Braintree, an online payments provider, is debuting a set of new tools for mobile app developers that allow merchants to accept payments within a mobile app, rather than through a web browser. For background, Braintree powers and automates online payments for merchants and companies online. The company provides a merchant account, payment gateway, recurring billing, credit card storage, support for mobile and international payments, and PCI Compliance solutions.

The new offering from Braintree helps developers avoid PCI compliance issues by encrypting sensitive credit card data when it is entered by the user on their mobile device. The encrypted data is passed from the merchant’s server to Braintree for processing, and only Braintree can decrypt the information using a private key, preventing the merchant from being exposed to sensitive credit card data. The libraries support both mobile phones as well as tablet devices running Android, iOS, and Windows Phone 7 operating systems.

Braintree maintains that the customer entering the credit card information on the app is the last person to see it. Other mobile app payments solutions typically use a web browser masked as an app, says the company.

Braintree’s client list includes LivingSocial, 37signals, OpenTable, Fab.com, GitHub, Airbnb, Heroku, Engine Yard, Animoto, Shopify and HotelTonight. Braintree is processing more than $4 billion in annual credit card volume and is adding more than 100 new merchants a month. The company also raised $34 million in funding last year from Accel.

Article courtesy of TechCrunch

Peecho, a Dutch startup that enables anyone to sell professionally printed products from their website, mobile or desktop apps, has raised $750,000 in financing from Peak Capital and DHG Holding to boost development and marketing of its embeddable ‘cloud print button’ service.

Basically, their solution lets anyone sell digital content as physical products (think magazines, photo books, canvas prints and whatnot), by helping its customers hook into a network of professional print production facilities.

Peecho takes a cut of every sale realized by its customers, which include companies like Hyves, KODAK, Efteling and Issuu.

The company explains that it executes production orders on the merchant’s behalf, but collects the payments from consumers. Hence, they make an average margin of 20 percent on every order, although they point out this depends on the type of product.

Peecho says it plans to introduce paid monthly plans that include premium features in the future, along with prepaid wholesale credit in return for a discount.

Article courtesy of TechCrunch

Intuit is the latest company to enable e-commerce on Facebook, announcing today that businesses using the company’s Websites software can create a store on the social network.

Intuit SimpleStore for Facebook will automatically sync the merchant’s website and Facebook page, loading inventory and enabling payments. Business owners can accept credit or debit card payments directly on Facebook, via Intuit, with no added log-ins required for the customer. All transactions are powered by Intuit’s payments back-end.

Intuit SimpleStore for Facebook is available through Intuit Websites, a service that allows merchants and businesses to set up a website and payments platform.

While a Facebook e-commerce product makes sense, Intuit is pretty late to the game on this. Payvment, ShopIgniter, BigCommerce, and many others have been offering this technology to merchants for years.

Article courtesy of TechCrunch

Foursquare is giving away a free $25 credit to American Express cardholders through a new promotion taking place on November 26th, aka “Small Business Saturday.” (Yes, everyone has their own Black Friday spinoff now). To get the credit, Foursquare users have to spend $25 at a local merchant and check-in using the mobile app.

There are “hundreds of thousands” of participating merchants across the U.S., according to the map in the Foursquare blog post.

To claim the deal, American Express users will first need to sync their account with Foursquare at sync.americanexpress.com/foursquare. Afterwards, the available merchants will appear in the “Explore” tab in the Foursquare app and on the Foursquare homepage, starting on Saturday the 26th.

In order to claim the credit, after setup, users will need tap the new “load to card” button that appears upon check-in. To save some hassle, you may want wait to check in until after you know you plan to spend the $25.00 at the merchant. Update: Foursquare says you *have to* check in on Foursquare prior to checkout. You know, just to make things harder, I guess.

The credit will show up on your next Amex statement, five business days after your purchase.

