annually

Now my question to him is, “Did you hire the best insurance agent your money can buy?” If your typical profit margin is 10% is your current agent spending more than $130,000 per year in your restaurant? Can you afford to keep your “friend” as your agent?

If you would like us to review your current insurance program to see if your “agent friend” is doing the best for you, please contact us at 214-216-0225 or email Mona Carpenter at mcarpenter@innovativenationalrisk.com

Daily Deals, Too Good To Be True?

Daily Deal sites offer merchants quick access to cash with the potential to attract new customers. On the surface the offer seems too good to turn down, as combining marketing with convenient working capital is an ideal situation for the typical small business. Unfortunately, many find that the end result is less than ideal.

A typical Daily Deal offer is fairly straight forward. A merchant agrees the site selling number of coupons which provide a deep discount, 50% or more, for goods and services. Usually the deal site will keep one half of the proceeds from the sales with the merchant receiving the other half.

Negative Profit Margin
As many businesses find it very difficult to absorb the costs of doing this type of promotion. If your product or service does not have a large profit margin, you can find that each of these transactions comes at a significant loss. If there are no additional sales made to the customer, it is hard to justify the deep discount, as the business is unable to recoup the loss from the deeply discounted coupon. The simplest solution to overcome these cash shortfalls is often engaging in another Daily Deal offering, continuing the cycle.

Low Customer Retention
The goal of doing a daily deal coupon is to influence first time customers to try the business’ product or service. Many businesses also do not see the repeat business they anticipated, as a large portion of the Daily Deal customer base simply moves from discount to discount, rarely returning without another coupon. Many small businesses note there is an uptick in business when the coupon is first issued and another when the coupon nears expiration. Otherwise, volume remains consistent.

Loss of Value
Existing customers are put off to find that other customers are paying significantly less, and are less likely to continue to feel paying the established price is a good value. While Daily Deal site users tend to drive activity and increase discussion of a business, a recent study found that they are more likely to leave a public review, and on average, will rate a business 10% lower than a traditional customer. As a result, many businesses see their rating scores on sites like Yelp! drop noticeably.

Decrease Product or Service Quality
Businesses have found that more coupons are sold than they can realistically manage. Unless the deal is properly structured, businesses have often found that the number of sales exceeds their capacity. In one instance a flight school had to end sales on a deal early because 2,600 lessons had been sold and their capacity for all lessons over the prescribed time frame was only 2,000. Another merchant found themselves forced to bake 102,000 cupcakes, at a loss of $3 per dozen, as a result of a “successful” offering.

Employee Dissatisfaction
In service industries, there can also be increase in job dissatisfaction among employees, particularly those whose income relies on tips. Customers will frequently base tips not on what the cost of the food would have been without the discount, but on what they actually paid. In many cases, customers used only the value of the coupon with, ordering no extra additions, and left no tips. If they did, they were well below what is appropriate for the service provided. In essence, employees find themselves also forced to offer their labor at a discount.

The important thing for merchants to consider before accepting an offer from a Daily Deal site is to view the whole picture and determine if it fits with the image, business model, and financial reality of the business. If the sales are going to come at a loss, the question becomes, can the business absorb that loss? Do the benefits outweigh the cost? While the information and analysis provided by the site may be impressive, a merchant is strongly advised to do their own research, in regards particularly to how similar businesses have fared. While there is a place for these kinds of offerings, they are not something to be taken lightly.