Since launching RidingHoodBaskets.com in mid-January, I have had the opportunity to explore several advertising channels. In the grand scheme of things, most have been successful. A couple of months ago, I had embarked on a grand vision to potentially reach 25 million customers (or a fraction thereof) by launching a campaign on Living Social.
I was unsuccessful in my attempt.
In failure, there is always a lesson, right? Well this is what I have learned:
- If you plan on launching a deal around a holiday, begin the process at least 4-6 months in advance.
- After you submit your initial “interest” as a Partner with Living Social. Give them a call in about 2-3 weeks if you haven’t heard anything. My first application was lost in the ether. I had to submit a new application and call about 2-3x times before I was contacted by an Account Manager via e-mail.
- Now for the good stuff….
- The Split: Living Social offers a revenue split from the sale of your deal on their platform. That split is 70% (you) / 30% (them) . They also charge a credit card fee around 2.5% that is deducted from the Gross. So you, the business owner, will Net 70% of Gross less 2.5%.
- The Deal: In my case, I would be offering a coupon deal for X that doubled the customer’s buying power. Basically Pay X and get 2X as store credit. (i.e. Spend $5 for $10, $10 for $20, $20 for $40, etc.)
- The Strategy: Living Social does not want to the customer to have to pay more for a product after they have bought a coupon. Meaning, (as I have experienced it) they will take the average price of your products/services and offer a deal for 100% of the retail price. Meaning if your average price is $50..expect a deal like $25 for $50 or $50 for $100.
- Big take-away: Do the numbers. I created a spreadsheet that calculated my net profit from the deal AFTER split for a given quantity against my Revenue (or loss) from sales of the exact same quantity at each major price point. It was easy for me to see at what price point I would begin losing money due to cost of goods sold (COGs) exceeding my sales revenue less coupon.
Be prepared to negotiate with Living Social about what level of offer the deal should give and do not be so invested in the project that you can’t walk away. In the end, the numbers should make the decision. In my case, the deal they offered would have resulted in a loss on the books. I walked away from the deal.
I do believe Living Social is great for certain businesses. Here are a few structures I think could work well leveraging Living Social:
- High margin businesses
- Service Based Business with low overheard/expenses
- Companies with large ad budgets (the benefit of selling x number of deals could actually outweigh a loss taken from the campaign if reach and fulfillment are the KPIs)
These are my takeaways and the reasons for the decisions I have made regarding this particular campaign, for better or for worse.
Have you ever used Living Social or similar competitors like Groupon? Was it successful? What was your experience and take-aways? Share with us in the comments!