Foursquare isn’t the only social media service American Express has tapped in promotion of this Small Business Saturday thing which it created via its American Express OPEN group. The company recently appeared as a Klout perk too. If you’re not into Foursquare and Klout, there’s also a Facebook page where you can find businesses and claim your credit.

Article courtesy of TechCrunch

Earlier this year, Square debuted a virtual card case that consumers fill with ‘cards’ of all the merchants they visit and buy from who accept Square. These mobile cards include locations, merchant contact info, coupons, order and purchase history and more. One of the more interesting features was the ability to ‘pay with your name.’ In a merchant’s card within the case, you can press a “use tab” button which allows the frequent customer to essentially put a purchase on their virtual tab with Square at the merchant. Today, Square is launching a new version of its Card Case iOS app that integrates iOS5 support for geofencing.

So once you opt-in one time to the geofencing feature in the app, when you (and your phone) are within 100 meters of a Square merchant you can simple walk into the store, say your name at checkout and you are good to go with the payment. You don’t need to pull your phone out at all or open the app.

Here’s how it works. Once Square’s technology detects you are near a merchant enabled store, the Merchant’s Square app will open a tab for the customer and show that customer’s account, name and photo as nearby. When the customer purchases an item, they say their name, and the cashier can verify the photo matches the customer and press the transact button and the charge will go through. The customer will get a push notification with the amount of the charge as well.

With the new version of the card case app, merchants can also add more information on the actual loyalty cards for each business, which Square’s Megan Quinn calls ‘dynamic representations of the business.” While previously you could see the merchants’ names, location, and contact info, Square has added the ability to add menus, photos, click-to-call functionality, directions to the business. Square has also added Twitter integration to link their Twitter account and Tweets, see comments and reviews from customers.

Additionally, Square has launched a new way to discover merchants on the app. Previously you could see a directory of merchants nearby, but today, Square has added to the app a list of the most popular spots that Square customers are frequenting.

Quinn says that to date, over 20,000 merchants have joined the directory since it opened up to the public in August. And Square has seen steady growth in the number of transactions taking place via the card case since the app came out of beta. Square is also in the process of extending this new functionality to the Android app for Card case.

As mobile payments heat up, Square is doubling down on product development and new features. In early October, the company announced that it would be dropping its new user limits. The payments service is now processing $2 billion in payments volume per year and t date, Square has been activated by 800,000 merchants which is up from 500,000 card readers shipped in May. Square’s merchants are now 10% of the reach of the Visa/MasterCard world. In August, Square updated its mobile apps for a more fast, and seamless payments experience.

Next up could be international expansion. Already European competitors are popping up, so it should be interesting to see where Square can launch its payments technology next.

Article courtesy of TechCrunch

8thBridge – formerly Alvenda – provides a social shopping platform where large retailers can engage customers inside Facebook and on the merchant’s ecommerce site, as well. Customers are empowered to shop with merchants on their own terms in a shopping experience that emphasizes three P’s:

• Portable – The shopping experience happens in the Facebook News Feed, so it travels from newsfeed to newsfeed. When a customer shares a product or purchase with Facebook friends, 8thBridge attaches the store so their friends can pick up something for themselves. In fact, 80 percent of total shopping across the 8thBridge platform is engagement driven by fans sharing the store with friends.
• Personalized – Through 8thBridge’s Fan Page Stores, shoppers can create a personalized wish list, which can be shared so that those items can be purchased by friends. Fan Page stores allow brands to create targeted, customized storefronts for their most loyal customers.
• Participatory – Shoppers can share newsfeed stories with friends who can also shop in the same store. On the merchant’s own ecommerce site, customers login using their Facebook credentials and have a similar experience.

8thBridge Client Roster

The company primarily covers three major sectors: fashion, retail and entertainment. The client roster is stellar and includes such well-known brands as Land’s End, Delta Airlines, 1-800-FLOWERS, 7 For All Mankind, Paramount Pictures and 20th Century Fox. In fact, 8thBridge works with over 50 leading brands that, in total, have created 30,000 social shopping stores inside Facebook.

