ReachLocal’s S1 filing to raise $100 million includes valuable details about the company. With grosses of $146.7 million for the first nine months of 2009, and operations in the U.S., Canada, the U.K., and Australia, the local search and display reseller has become one of the biggest bets in local.
According to the S1, ReachLocal, which was founded in 2004, has 14,500 active advertisers and 17,600 active campaigns. Most advertisers spend between $500 and $3,000, and represent a wide swath of local verticals, including home repair and improvement, automobile sales and repair, medical and health services, legal services and retail and personal services. “Our target market is SMBs that spend at least $5,000 per year on advertising,” notes the company.
A little more than two-thirds of revenue – 68 percent — comes from ReachLocal’s sales force, while the rest comes from over 350 third party agencies and resellers. But the direct sales force is more profitable, and the company’s intent is to focus on bringing in more sales consultants.
Sales consultants that survive the first year (“upperclassman”) bring in substantially higher revenue than new consultants (“underclassman”), who spend much of their time in boot camp (one week) and other training activities. The company says that 438 sales people in North America and 87 sales people internationally, and roughly 40 percent are “upperclassmen.” The pool of upperclassmen is a little shortchanged right now, however, as the company slowed down new sales hires in 2009 on account of the recession.
The company suggests that its costs and search costs in general could go up as the economy recovers and more advertisers increase their quotient of Internet advertising. “An increase in the cost of media in these marketplaces without a corresponding increase in our media buying efficiency could result in an increase in our cost of revenue as a percentage of revenue even if our business expands.”
It also notes that its media costs have already gone up from 52.7 percent of revenue to 55.6 percent, mostly as the result of Google’s 2008 action to terminate its publisher rebate program in North America. Google gets the lion’s share of ReachLocal’s spending, although the company also works with Yahoo and Microsoft, and has recently begun providing display ads, and expects to move into mobile ads as well.
Looking forward, the company says it will work aggressively to “address new segments of an SMB’s marketing activities, such as digital presence, reputation management and customer retention.”