ReachLocal CEO: Digital Ad Industry Has a ‘Very Poor Reputation’ Among Small Businesses

Small Business

Eighteen months after shaking up its leadership, ReachLocal has yet to turn the corner. The local marketing company has watched as nearly every metric of success, from revenues and profitability to active customers, has declined over the past year, sending investors fleeing and its stock price to new lows.

But turnarounds take time — and no one is more aware of the challenges than Sharon Rowlands, the turnaround expert who took the helm at ReachLocal almost a year ago. The former Thomson Financial CEO has set her sights on combating a massive churn problem, which she says stemmed from an aggressive sales culture within the company and throughout the small business marketing industry as a whole.

In an interview with Street Fight, Rowlands talks about why she thinks ReachLocal is not the only company in the small business marketing industry with brand problem; how to fix the sales culture in local; and the need to move beyond the land grab mentality of the late 2000’s.

Do you think ReachLocal has a brand problem among small businesses?
In some areas, yes. But I think every single company has a similar problem in the local marketing industry — and it’s fascinating to me. Whether we talk about YP, Yodle, Reachlocal and even Google — all of these companies have massive churn problems. It’s more that the the digital advertising space as a whole has as very poor reputation, and I do not think ReachLocal’s is worse than anyone else.

I want to read a comment from Glassdoor because I think it’ reflective of a broader cultural issue within ReachLocal: “The #1, #2, #3… focus of this company is to sell, sell and sell without any regard for what is right for the customer.” When you think about changing culture, do you eventually need to change people?
It’s a bit of everything. You do have to look very carefully at talent and make sure that your sales leadership basically has the character and culture that’s consistent with where you want to go as a company.

But compensation has a huge amount to do with it. I’ve ran many different businesses and at the end of the day salespeople do whatever they have to do to make the most money. You’ve got to make sure they make the most money by doing what you want them to do for the business. If bringing on quality accounts is important, that needs to be the way they make their money. But historically, the media business has not paid compensation in that way.

During what I’ll call “The College Years” of local — between 2007 and 2012 — the industry was dominated by a top-line-driven way of thinking that emphasized market share over profitability. That’s changed somewhat, but Groupon CEO Eric Lefkofsky, for instance, has held onto that strategy. Do you think that approach is problematic?
I think it’s very problematic. While you’re in a big market where there’s always another thousand customers that you can grab and then burn, you can keep that top-line story going. But at some point in time it breaks down, and it breaks down because the market gets wiser and new competitors come in with a better value proposition or better model and then you’re isolated.

I find it amazing that a company today can go on and on forever, just driving top-line growth and never have to worry about profitability. You can con the market for only so long with your big valuation, but at the end of the day, if you have a good business model and strong value proposition you should be able to get the balance right.

Are there certain characteristics of local digital marketing industry that have created this churn problem that are not just endemic to the small business market as whole?
It’s a couple of factors. To start, the absence of standards and definitions is hugely problematic. Sales people go out and talk about clicks and contacts and leads and customers, and on the whole, small businesses do not know what means what. A lot of companies sell on the basis that we’re going to generate 10 good  leads a week, but what they’re really saying is that they will generate 10 good contacts. But a contact isnt a lead. With this lack of metrics definition, the small business inevitability becomes cynical because they think they’ve been oversold.

In general, I think there is a transparency issue in this industry particularly around setting expectations upfront. It’s partly because the sales model that this industry has historically deployed is a very intense aggressive model. It’s just: get the customer and then hopefully they will stick. If you let your salesforce operate like that then you will inevitably have high churn rates.

Do you think that’s a vestige of legacy local media or is it something unique to the digital industry?
I think it’s a bit of both. It obviously stems in part from the old media and the ad sales model. But today, in digital, it’s become exacerbated by the market being so competitive. There are so many people trying to sell into local markets and trying to make their voice heard and get across a differentiated pitch — and that can lead to very aggressive selling.

