How Does Yelp Make Money? Yelp Business Model In A Nutshell

Yelp works as a sort of social network platform for reviews of local businesses. Yelp mostly makes money from advertising based on the cost-per-click where businesses can deliver targeted site-wide ads to users. It also makes money via transaction revenues (commissions on deals) and subscriptions (like Reservations and Waitlist). 

Origin Story

Yelp is an online review platform allowing consumers to evaluate a range of businesses, including restaurants, cafes, home repair services, and hotels.

The platform was established in 2004 by two former PayPal employees in Jeremy Stoppelman and Russel Simmons. With a meager $1 million in funding, Yelp originally intended to serve relevant business reviews to consumers living nearby.

As of March 2021, the platform still received more than  a hundred million unique monthly visits making it still among the a hundred most popular sites in the US.  Users can browse reviews, opening hours, location, price range, and other relevant business information. Many now consider Yelp a social media website where local businesses and users come together to form a vibrant and interactive online community.

Yelp revenue generation

Yelp derives much of its revenue through targeted advertisements in the same way that other social media sites such as Facebook, Twitter, and Pinterest do.

Advertising Revenues

As the company explains in its 10K:

We generate advertising revenue from the sale of our advertising products — including enhanced listing pages and performance and impression based advertising in search results and elsewhere on our platform — to businesses of all sizes, from single-location local businesses to multi-location national businesses. Advertising revenue also includes revenue generated from the resale of our advertising products by certain partners and monetization of remnant advertising inventory through third-party ad networks.

Businesses use Yelp advertisements to target consumers who live in their local area based on a cost-per-click (CPC) model. That is, Yelp charges each business a fee every time one of its ads is clicked on. These ads are targeted according to the industry the business operates in. For example, more lucrative businesses such as law firms pay a higher CPC amount than a restaurant. They can also be targeted according to the demographic of the consumer.

Profile pages can also be upgraded to offer targeted advertising. Yelp offers two options:

  1. Branded profiles – which include features such as enhanced call-to-action (CTA) buttons, a dedicated About section, video functionality, and photo slideshows.
  2. Enhanced profiles – offering all of the above plus the ability for a business to remove competitor ads.

Each of these profile options attracts a monthly subscription fee that is inversely proportional to ad spend. The more a business spends on Yelp advertising, the lower the fee.

Transaction Revenues

Yelp also makes money from commissions on transactions it facilitates for third parties. Note that transaction revenue comprises less than 10% of total revenue.

This revenue can be grouped into four main categories:

  1. Yelp Deals – encompassing prepaid vouchers consumers can use to shop at a particular business. Yelp receives a commission only once the voucher is redeemed.
  2. Gift certificates – which work in a similar way to Yelp Deal vouchers and are gifted to others.
  3. Grubhub and Eat24 integration – Yelp receives a commission for any food order on its platform facilitated by complementary platforms in Grubhub and Eat24.
  4. Yelp platform – consumers can buy a range of products or services on the Yelp platform through diverse partner integration. This allows Yelp to facilitate transactions and collect a fee across multiple devices.

Subscription Services And Other Revenues

Another chunk of revenues is generated through subscription services, including Yelp Reservations and Waitlist. 

Beyond that, Yelp also makes money via its Knowledge program, providing access to Yelp data for a licensing fee. 

Key takeaways

  • Yelp is an online review platform created to provide reviews for businesses close to the user searching for them.
  • Over 90% of Yelp revenue is generated by advertising based on the cost-per-click (CPC) model. Businesses can deliver targeted site-wide ads based on location and user demographics. Advertising is also offered on business profile pages, with Yelp charging fees according to the industry and level of ad spend.
  • Yelp also generates revenue as a result of facilitating transactions with vouchers, gift certificates, and complimentary local platforms. It also facilitates transactions through partner integration on the Yelp app and website.

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