I also have heard many small to medium sized businesses lost money by participating in these social deal sites. I think many bank on the fact that these "new" guests will return several or many more times in the future, but that doesn't always happen.

One issues is that people that try these deal sites may always be looking for the "next deal" and hop to a competing business the next time.

Another potential issue is that you need to prepare your staff for these promotions so they know what to expect (be it a coupon or a code or something). Also, you really need to ensure that youre staff is following their training (good customer service matters here in trying to retain new guests - if they have a bad experience, they aren't coming back).

Also, you must weigh whether this will create the best retun on your investment compared to other marketing and advertising activities.If it isn't the best use of your time and money, apply that effort in another area of your venture.

If you are still pumped to give social deal sites a try, I suggest you form an actual game plan to retain as many new customers as possible. This could be giving the new guest a percent (%) off their next purchase, give them a loyalty card with several of the punches already started so they feel clsoer to getting a complimentary item. The main goal is staying engaged with customers long-term. Be creative and if you pursue using this type of deal remember it is part of a larger picture.

Good responses from Jef.

For me the single biggest challenge with this is, congruency.

You do the deal.

Are you going to attract from your niche?

Are you simply cutting margin and setting a price point mentality.

Are you sacrificing quality of service/product/staff/systems

Sure, there are benefits to be had, don't get me wrong but too often I don't see this as the game plan from the get go.

As Jef says above, what is the strategy (and benefits) from participating?

If you are sacrifcing margin and service (and believe me, more often than not you will), what's the strategy to slowly peel that back.

You have to turn a percentage of those 'new' customers (people who buy from you once) into clients (repeat sales).

If you are using it as a branding/awareness exercise what are you going to do to then position your business back to where you want it to be?

In most instances you actually don't want to be seen as the high volume, low price point, shove 'em through the system type of business in your market segment.

As always, have the end goal in mind. How are you going to use this legitimate, but oh so dangerous, marketing and sales strategy to best advantage.

To your business growth.

As both Greg and Jef mentioned, you need a plan in place before you talk to soeone from these companies.  They are "hard sell" sales people and will pressure you into a deal you're not happy with. "If you sign up today, I'll give you an extra 5% of the commission" type thing.

The only way to make this work for you is to offer a service that requires minimal manpower to provide.  Offering a massage for $30 is not going to help - your staff will get angry as will your other clients when they can't get a spot because you are full. Now, an infra sauna on the other hand requires minimal manpower to prep/clean and would still give a reasonable profit margin (assuming you already had the asset).

Offer something that requires them to buy something or return.  Using the massage example again, You voucher could be for $50 massage with a voucher redeemable for a second massage at $50.  This way your margin is higher and you are enticing them for a second visit, where YOU get all the revenue, not the group buying site.

Be aware, depending on which company is used, the % revenue they take can be from 30% to 70%, giving you the raw end of the deal.  

My last piece of advice is set a limit to the number of vouchers sold and stick to it.  Do not let them talk you out of it.  There is noting worse than waking up and finding you have sold 3,000 vouchers, in a service based business, knowing you can not fulfil them before the expiry date.  Asking for the deal to be stopped early will fall on deaf ears.

I've seen many businesses close after trying to provide these deals, but I have seen a few run very smart campaigns.  As long as you know what your usual cost per acquisition is and stick to that, you should be fine.