Last Friday night we went out to dinner with another couple in the midst of some pretty heavy snowfall. We decided to go to a new barbecue place that had recently opened up, and it was packed! We spoke with the owner, who attributed the crowd to using Groupon.

What does Groupon do?

For those unfamiliar, Groupon is a social discount company that emails a daily offer to subscribers. Discounts are typically very steep—50% or more—and can be a great way to jump start a new business, introduce a new product or service, or pump some life into your current business.

Unlike traditional advertising models, Groupon does not require any money up front. Instead, Groupon negotiates with business owners on a case-by-case basis and, if a particular Groupon sells more than its threshold amount, Groupon will take a percentage of each unit sold.

The BBQ joint we went to last Friday had run a 50% off deal, something like $20 for $40 worth of food. This is a common Groupon offer. Once you factor in that Groupon is taking it’s cut, the offer amounts to a discount of over 50% for the restaurant. Margins are slim enough to begin with, so how is this a good deal for business owners?

Is Groupon good for small business?

When you use a service like Groupon, you’re betting on repeat business. Although you probably won’t be out any cash for the initial offer, the Groupon strategy is a long-tail strategy. And that’s where business basics come back into play.

A successful Groupon offer can bring hundreds of new customers through your doors, but it’s up to you, your staff, your products and how you run your business to make sure that those customers come back again.

Groupon’s marketing materials cite that over 90% of businesses that have used them would do it again. What about that other 10%? Those guys are probably the ones that maybe shouldn’t be in business in the first place—the folks who aren’t taking care of their customers properly to begin with.

Will Groupon work out for my business?

So what’s the bottom line? If you’re confident that you’ve got the basics covered—customer service, product selection, product availability, etc.—and if you’re willing to take the margin hit in order to introduce a large number of new customers to your business, than these services might be right for you.

Also check out:

• Living Social
• Buy With Me
• Tippr