Rooted in technology, many digital companies selling to small business try to scale products with little to no service and support organizations. Where do you stand in the do-it-yourself versus do-it-for-me debate? Will small businesses ever self-serve?
I think you have to do it. If you look at the makeup of  of these clients, there’s a range of levels of sophistication, and even those that have the expertise do not have time to put the tools to work. And in many ways, this feeds the churn problem: if you sell software tools without helping them to do it they’re not going to use it. And what happens with a subscription services that is underused?  It gets cancelled and there’s your churn.

If you really want that stickiness you have to find a model where you can help them do it and make it work. Out of all the research we’ve done, that the help me do it is by far and large the largest segment of the SMB community.

Steven Jacobs is Street Fight’s deputy editor.

  1. Who Has Answers?
    March 12, 2015

    Rowlands again uses the buzzword “transparency” as if ReachLocal IS transparent with it’s customers. However ReachLocal doesn’t tell customers what the Markup is on Search, and has historically taught it’s Sales team how to dodge that question.The only way to find that out is reading the annual reports which most business owners will not do:

    Nor RL has a video teaching it’s sales team how to handle the question of why their data doesn’t match up with Google Analytics: This is laughable asking a small business owner to trust them over an independent third party reporting system.Is it because GA reports ” amount of visits to my website are drastically different than what ReachCentral reporting is showing.”. Could it be that RL uses an “extended network” which may include impression based publishers such as directories which it counts as “visits” when the user never actually visits the businesses website?

    StreetFight provides RL a lot of coverage it would be interesting to see them ask tough questions once in a while about how RL really operates. The Glassdoor questions was a start but still a little bit of a softball IMHO.

    1. Nick
      March 12, 2015

      That is a great video!! I have seen companies with BS answers to questions but that one takes the cake! Thank you for sharing that.

      1. enolbos
        March 12, 2015

        Hey, look she can read… Kind of. 🙂

        1. Who Has Answers?
          March 13, 2015

          How long until the video is taken down? I wonder how many other video’s are out there teaching the salespeople how to dodge real questions from business owners. “Sometime a business will ask how much ReachLocal takes out of the budget….” I can only imagine the answers they give.
          1) I don’t know.
          2) It doesn’t matter as long as you get phone calls right.
          3) It’s really not that much.
          4) A few percentage points.
          5) How much do you charge your clients.
          6) I’ll get back to you on that
          7) Google is wrong, we are sending much more traffic to your site trust me!

          1. Marty Carry
            March 15, 2015


          2. Who Has Answers
            March 16, 2015

            They actually do have a video on this called Margin Objection Handling! Looks like they like to call it a 50% margin. Am I understanding it correctly that if the margin is 50% that means RL keeps 50% of every dollar spent. So it is really a 100% markup, if you wanted to spend $1,000 on advertising they would charge you another $1,000 to manage that for you? That seems even higher than I ever expected it to be! That is a lot of money to be spent on repackaging another companies products!!! What do you all think?

          3. bob
            August 8, 2015

            Correct. It’s a rip-off. They’re also useless at running PPC campaigns. 99% of the staff involved in campaign management aren’t even adwords certified. Use a local agency and pay a 10-15% management fee. Stay away from ReachLocal.

      2. Who Has Answers
        March 18, 2015

        ReachLocal must read this because they shut down the channel. Can’t believe they didn’t want people to see it.