If you’ve ever purchased flowers from the 1-800-FLOWERS Facebook store, for example, you were using 8thBridge’s app. Similarly, if you’ve purchased airline tickets on Delta’s Ticket Counter app, you’ve interacted with the company’s product.

Competitors

8thBridge runs with a rather small pack of social shopping platform providers: Milyoni – which I covered earlier in the week – ShopIgniter, Moontoast and Payvment, which I’ll be covering in subsequent posts.

What makes the company unique is that shopping is done via newsfeed stories – shoppers can purchase a product directly from their newsfeed without ever leaving Facebook. The transaction is handled securely, but fully within Facebook’s ecosystem.

Stores tend to be very campaign driven – flash stores, movie launches, etc – so they don’t tend to live for long periods of time.

The following is a series of screenshots that outline the purchase process.

The shopping process starts with a News Feed item being broadcast from the company fan page.

Click on the News Feed item and the Fan Store opens all without requiring the user to leave their Facebook home page.

The secure transaction is processed without leaving Facebook.

8thBridge provides brands with a Facebook Fan Store.

Customers can share purchases with friends.

Friends see the story shared in their News Feed and the cycle begins again.

Examples of 8thBridge Apps

As mentioned earlier, the 8thBridge platform powers Delta Airline’s Ticket Counter app in Facebook. The app allows users to search, book and share flights within the social network. Impressed with the app’s uniqueness, AdAge included it in the “Book of Tens” as one of the top 10 marketing apps for 2010.

The company also helped with the launch of Transformers 3 by building an app that allowed the purchase of movie tickets. Customers could share the purchase with friends and view a trailer inside the app within the News Feed.

Company Funding

In the past two years, 8thBridge has received two major rounds of funding: $5 million in November 2009 and a Series B in March 2011 for $10 million. 8thBridge’s primary funding sources are Splitrock Partners and Trident Capital, both well-known for providing funding for technology startups.

Product Cost

There is no out of the box or “one size fits all” solution from 8thBridge. Price depends on the client’s need. Typically, companies can expect to pay $1,000s per month.

Company Information

8thBridge, founded in 2008 as Alvenda, is based in Minneapolis, Minnesota and is led by a team of executives with domain expertise in ecommerce, direct marketing, social media, and online publishing. They include:

• Wade Gerten, CEO, former VP at Oracle
• Jamie Thingelstad, COO/CTO, former CTO of the Wall Street Journal Digital Network
• Nick Bellomo, CFO, former VP at Trident Capital
• Jon Kubo, CPO, former CIO at Wet Seal

Contact Information

Currently, 8thBridge is focused on US-based markets, so nothing of an international nature exists just yet. Interested parties may contact the company by phone – 612-927-3434 or via email.

Article courtesy of Social Commerce Today

When it comes to local commerce, the ultimate prize everyone is going after right now is how to close the redemption loop. The redemption loop starts when a consumer sees an ad or an offer for a local merchant, and is completed when the consumer makes a purchase and that purchase can be tracked back to the offer. If you know who is actually redeeming offers and how much they are spending, you can be much smarter about tweaking and targeting those offers.

Groupon, LivingSocial, and other daily deal sites have created enormous value by pushing the redemption loop the furthest. When someone buys a daily deal, for instance, that translates into cash for the merchant. But for the vast majority of their deals Groupon and LivingSocial do not track whether or not they are ever redeemed, much less the amount each consumer actually spends at the store or restaurant once they show up.

In order to complete the circle and track offers all the way through redemptions, it is necessary to either tap into the payment system or create an alternative way to track redemptions. Different companies are tackling this problem in different ways, but they almost all rely on a shift from emailed coupons to offers delivered through mobile apps.

