There’s no question that daily deal sites like Groupon and Living Social have become extremely popular and are available in just about every market possible. Initially, these daily deals were only available for consumer and in larger metro areas, however, you’re now starting to see them launch in smaller third tier markets and in the business to business (B2B) environment. But are they really good for your business?

Deal sites are considered a form of online advertising. The task for merchants is to deliver an attractive deal that site operators believe will sell. The deal site then publishes the offer and pushes it out to its customer list. Because the deal sites are known for offering amazing discounts on products and services of all kinds, they’ve attracted many customers and typically have extremely large mailing lists. The benefit here is that the deal sites will then drive an incredible amount of traffic back to the business website where the prospect can research the purchase or redeem it.

The offers that appear on these deal sites, however, are very different from the usual coupons merchants typically offer as the deal sites have an expectation that the product or service has been steeply discounted - often by more than 50% to make the deal almost a no-brainer for the buyer.

The advantage for the merchant is that there are no upfront costs to participate and they are only paying to get actual customers. If the deal should fail to sell, the merchant has limited his or her investment as they’ve really only invested their time in setting it up. The drawback for merchants, however, is that they’re paying a high price for this customer as they will receive less than 25% of the full-price face value of the product or service offered.

So, after so heavily discounting your product or service, it’s important to carefully consider whether or not this is a good opportunity for your business. And the answer is - it really depends.

There are 5 key items to consider before jumping into the world of daily deals and huge discounting:

1. Variable vs. Fixed Costs: Carefully understanding cost structure is the key to knowing whether or not volume sales will be good for your business. At the end of the day, you still need to make money on the deal, and if you’re not, no deal.

2. Capacity: Do you have the capacity to deliver? If your deal is very successful, are you able to deliver enough product or service to ensure a positive experience for this new exposure? For example, will you need to bring on extra staff to be able to handle the volume? And again, if you’re bringing on extra staff, your costs have just gone up so are you still making money with this discounted product and service? Ensure you have the capacity to manage the volume of traffic that could be generated because you don’t to have these new customers going online and providing reporting they had a negative experience.

3. Contact Data: Are you able to capture customer contact data? When the deal is sold, you don’t own the customer contact details of those who purchase the deal—the deal site does. You need a plan to overcome this by providing those customers with some incentive to provide you with their contact details.

4. Up-sell Opportunity: Ensure you have an up-sell opportunity to create an even better and more memorable experience with those who buy your deal. After all, the whole reason for offering the deal is to develop a new group of raving fans that will tell others about your business. What else can you do to create an even better experience with a slight up-sell.

5. Repeat Business: Once you get people in the door with this deal, how do you plan to capture them as repeat customers? This one is a challenge because you’ve just offered them something of great value at an extraordinary price, so how do you get them to return and pay regular price?

Deal sites do offer an opportunity to create a flood of customers, a decent cash influx, and great buzz and visibility, however, you have to do your homework and plan this promotion carefully. Think about doing a practice run with a smaller deal site to ensure you haven’t made any critical mistakes in your thinking and calculations. And no doubt, you’ll see some ways in which you could even improve your process.