      3. Constance
        March 24, 2015

        The mark up is more than 50% Nick for the vast majority of their customers. Unless you are one of their major clients like Mazda or Toyota, you will be getting less than 35% of your budget being paid to Google. They average 50% on all campaigns. This is how you can check exactly how little you get in advertising on Google if you are an unfortunate Reachlocal client.
        1. Log-in to your account
        2. On the left side of the screen you’ll see all of your options. Click the + in the REPORTS option to reveal the drop down list of sub options.
        3. Click Distribution Details
        4. Now click the EDIT FILTERS button to reveal drop down menu function for Campaigns, Month, Year.
        5. Choose which campaign you’d like to report on, choose the time period etc
        6. Click Update Report :

        You might get 5% more if you take into account Yahoo and Bing max. If this company can not make a profit now when they are stealing this type of margin, they never will. The term transparency should not be used in the same sentence as ReachLocal. Any advertising company that asks you to pay them the advertising allowance direct – do not trust them. As ReachLocal lose more clients, the ones that are left are getting less and less in marketing in a last ditch attempt to show a profit before they run out of cash. Sell your share before they go under – is my advise.

        1. bob
          August 8, 2015

          Great advice. They managed to lose $20 million in Q1 of 2015 from a turnover of $100 million. They deserve to go under, good riddance.

    2. Merman
      March 24, 2015

      Its a shame i came late and did not get to see these videos screaming of a
      coverup. Can you tell my what they could possibly say to a client that the total cost of their service is the management fee only
      which in their contracts is 10% yet they are taking 50% plus of the
      marketing budget also. In other words they are being charge 6 times what
      they believe. It must have been a laugh. Their management spin is its
      not their obligation to disclose the margins. They should tell clients the truth from the outset or the
      deception will be your undoing. Great comments.

    3. bob
      August 8, 2015

      ReachEdge is old news. It’s just another product ReachLocal intend to drop on the small business owner who’s too busy doing what they do to know any better.

      Tracking the source of inbound leads and distributing an automated email response to an enquiry has been around forever. The fact ReachLocal have the audacity to package this up as something new and charge a ridiculous amount for the service is comical.

      It doesn’t even itemise individual channels, it simply groups together particular types of media, i.e. directories, newspapers, search engines etc. What use is that when you’re trying to analyse the effectiveness of specific media spend? If I’m advertising in 12 magazines I need to know the ROI of each one, not the overall ROI of magazine spend. It’s shit.

  2. March 12, 2015

    The problem of the high churn could be solved easily if the company did business in a transparent manner. This would mean showing the cost per click, the number of leads, and determining the lead value with the business owner. Then it would be simple to see if the service is worth the cost.

    1. Marty Carry
      March 15, 2015


    2. Who Has Answers
      March 16, 2015

      Do you propose they go through the work of removing branded traffic and calls? Duplicate calls when the consumer calls the tracking number back? Robo calls? Calls from other marketing companies pitching the business? Duplicate forms? Transparency is more than just showing the cost per click.

      1. March 16, 2015

        Cost per click is one thing. The bigger item is determining the value of each visitor received. No matter how many Robo or other calls you get, you easily figure the sales from all calls and work backwards to the actual figure. In other words, you get 1000 visitors, you make 50 sales worth $150 of profit for each or $7,500. Each visitor is then worth $7.50. If you cost per click is $3, then you can see the value. If you only make 2 sales for $150 profit or $300, then your value per visitor is only 33 cents. At this point if your paying $3 per click your losing big bucks, add to that what your paying for someone to run the campaign. Many of these companies charge around 50% of whatever your budget is. RevLocal charges 35% and they consider that low.

        1. Who Has Answers
          March 16, 2015

          That is logical but what about the fact that these organizations often bid on the company name and take credit for those leads? Many of the small businesses these “Big Box” companies have as clients either don’t take the time or aren’t sophisticated enough to track sales and profit from various lead sources. These companies see reports with 50 phone calls a month and just assume they are getting value from the service because of slick reporting & a rep that sounds as if they know what they are talking about.

          1. March 16, 2015

            I agree with you 100%. You would be much better off to have someone run a campaign that shows everything. Then you can investigate the waste and get rid of it. Most of the waste with the “Big Box” companies are for sales commission and upper management salaries and share holder profits. It’s hard to be streamlined with so many fingers in the cake.