Next Jump CEO Charlie Kim, who recently partnered with LivingSocial to power daily deals across his commerce network, sees a shift in targeting from broadcasting deals to narrowcasting them. “Blasting out a deal to everyone in New York is not targeting,” he says. “When you broadcast too much in any category, it is just a lot of noise. Email response rates have plummeted for everyone across the industry. What used to be 10% response rates even a year ago, now you are talking the 1% to 2% level.” The constant barrage of emails from Groupon, LivingSocial, and every daily deal copycat is creating user fatigue that is visible in declining response rates.

And that is why mobile is so appealing. If you can send deal notifications to people’s phones based on their exact location and nearby deals, you have the beginnings of narrowcasting. Later on, companies will figure out how to layer on ways to target by income, gender, and other factors as well.

Mobile and local commerce go hand in hand. In a few cities, Groupon is testing out Groupon Now and LivingSocial is offering Instant Deals. In both cases, the deals appear on mobile apps and can be redeemed instantly, rather than having to wait a day for the deal to go live, as is the case with their regular daily deals. The downside of these deals is that Groupon and LivingSocial cannot take advantage of their existing deal inventory and they have to actually provision participating merchants with iPhones and iPads so that they can accept the deals and Groupon/LivingSocial can track them. Yelp is doing something similar where you have to show a redemption code to the merchant from your phone.

Foursquare and Facebook are taking a different approach through their separate partnerships with American Express. Since AmEx is the payment system, it records deal redemptions along with the actual payments. Merchants and consumers don’t have to do anything different from what they normally do. Pay with a credit card and your deal is redeemed. Except it only works if you have an AmEx card and the discount is credited to your account later.

Google is trying to link Google Offers to its Google Wallet, which requires an NFC chip in your phone and an NFC reader at the merchant’s checkout. It has the advantage of working with MasterCard, Citi, and other large payment processors. But it also depends on a brand new technology that will take a long time to become widely available.

The key to closing the redemption loop is definitely payments. Investor Chris Sacca recently told Kevin Rose in a video interview the best reason why Twitter should buy Square is because Twitter has the broadest reach to distribute offers and deals, and Square has a built-in way to track redemption. This was just an off the cuff remark in a friendly chat (Twitter isn’t even in this business yet), but it makes sense.

We are moving from a world of online ads that produce impressions and clicks to online and mobile offers that produce real sales. If the deal companies can figure out a way to actually measure those sales, it could open up local commerce in a massive way that makes what they’ve done so far look like child’s play.

Article courtesy of TechCrunch

This morning American Express is launching a new deals platform in partnership with Facebook that should make big waves in the payments and offers space.

Winners: Facebook, American Express, small businesses
Losers: Groupon, LivingSocial, Google, foursquare, VISA, MasterCard

With the new platform, merchants will be able to target deals at American Express cardholders on the Facebook platform. Initial launch partners include H&M, Sports Authority, Dunkin’ Donuts, Sheraton, Westin, Travelocity and Celebrity Cruises. Although the launch focus is on big national brands, the platform is self-serve and well suited to the needs of small business. This presents a big and credible threat to Groupon, LivingSocial, Google Offers and other daily deal providers.

The platform covers both one-time and loyalty offers. Some examples of the offers that could be presented:

• Spend $30 and get a $10 statement credit.
• Spend $50 and get 10% back.
• Visit 3 times, spend $50 each time and get a $10 statement credit.

The offers work much like the recent foursquare and American Express deal: you link an American Express card to your Facebook account, select an offer to load it on your card and then pay using your AMEX. If you meet the offer criteria, you get the discount as a statement credit. This offers a significant benefit to retailers: no staff training required. Training has long been the bane of promotions and is often executed poorly. I recently spent 30 minutes at Radio Shack trying to redeem a foursquare offer. That’s a terrible experience for the consumer and the merchant.

For merchants, it also provides additional benefits over Groupon, Google Offers and LivingSocial. Ironically, the daily deals model is currently about as targeted as media that were available when AMEX was founded more than 160 years ago. For the most part, it’s at the region level (although it is moving towards a more geographically targeted approach). AMEX can do much better. This allows merchants to reach just the customers who are within their trade area, instead of offering deep discounts to deal seekers who come from 45 miles away and would never return at full price.

