This was one of the biggest questions in my mind when I first started exploring the online review world. I saw companies like Reputation.com, Podium and Birdeye charging six-figure contracts with 12-month contracts, and so I started digging. The co-founder of Birdeye for example mentioned that their customers pay an average of $5,000 per location per year for the service ($415/m).
Compared to most software that's available out there, this is incredibly expensive. To start understanding the basis on which these companies set their pricing, it helps to first understand their cost structure, as that provides an indication of the unit economics behind their business. These are some of the significant costs that are involved in running a review management business:
In order to get easier access to sell to a specific industry vertical, like dentists for example, review management companies need to pay high integration costs to the gatekeepers. One example in the dental industry is Dentrix, which runs dental software that powers 35,000 practices around the country.
The same goes for other industries, including healthcare, legal, real estate, hospitality and more, which ends up driving up the cost to the end customer.
Employees (aka sales teams)
The largest cost for any company is typically its employees, though with a gross margin of 85-90% it's fair to say that is minimal in the review management industry, and software industry in general. The bread and butter for these businesses is enterprise sales, as that's where we're talking six-figure contracts.
The downside is that selling to enterprise is like elephant hunting - it takes time and resources. In the same interview linked above, Birdeye co-founder mentions that their cost to acquire a new customer is as high as $1,000.
This is likely in part attributed to advertising spend, but the bulk of that cost is likely going to their sales team which makes up ~32% of the company (for Birdeye). You'll also note in the diagram below that sales is the highest growing department at the company, with headcount growing 8% in the last year - compared with engineering which didn't grow at all.
Sales people are motivated by sales commissions, which ultimately drives up the cost of the software.
Another factor that drives up the cost of review management software is simply the fact that most businesses in the industry are venture backed:
- Birdeye has raised $33 million
- Podium has raised $92.6 million
- Reputation.com has raised $117.3 million
When a company raises that much money, it means that they have investors breathing down their neck for a payout, which they're hoping will be at least 10 times the initial investment. In order to achieve that, the company needs to increase the price, and you're paying for it.
If you're looking for review management software that doesn't cost an arm and a leg, try out Reviewshake. We're an independently run business that charges sane prices for review management.