Groupon is one of those marketing avenues that’s either hit or miss for most small businesses. If it hits, Groupon can bring in floods of new customers and put your business on a completely different scale than before. If it misses, however, you could easily spend thousands of dollars with nothing to show for it.

Here’s what you need to know about using Groupon as a marketing avenue.

==> The Basics of How It Works

The basics of how Groupon works is simple. You give a massive discount to Groupon’s large audience. Groupon also takes a 50% cut of whatever revenues you generate as a result of their advertisements.

For example, let’s say you have a restaurant. You offer $8 for $15 worth of food. You sell 500 orders. On each order, you only receive $4. So out of the $4,000 in revenue generated, you only receive $2,000.

That means you’re earning $4 for $15 worth of food ordered.

Most people fail to realize just how difficult this kind of setup is. In order to make money from a Groupon campaign, you need to overcome a pretty big hurdle: the cost of the initial customer.

==> How to Overcome the Costs

So how do you overcome both the discount you’re giving to customers and the commission you’re paying to Groupon?

Here are a few things to keep in mind.

First, always make sure the total value of your coupon is less than your average transaction value. For example, if the average person spends $25 a meal at your restaurant, don’t give a $13 for $25 offer. Instead, give a $5 for $10 offer – so most people will end up spending an additional $15.

Track your long-term customer value. What percentage of your customers come back a second time? Can you increase this percentage? Spas and fitness classes often do very well with Groupon, because they’re able to get a lot of the people who come through the door to come back again.

Remember: Making money up front with Groupon is tough. If you break even, you’re doing well. The real money from Groupon comes from new repeat customers.

==> What Else You Need to Know

Make sure you’re totally ready before you launch your Groupon campaign. Make sure your staff is trained and ready to handle the flood of people who’ll be coming your way. If you don’t have enough staff on hand, you’ll end up turning your Groupon campaign into a massively frustrating experience for customers.

Explore how other business owners in your category are using Groupon. For example, if you’re a dentist, look at how other dentists ran their Groupons. See what you can learn.

Making money from Groupon is all about acquiring new customers, while making sure you don’t lose money in the process. If you pick the right price and manage to turn Groupon customers into new repeat customers, then Groupon can truly be a fantastic opportunity for you.