Merchants also benefit from analytics that AMEX can provide. Because it processes all of the transactions through its network, it can report on that data. AMEX captures important metrics like total spend. Tracking beyond initial sales of offers is another significant area where Groupon, Google Offers, and LivingSocial fall down.

In the future, I would look for AMEX to integrate this platform with transaction history data and its popular Membership Rewards program. With transaction history, merchants could better target cardmembers. Instead of sending out an offer to anyone in the city who wants a cheap massage, the offer could be sent to people within 5 miles who have shown a history of buying spa services and spend a lot of money each year. Membership Rewards integration could allow consumers to redeem points at any merchant on the American Express network, similar to the way in which consumers can redeem points for Amazon purchases.

The AMEX platform illustrates a big difference in business model. Groupon and other daily deal providers need to make their money on a one time deal with the merchant. As a result, in my opinion they’re doing a lot of deals that are bad for businesses. AMEX is forgoing that upfront revenue to build a long term relationship with the merchant that pays off over time. AMEX wins in three ways: driving traffic onto its network for existing merchants over VISA and Mastercard, providing a clear differentiator to encourage new merchant accounts and encouraging new cardholders.  And the biggest difference of all: AmEx doesn’t take a 50 percent cut of each deal like Groupon does.  It takes zero percent of the actual deal, and makes money instead through normal payment transaction fees.

The biggest question in my mind is how much marketing effort AMEX and Facebook will put behind this. The platform itself has the potential to become a serious Groupon competitor. But it needs marketing muscle behind it.  If they don’t, it’s just another product announcement by a big company.

The AMEX/Facebook announcement also reinforces the folly that is Google’s bet on NFC. For some reason, Google is enamored with that technology. NFC is a solution in need of a problem. In the best case scenario, that investment will pay off in 3 to 5 years for Google. AMEX and Facebook are launching a product that works today.

The other big loser in this is foursquare. The announcement is pretty much the same thing that foursquare did with American Express. Except that in this case, it has the potential to reach more than 750 million unique users.

Article courtesy of TechCrunch

I hope you’re not getting tired of daily deals, because I’ve got more daily deal news for you, dear reader. Among the latest trends in the evolving daily deal model is the so-called “deal wallet” and “deal resale marketplace”, which quite a few startups have begun implementing, like City Pockets and DealsGoRound, to name a few.

Another area of the deal model that seems to be going through a redux is the consumer driven deals (CDD) approach, in which sites are letting consumers determine what deals they want to see offered by their favorite local merchants. Ringleadr recently launched a service to put consumers in the cockpit, as did Loopt with its new “U-Deals”.

The consumer driven deal (or reverse deal, if you prefer) has been poked at by startups before, without prodigious success, but that is not to say that there isn’t room left for iteration and disruption, as the space on a whole is still relatively young. While Ringleadr and Loopt are both offering great services, one of the potential drawbacks to the structure of their models is that consumers have to wait for 15 days (in the case of Ringleadr) for the merchant to approve the deal. This is after the consumer has gotten a crowd of friends excited about the deal, enough so to get past the tipping point, and then has to wait over two weeks for the merchant to maybe decide to approve.

SoBiz10, a Colorado-based startup, is attempting to turn the CDD screw even further by shortening the time it takes for merchants to approve a deal. The startup is taking a “consumers get the deals they want, at the price they want, when they want” approach, not to mention it’s all completely automated. Of course, this immediacy may sound like tyranny of the consumer, but SoBiz wants to offset this potential by giving businesses the ability to generate and retain new customers for a smaller revenue share (25 percent) than is typical among group coupon sites. (The average is about 50 percent.)

