Marketing platform for local business with a sales model that works
LocalOn helps local businesses develop and manage all of their web marketing tools — their website, social media, promotions, etc. — from one central hub. All revenue — which has grown 30% every month for the last 16 months — is driven by referrals from merchant associations and local newspapers, which eliminates the need for a costly in-house sales team.
"LocalOn offers small businesses an intuitive website builder allowing them to edit their websites as simply as a document with changes going live in real time." Businesses owners can now easily update their web pages according to their needs, offers and deals.
LocalOn has already partnered with 40 merchants associations and two newspapers in the Bay Area. Co-founder Shahbano Imran told Tech Crunch that she "plans to use LocalOn’s existing newspaper relationships to expand beyond the Bay Area."
About a year ago, with the backing of Boston investors, co-founders Imran and Tolioupov founded a start-up called LocalOn. Then after a six-month stint in Silicon Valley released LocalOn.com, which helps small local businesses to promote themselves online free of charge. "We’ve had an overwhelmingly positive response."
Shahbano Imran and David Tolioupov’s parents are both small business owners — Imran’s mother had a small consulting company, and Tolioupov’s father had a massage service — so they are intimately aware of the challenges entrepreneurs like their parents face.
“Business owners know they need to get into online marketing, but they don’t know how,” Imran says, marveling over the fact that 53% of local businesses still don’t have websites.
Imran and Tolioupov’s parents were lucky — they had computer-savvy kids who could build websites for them — but not every business owner has a kid who’s destined to be a high achieving CS grad.
That’s where LocalOn comes in. It makes web marketing easy, and gives small businesses the efficient solutions they need.
How LocalOn Works
“We replace about five web marketing systems and simplify things into one platform,” Imran says. “A merchant logs into the LocalOn portal and shares their events and deals through our app. Then, we publish that information where thousands of locals see it — on their website, neighborhood websites, the local paper’s website, and across social media.”
“It’s kind of like a Hootsuite with local channels built in,” she says.
LocalOn bypassed the traditional door-to-door sales team approach, and instead focuses on developing relationships with merchant associations and local newspapers, which receive kickbacks for every referral.
“We hacked the sales process by deciding not to directly sell to merchants at all,” Imran says. The company markets itself to so-called “merchant aggregators” — a niche market of 20,000 merchant associations, trade associations, and publishers — and gets them to handle sales.
“Newspapers are used to selling local marketing, and have a foot in the door with the right customers,” Imran says, noting merchant associations have the same advantage.
And because the aggregators get a cut of every LocalOn sale, the start-up offers them significant potential to boost their bottom line.
With this in mind, LocalOn is helping breathe new life into the cash-strapped newspaper industry. In fact, one publisher has projected that earnings from LocalOn profit-sharing will soon represent 25% of that paper’s revenue. (About a quarter of LocalOn’s aggregators are newspapers; merchant associations facilitate 78% of their business.)
LocalOn pays, on an average, $435 per client acquisition, but the company quickly recovers its costs, and currently achieves a $1,320 2-year LTV per customer. (The average subscription fee is $55/month.) Meanwhile, they have so far experienced no churn whatsoever. That’s right: They have yet to lose a single customer.
LocalOn generated $12,000 in revenue in August, and is projecting to hit a $5-million ARR by the same time next year. While those numbers are encouraging, Imran says the overall U.S. market is worth $5.9-billion.
Customers, Not Cheapskates
LocalOn helps businesses reach people in their communities who will become lifelong customers, while avoiding Groupon-like marketing techniques that attract deal-seekers who come in to use a coupon and never come back.
“I would feel bad about using a Groupon,” says Imran, who is well-aware of the ways that deep discounts that attract one-time customers inevitably hurt businesses.
Imran and Tolioupov met as computer science majors at Boston College, and got to know each other while participating in MIT’s Media Lab. When they came up with the idea for LocalOn, they threw a business plan together and entered the school’s prestigious venture competition.
“We were the only team of computer science grads!” Imran laughs. “All the other contestants were either Harvard MBAs, or Boston College business students.”
“No one expected us to win,” she says. But their idea didn’t just impress the judges — it blew them out of the water.
“Not only did we win, but one of the judges offered us $150k on the spot,” Imran says
Why did you pick this idea to work on? How do you know people need it?
We both have parents who are merchants so we grew up around this stuff. We knew that what merchant aggregators lack in prominence, they make up for in trust and personal relationships with merchants.
People need it because:
* They pay us for it--we’re profitable and growing 14% monthly.
* Aggregators are up-selling our products to merchants for a revenue-share.
* Every single aggregator we work with was brought on through a referral from another.
What's new about what you're making?
We replace about five different systems merchants and merchant aggregators use for web marketing and simplify that into one platform.
For instance, a merchant logs in and shares their events and deals through our app.We instantly publish that info to places on the web where thousands of locals see it (merchant’s website, social media, the neighborhood’s website, the local publisher’s website--kind of like a Hootsuite with local channels built in).
Merchants are eager to use it--we get over 800 logins a day. And aggregators love it so much that each one we work with was brought on through a referral.
Who are your competitors?
Companies selling to merchants include ReachLocal, AT&T, Yoddle, Constant Contact, and Google.
The ReachLocals of the world throw massive, costly sales teams at the distribution problem (but this means crappy margins--49% of ReachLocal’s profit funds sales & acquisition, 10-Q).
We do what they’re doing, but with 0 sales team.
The aggregators are our organic sales force and key to our growth despite the fact that we’re a tiny operation with few resources.
What do you understand about your business that other companies in it just don't get?
Others don’t realize:
* Selling to merchants requires a lot of trust.
* Door-to-door pitching using a sales team won’t work unless you can throw millions of dollars at it.
* Sales teams also make it hard to deploy remotely in other cities.
We’re different because:
* We understand the value of merchant aggregators--it’s their job to have trust & relationships with merchants.
* We don’t reach out to merchants directly (right now this means a low CAC, $40, and a high 3-year LTV, $1,620 per merchant).
How do you make money?
We have multiple sources of recurring income.
* Merchants pay us $40-$60/month for web marketing tools.
* Aggregators do a revenue-share with us.
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