Yelp: Average Yearly SMB Ad Spend Is $3,204, 76% Retention, 269% ROI

Yelp

B2B social network Alignable ranked Yelp at or near the bottom of its Trust Index as measured by NPS ratings. There’s also anecdotal evidence that many business owners hold negative views of Yelp or harbor conspiracy theories about review manipulation for ad-sales purposes.

There are also critics in the industry who argue Yelp ads deliver a poor ROI. But yesterday Yelp reported Q1 earnings that were better than expected. The company said it had 121,000 local advertiser accounts, representing 34 percent annual growth. It also cited a 76% percent year over year advertiser repeat/retention rate.

Yelp ROI

It presented the chart above in its earnings slides, showing an average advertiser ROI of 269%. That’s based on average monthly spend of $267 and $983 in revenue from Yelp leads. How the company determined revenue per advertiser wasn’t disclosed.

Yelp also said that it had roughly 2.8 million claimed Yelp profiles/accounts. This means that Yelp’s existing advertiser base is about 4% the number of claimed accounts. That represents a significant growth opportunity, putting aside the larger SMB marketplace.

There’s an interesting disconnect between Yelp’s retention and ROI data and its critics’ claims, as well as the NPS scores reported by Alignable. I’m interested to hear what you think about:

  • The ROI figures cited
  • The 76% “repeat rate”
  • How Yelp can be having this sort of success with SMBs, given all the skepticism (and poor perceptions) that are out there

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9 Responses to “Yelp: Average Yearly SMB Ad Spend Is $3,204, 76% Retention, 269% ROI”

  1. Jason Wynne says at

    Greg: I don’t buy it. I am curious as to how Yelp or Yelp advertisers track revenue if they are not using the online order tool or a redeemable offer. In the last two days we have had heard the opposite story directly from 3 SMB owners who claimed 0 ROI from a Yelp buy, a Sew & Vaccum shop, a Bakery/Cafe, and a Mexican Restaurant.

  2. Scott Barnett says at

    Yelp increased the size of their sales staff significantly. That likely is the reason for increased revenues. Didn’t they also have a larger loss than predicted? They need to show consistent growth and retention for more than 1 quarter to prove that something is working. I’ll wait another few quarters and see how they are doing.

    The 76% retention rate cannot be right, or their numbers would be through the roof. There’s a lot of creative accounting in this quarters numbers would be my guess.

  3. Greg Sterling says at

    Yelp refers to advertiser “repeat rate,” not retention. That’s my word. I’m not looking at the definition right now but I believe “repeat rate” refers to local business owners that were advertisers in the past 12 months and continued to advertise during the present quarter.

  4. Greg Sterling says at

    As I said the methodology was not disclosed in any of the documents. I’m interested to learn how that figure was calculated as well.

  5. Scott Barnett says at

    Churn rate is a more common term and would be the rate we are most interested in, I would think.

    As I said, I think they are using creative accounting because any exposure of the calculations would not be beneficial for Yelp. It’s the same reason they don’t disclose what % of reviews come from Yelp Elite vs. the general population.

  6. Greg Sterling says at

    Yes churn is a very commonly used term but upon further scrutiny it becomes problematic. That’s another conversation. Google argues roughly half of advertiser churn is not controllable by the publisher or sales channel. In addition churn calculations vary by context and advertiser type.

  7. Jeffrey Magner says at

    Dozens of former SMB Yelp advertisers all report that Yelp Ads are a waste of money. Had we encountered one business in Colorado or California that had success, then there would still be hope. There is no way that an honest person could recommend Yelp advertising to a SMB. These books are definitely cooked. However, enhanced listings for restaurants at the multi-unit discounted rate do seem to be awesome. That’s where they should focus sales – the Churn on those is likely very low.

  8. Larissa says at

    I agree with Scott in that Yelp needs to show consistent growth and retention for more than 1 quarter to prove their approach. They have repeatedly underperformed and if I recall correctly during their earnings call they basically said they saw a lot of these gains as a ‘one time thing’. I am also weary of the maths they are using for repeat rate  (“defined as a percentage of the existing customers from which we recognize revenue at some point in the immediately preceding 12-month period”).

    However I found it interesting that revenue from chain and franchise businesses accounts for a nice portion of their ‘local’ ad revenue. SMBs might dislike Yelp but chains and franchises don’t!
     

  9. Scott Barnett says at

    Larissa – you bring up another good point – companies like Yelp (and Yext for example) claim to be ‘local’, but the reality is that they have both moved upstream to focus on franchises and chains. I believe there are two reasons for this:

    (1) Franchises and chains have corporate marketing departments with actual budgets

    (2) These corporate marketing departments understand SEO and the value of reviews as aiding SEO much more so than VSBs where there is more emotion involved.

    With that said, this is why there is no credible ‘local’ solution out there yet – until there is a solution that fully engages the VSBs as part of the solution, you’re missing nearly all of the local attributes of any community.

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