But, before going any further, here’s how SoBiz works: Users get 10 of their friends together to decide on a deal they want and the merchant they want to patronize. A user then posts that deal on SoBiz, at which point the merchant receives an email, text, and voicemail, alerting them of the deal. The merchant has 48 hours to accept, deny, or counteroffer. If the deal is accepted, the 10 users are immediately sent their coupons in an email and can pay for them using the startup’s secure payment system.

From there, merchants have the ability to display the deal more broadly in the SoBiz marketplace, with the option to control the availability, and SoBiz in turn alerts members of the community that the deal is more broadly available.

Another selling point for the SoBiz take is that 25-cents per coupon is donated to a charity of the deal-creator’s choice, adding a non-profit and feel-good element to the service, a la CauseOn.

The other interesting part of the SoBiz platform comes from the fact that Founder and CEO Marion Mariathasan and team had originally built the service to be a social network, with a daily deal component as an add-on. As you can see from the image above, users and merchants can create profiles, just as one would on Facebook, write reviews of prior deals, connect with friends and merchants, and so on.

Merchants also can take advantage of a dashboard the startup provides, where they can easily manage their pending deals, approve, reject, etc. In addition, the service includes search functionality as well as deal categorization, so that consumers can request deals by category. If a user doen’t know who the best merchant is for, say, a new pair of reading glasses, they can go into the “Vision Category” to search for eyewear merchants. Categorization is an added bonus in comparison to Groupon and other deal sites — it adds a much-needed level of organization to the frantic world of coupons.

Mariathasan compares the service to a kind of reverse Priceline.com, except in the case of Priceline, consumers are just reacting to the deals that Priceline has already negotiated, whereas automated consumer-driven deals puts the customer in the driver’s seat.

SoBiz10 has been testing its model in Denver and Kansas City, with more than 17,000 consumers and 2,000 merchants participating. The startup recently forged its first big partnership with a national coupon-ing company, but is not yet sharing the terms, or the name of company, though two more are in talks with SoBiz. More to come on that. SoBiz is currently bootstrapped and seeking venture-backing to help bring its service to other cities.

Lastly, the startup is providing TechCrunch readers with 100 free keys to the private beta, which you can take advantage of by emailing the team at contact@SoBiz10.com. Mariathasan said that SoBiz plans to launch its public beta later this summer.

More on SoBiz in the video below:

Article courtesy of TechCrunch

Editor’s note: We’ve run a lot of guest posts lately poking holes into the daily deals industry.  With this one, we hear another side.  Arash Pirzad-Allaei is a co-founder of KASA Capital, where heads the internet technology development of KASA’s network of websites, including daily deals site Crowd Cut.

There’s a lot of hate out there these days from the press when it comes to the daily deals industry. I’m looking at you, TechCrunch.

Sure, Groupon has become the whale in this industry, but that doesn’t mean Groupon constitutes the entire industry. Sure, while Groupon may sometimes structure lousy deals for merchants, it doesn’t mean the entire daily deal business model isn’t sustainable or beneficial for small businesses. When done right, the daily deal can actually be very lucrative for everyone involved: Merchants, customers and the daily deal sites themselves.

So why should you take my word for it? It’s true, I’ve got my biases.  But so many people have quickly elevated themselves to “experts” on this space that it’s hard to filter truth from the noise. My company, KASA Capital, started Crowd Cut in May 2010. We are now a top player in our markets, generating eight figures of profitable revenues. So, when I talk about the daily deal space, I do so with direct experience. I talk to merchants and customers every day. I have numbers to back my claims. I’m a player in this game, not a self-proclaimed expert who sits on the sidelines.

Let’s start by clearing up some common misconceptions:

• The average back-end split is 70/30 (merchant receiving 70%); not 50/50. Over the past year, merchants have become far more savvy, they no longer accept 50/50 splits.
• Most daily deal sites will pay credit card processing fees (2.8% – 3.5%). If a merchant fails to negotiate credit card processing fees, they have not done their homework.
• Immediate payment. Many daily deal services from Google Offers on down are paying merchants faster.  Crowd Cut pays all merchants in full within 5 business days of run-date; others typically have similar payment schedules (Groupon has the longest, three payments over sixty days)
• Non redemption rates vary from 10 – 35%: there is an inverse correlation between voucher price and non-redemption rates.  The bigger the voucher, the fewer that never get redeemed.
• Generally, a minimum of 60% of purchasers are new customers, at least for us: Yes, we measure this!