      2. Merman
        March 24, 2015

        I am a bit late to this thread. Would have loved to see them spin the peddle on how to handle to massive mark ups. What is interesting is why they need training to handle these complaints. Do they not disclose these charges on sign up? Is this not a requirement of all businesses? This article is about transparency but every video and action is completely contrary to a transparent company.

        1. bob
          August 8, 2015

          They’re supposed to disclose all charges when quoting a new client and itemise all management fees upon invoice. This is a stipulation administered by Google. They don’t do either. The company line is “we give you access to your Google spend but this doesn’t Include Yahoo/bing etc”, which is bullshit, and rarely mentioned by the sales rep. It’s all cloak and dagger and the simplest solution is to stay as far away from ReachLocal as possible.

      3. bob
        August 8, 2015

        Removing branded traffic and calls is easy, don’t bid on them in the first place. ReachLocal are desperate to claim any type of lead and bidding on the company name is a quick win. It’s done as standard when creating a campaign. They’ll argue that if you don’t bid on your name your competitors will. Thats fine, but exclude those leads from your reports and clearly show how bad you actually are at running an effective campaign.

  3. chris3sc
    March 12, 2015

    The internet marketing field is still the wild wild west. The YP’s, Yodle’s and Reachlocal of the world only care about padding their pocket and don’t care about the client. The key word is being transparent to both customers and the sales team member. The industry also have a problem with high employee churn. Once an sales employee learn how the game is played it cross their own personal ethics and integrity, hence why Sharon cited the Glass Door review.

    1. Shandy
      March 24, 2015

      If you have been bullied by this company to deceive small business owners about the real cost of the service and this concerns you as it should. You should clear your conscience and tell their current customers the tricks used to inflate the results like vanity bidding and how they hide
      the real costs of the service from each client. Then send Sharon an email stating your conscience required you to be transparent to her customers because she is not courageous enough to do it herself. ReachLocal your on notice, justify you fees in a transparent way or we will be doing this for you.

    2. ExRLIMC
      July 29, 2015

      As a 8 year previous internet marketing consultant at RL I agree with Chris and all of the Glassdoir reviews my decision to resign was based on morals and ethics gauging the clients and Sharon and HRs total lack of listening and sales management locally in Woodland Hills the complete hostile environment was too much. They are down to two sales people out of over 100 in the LA area and these remaining 2 people and their sad RSM are the last standing as they are void of any morals or ethics . This is a do evil company stay clear !

      1. bob
        August 8, 2015

        Well done getting out of there, great decision, better late than never.

  4. JP Quiceno
    March 12, 2015

    In my opinion the industry and Google itself are moving away from a service model to a product model. The signs are all there: AdWords Express, requirements from Google on how you report to your clients and just sheer competition from small local marketing firms offering no contracts, low pricing.

    The truth of the matter is these are VC and IPO backed firms with investors demanding ASTRONOMICAL MoM growth and returns which they CANNOT maintain in an industry that is so competitive and has so low of a barrier to entry.

    Take a moment and go through Google’s Premier SMB partner list. 8 out of 10 are large corporate companies with contracts, pushy salesmen and sub-par service. (Not to say ReachLocal and ReachEdge don’t have some great things going for them but you get the idea.)

    I don’t think that the service model is going away any time soon especially in the local market due to the complexity of this industry and the tech behind it but the industry is moving towards it.

    It’s truly is just the beginning of this industry!

    1. Marty Carry
      March 15, 2015

      ahhhh – but what if we can provide the service needed to deliver results that can be proven and seen by an uptick and business. Now THAT would be awesome, wouldn’t it? Perhaps this can be the focus!

      1. JP Quiceno
        March 15, 2015

        In a sense that already exists, Marty. The big question here is: Is it possible to grow and scale an SEM agency to a 9 figure number without sacrificing quality and value? It’s it’s very difficult to do.

