By Scott Gordon, The Chief Revenue Officer
Most businesses I work with have a love/hate relationship with online review sites. Yelp is particularly challenging for many businesses as their review platform appears to be controlled by an all-seeing, all-knowing algorithm that is immune to all outside influence short of buying Yelp’s advertising.
Yelp’s reputation is so bad among business owners that many will scoff, “Real reviews? Sure, for the right price!” As a result, many small businesses get their arms twisted into signing on as advertisers or else end up with a dreaded 1 star rating.
They begrudgingly see this unfortunate situation as the cost of doing business, since many consumers seem unaware that Yelp’s entire business model is built on greasing the ‘reviews filter’ (you know that grayed out link at the bottom of the page that says, “reviews not currently recommended”). This is where Yelp moves your 5 star reviews when you don’t pay them and your one star reviews when you do. Shuffling reviews between these two locations is how Yelp makes money. Of course, Yelp vehemently denies this.
The reason Yelp wields so much power is that they know online reputation has a direct impact on revenue generation. The higher the star rating, the more revenue comes in. Of course, the opposite is true with lower star ratings.
Here are some studies to consider:
I’m going to apply the formulas from the Forbes Magazine article and the HBR study to a local garage door company I’m familiar with to illustrate the impact of a negative online reputation.
For starters, the company in question has 2.5 stars on Yelp.
What the Forbes formula says is take the distance from 5 stars (5 – 2.5 in this example) and multiply that by .07 (the median of the HBR report) to determine the percentage of lost revenue.
2.5 stars x 7% = 17.5%
This means a company with 2.5 stars on Yelp is losing 17.5% of its potential customers.
Our friends at the garage door company are selling about 1,200 garage doors per month with an average ticket of $2,500.
1,200 x $2,500 = $3,000,000/month
Now here is where the magic happens. We’ve established that because of their 2.5 star rating this company is leaving 17.5% of their potential revenue on the table. Let’s see how much more monthly revenue they could expect if they had a 5 star rating:
$3,000,000 x 17.5% = $525,000 more revenue per month.
Even a single star improvement would make a meaningful impact on their business:
$3,000,000 x 7% = $210,000 more revenue every month.
That’s $2,520,000 annually by adding just 1 star – 2.5 to 3.5
What if they got all the way up to 5 stars? That’s a cool $6.3 million annually.
You can see the power a consumer review site like Yelp wields in the marketplace and how it can coerce businesses into spending large sums of money on its advertising. Yet succumbing to high pressure sales tactics isn’t the only way to drive up your online reviews.
Review management platforms like Podium empower businesses to drive customer reviews to sites of their choosing. Some of the more popular choices are Google Reviews (these are always on the top right AND map widget of page one search), Facebook (who isn’t on Facebook?), YellowPages (do people still use these?), Houzz, TripAdviser, and Cars.com.
By soliciting more reviews from happy customers, you can mitigate the triple threat of:
All three of these can and do leave reviews and sometimes all at once. When these threats are combined with the statistic that unhappy customers are 11x more likely to leave reviews than a happy ones, businesses can’t afford to opt out of reputation management.
And it isn’t enough to be reactive to reviews. Businesses must be consistently and aggressively proactive. It’s tough for your competitor or ex-employee to negatively impact your star rating when you have 500 reviews. The sooner one gets there the better.
Funny enough, if you Yelp Yelp, you’ll find it has a 2.5 star rating. Maybe they should buy some of their own advertising.