Most merchants participating in daily deals do not have much deal experience. This leaves them at a disadvantage to the daily deal sites when it comes to negotiating the terms of running a daily deal, and can lead to stories like “Groupon Was ‘The Single Worst Decision I Have Ever Made As A Business Owner” (also on TechCrunch). Interestingly, I find that most of the daily deal horror stories come from merchants that a) negotiate terrible deal structure/terms b) do not accurately track redemption or customer spend and c) do not clearly understand the true economics of running a daily deal. This particular post references a story about a coffee shop that signed a 50/50 deal to sell $13 value vouchers (an atrocious 2.5-times their average ticket) for $6 and claimed to have lost $10,000 after selling 890 vouchers.

But, let’s take a look at the real economics:

Total Voucher Value = (890 vouchers) X $13 = $11,570.00
Total Food Cost = $11,570 X (85% redemption rate) X (30% food cost) = $2,950.35
Income From Groupon = (890 vouchers) X ($6 voucher price) X (50% split) = $2,670.00
Cost of Deal After Food Cost = ($2,950.35 food cost) – ($2,670.00 income) = $280.35

Even if we factor in additional variable costs (such as labor, etc.) and amortize fixed costs, a $10,000 seems unrealistically high. Unfortunately, it appears that the poor deal terms and lack of preparation crippled the merchant’s ability to convert new customers into regulars, leaving a bad taste towards the quality of the daily deal model—and daily deal users. Sadly, at times this manifests into merchants and their staff treating daily deal customers like 2nd class citizens. Then they wonder why they don’t come back.

Let’s take a moment to analyze a properly-structured restaurant deal:

A restaurant sells 1,000 vouchers that are $20 for $40 worth of food with a 70/30 revenue split.

• At 1,000 vouchers, the restaurant receives $14,000 for $40,000 worth of food ($14/voucher sold given the 70/30 revenue split).
• Average restaurant non-redemption is 18%, thus numbers adjust to income of $14,000 for $32,800 worth of food when you subtract the no-shows.
• Food cost = $9,840 (30% average food cost multiplied by $32,800)
• Income after food cost = $4,160 ($14,000 – $9,840)
• We could take this further by taking into account three additional points: a) the merchant does not pay ~2.2% credit card processing on the voucher value b) a percentage of customers spend less than the voucher amount and c) a percentage of customers spend more than the voucher amount, however, that goes beyond the scope of this article.

If reservations are required (per deal terms) and proper sales limits are set, the restaurant merchant can fulfill the vouchers with minimal increases in variable costs. The economics further improve for other merchants in different market segments (rock climbing, golf, laser hair removal, and so on—i.e. merchants with lower costs of goods). In the example above, even if the restaurant merchant simply breaks even on the economic side, a minimum of 600 new customers will be walking through their doors at no cost. What other advertising options could possibly beat that?

Groupon may be the figurehead of the daily deal, but they are not a true reflection of the market as a whole. It is critical for daily deal sites to understand that a positive merchant experience is extremely important, and that more sites should work towards avoiding deals that will result in a negative experience for merchants. It’s not so difficult to reset priorities with this goal in mind and, if we do, we are likely to find that the majority of merchants will continue to reward our industry with repeat business. It’s worked for Crowd Cut.

Now, you may still be asking yourself, is it really possible to make money averaging 30% revenue splits, paying merchants within 5 days, covering credit card processing fees, and providing higher levels of customer service? Yes! For all you haters out there, remember: Hate the player, not the game. The daily deal is here to stay.

Article courtesy of TechCrunch