  5. Lindsay007
    March 18, 2015

    comments are just laugh fable. Reach Local deserves their reputation because
    they lie to their customers and will do anything to hide the truth about their
    mark up because it cannot be justified. The scam is simple but effective and
    this is how they operate. Their contracts have a fee for the management and a
    fee for the marketing & optimisation. What they don’t tell any client is
    that in the 7 pages of small print that they provide you separately to the
    insertion order entitles them to charge any amount they decide for the optimization
    part of the service i.e. use of their software. All the customers are sold that
    the total cost for Reach Locals sericite is only 10%-15% which is the
    management fee and the balance goes towards advertising costs. We have seen
    clients who were only getting 25% of their entire budget being paid to Google,
    how could they sell this value proposition to a client? They can’t so the hide
    the facts. If you don’t believe me do your own research. Here is Reach Local
    current global client list, call them and ask the clients to go to their login
    and follow the following procedure. (Process) If they cannot make a profit when
    they are making such huge margins right now they never will as this information
    is only now becoming public information. Have a look at this case in the UK
    The information Jamie was sending to Reach clients was and is all fact
    but rather than clean up the sales processes they pay lawyers to try to keep
    the scam alive. It’s my prediction that this bunch of cowboys will go broke
    within 2 years.

    1. bob
      August 8, 2015

      Given they lost $20 million in Q1 of 2015, off the back of a $100 million turnover for the quarter, I think you’ve been very generous giving them 2 years to go broke.

    2. Atlanta Girl
      August 12, 2015

      Amusingly, I was recognized nationally as having one of the highest client retention rates in the company. I got chewed out repeatedly by my manager for walking away from business that would not be a “fit”. Last straw was a plastic surgeon who did not advertise under his name at all – struck me as odd – checked with a couple of other PS I knew – this doc had a horrible reputation. Told manager I ethically wouldn’t work with him, was fired shortly thereafter. Hated how a cool concept was lost to greed.

  6. Dave
    June 12, 2015

    This is absolute nonsense. ReachLocal are a perfect example of why the digital marketing industry is in dire straits. It’s ludicrous they claim transparency when they hide behind an antiquated platform which simple masks the true costs. Their “Internet Marketing Consultants”, who more often than not, have no experience of PPC prior to the week induction course, are still selling this con on a 10% management fee, which is now referred to as “tracking fees”. They retain, on average, 60% of the total invoiced, and make it virtually impossible to get an honest breakdown of costs. Steer clear of these people and use a genuine agency, there are so many available. Stay Away!!!

    1. November 12, 2015

      We have over 100 clients that were told that ReachLocal only charge 10 percent of the budget they manage and the rest goes to Google Adwords. ReachLocal trained sales staff to sell their product as though it was a google adwords only product. They never showed clients how to see the actual spend. In one case it was as low as 27 percent of the clients budget was spent on adwords, no other visits were provided. They spent over £100,000. Another client spent £750,000 and only found out after 5 years that the money was not being spent on adwords.

  7. Bob Holness
    June 18, 2015

    Sharon: Just out of interest, why are you burdening the messenger (Sales staff) with the problems associated with the industry? How long did it take ReachLocal to inform the sales team of your true business model, i.e. we retain 50% of the media budget and charge a 10% management fee on top?

    The justification for the extortionate fees: = technology that can identify the keywords driving telephone calls. Everyone does that, and it costs about £5 per month. Furthermore, what everyone else is doing provides accurate data as they’re using dynamic telephone numbers which identify the exact keywords driving the calls. Your system uses time stamps to attempt to identify which keyword drove the telephone call by matching the time of the search to the closest phone call (guess work).

    A subscription service doesn’t get cancelled because its underutilised, it gets cancelled because you don’t provide a service which represents your extortionate fees.

    ReachEdge has been available for 10 years, it’s not a new concept and the way in which it groups media doesn’t allow for an accurate evaluation of individual publications/sites. The market is flooded with 21st century alternatives which actually work for a fraction of the price. SMB’s beware.

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