June 15, 2011, 6:15 PM

IRCE 2011 Report: Daily deals can spur rapid growth

But retailers must prepare for the challenges of sales spikes, an IRCE speaker says.

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Before Bob McKeon, owner of PictureItOnCanvas.com, ran his first Groupon offer he processed between 100 and 150 canvas prints per month. He was a one-man shop, working with only three part-timers in an 800-square-foot space carved out of a San Diego winery. While he wasn’t getting rich, life was good, he said today at the Internet Retailer Conference & Exhibition 2011 in San Diego. “At four o’clock I’d have a glass of wine and put my feet up on my desk,” he said.

Then eight months ago he ran his first offer on Groupon, the daily deal powerhouse. He’s run several more since. His business now processes about 250 prints a day, with help from 34 employees, including a webmaster, marketing staff and others who work in an 8,000-square-foot space. He’s purchased new equipment and then sold that to buy even better machines that can process prints more quickly.

However, McKeon says his growth has not been organic, which means that it comes in spikes whenever he runs a daily deal offer. Those jumps in sales have led to a host of issues that he’s had to address by quickly hiring workers, finding new space and buying a new server to handle the onslaught of orders.

That’s not to say McKeon regrets his marketing efforts. He says he incurs no upfront costs in running an offer on Groupon or other daily deal sites. That’s a stark difference from when he ran an ad that featured a coupon code in Northwest Airlines’ in-flight magazine. “I spent $9,000 to make one sale,” he said.

With Groupon he pays roughly a 50/50 split of the revenue generated from vouchers. Then Groupon pays one-third of PictureItOnCanvas.com’s share within five days, another third within a month and the final third a month after that.

While that means he’s selling his products at a 75% discount, he considers it a customer acquisition cost. “I may only make a few dollars on each sale but ultimately it’s worth it because those people become my customers and I can repeatedly remarket to them,” he says.

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