ReachLocal, which positions itself as a small business online advertising consultant, recently surfaced on the Inc. 500 as the 39th fastest growing private company in the U.S.
Peter Krasilovsky of The Kelsey Group used the occasion to take a look at the young company’s financial performance. Krasilovsky notes that there have been reports that ReachLocal has experienced significant customer churn, the macro numbers show a company that has grown rapidly, and that has a fairly efficient level of revenue per employee and revenue per sales person, albeit low for a technology-focused company.
The company reveals that it grossed $147 million in 2008, and is expecting even higher numbers for 2009, despite the sour economy. The company also released some macro data, noting that during the course of its history, it has fielded some 15 million phones calls and 10 million + online inquiries.
At this point, the company has expanded rapidly to 38 offices in the U.S., Canada, Australia (in 2007) and the U.K. (in late 2008). It has 800 employees, including 500 sales people; and it has added display to its search offerings.
Extrapolating from these figures, revenue per employee is about $184,000; revenue per sales employee is about $295,000.
Total sales compensation is probably around $35M to $40M, which would be around 25% of total sales, a level that should drive an ultimate EBITDA margin of 15% to 25%. The variables that will ultimately drive the margin are the cost of marketing to drive new customers into the sales funnel and the operating efficiency achieved in creating and executing the client campaigns.
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