Yelp launches new Revenue Estimate tool

Tool is meant to show businesses and advertisers the quantifiable benefit of being featured on Yelp

For a small business, being on Yelp can have obvious benefits. First and foremost, it gives people a resource to go and find a local business that they may not have otherwise known existed. This, of course, can lead to increased revenue, but the actual benefit that the site gave to these business was never really quantifiable. So a business might see its revenue go up; how could that be attributed to Yelp and not some other factor? In order to get advertisers onto the site, Yelp needs to show that it is in fact driving business.

That is why Yelp launched its new “Revenue Estimate” tool on Monday, which is meant to show both businesses and advertisers how being on Yelp benefits their bottom line.

A survey from The Boston Consulting Group, released last week, calculated how much businesses on Yelp benefit from the site on average, and Yelp is using the information gained from that study to judge how each business compares to the national average.

The survey found that those small businesses that have a free business owner’s account on the site saw an average of $8,000 in annual revenue from Yelp. And for Yelp advertisers, that number was three times as much, generating an average annual revenue of more than $23,000. In fact, some categories did much better by advertising on the site, including Home, which saw $54,000 on average and Automotive, which saw $39,000.

Armed with that information, Yelp then used it as a baseline to show businesses how they were doing, comparing them to the national averages from the survey.

Yelp takes the number of customer leads sent from the company each month (which can include actions such as booking a reservation on OpenTable or calling a business from the Yelp app) and  then multiplies it by the average amount spent per customer for each business category, information which was gained from the survey.

The final calculated number gives each a better sense of the total amount of revenue that is generated by being on Yelp, which is beneficial to both the businesses and companies that want to advertise on the site.

"First, it helps quantify the revenue opportunity Yelp is already sending to each business," the company wrote. "Second, it establishes a revenue baseline for prospective advertisers, from which they can later evaluate the impact of their investment in Yelp Ads."

Advertising is key to sites like Yelp, and it could use the increased revenue based on the amount of money it lost last year.

In its latest quarterly earnings, Yelp topped Wall Street’s expectations by raking in $41.2 million in revenue in the fourth quarter of 2012, up 65% over the year-ago period. This performance was at the high end of Yelp's own guidance and beat analysts' consensus expectations of $40.3 million.  For the full year, Yelp generated $137.6 million in revenue, up 65% from $83.3 million in 2011.

But Yelp is still spending too much money. While it narrowed its fourth-quarter losses to $5.3 million from $9.1 million in the same quarter a year ago, for the full year, Yelp lost $19.1 million, more than the $16.9 million it lost in 2011. 

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