Home Services and Google Reviews
October 01, 2024
by a searcher from Pomona College in South Kingstown, RI, USA
Hypothetically, let's say you are interested in a pest control company doing $2mm revenues $500k SDE.
On google, it has 50 reviews at a###-###-#### How does that effect your buying decision/valuation?
How about 500 reviews at a 3.5?
from University of Texas at Austin in Fort Worth, TX, USA
Just how much it hurts the valuation would depend on the competition. Is it a tier 2 or tier 3 market with limited competition or a competitive tier 1 city? If a competitive tier 1 with competition that you will never catch (e.g. 4.9 stars on 1,000 reviews), it would hurt the valuation more than a market where the other competitors do not focus on Google reviews heavily and also have few and mediocre reviews.
With 3.2 stars and 50 reviews, 115 5 star reviews would get you up to 4.5; 150 5 star reviews for 4.6; 208 5 star reviews for###-###-#### But every additional 0.1 is increasingly more difficult. For 4.9 stars (the gold standard), you would need###-###-#### star reviews (and ZERO reviews less than 5 stars).
With $2M in revenue, I'd guess they have ~2-3K pest control customers. So getting###-###-#### reviews in the first 6-12 months is doable, but it will be an uphill battle.
As Jay mentioned, the bigger concern with the poor reviews may be what's going on under the hood to cause that. The business may require significant churn and change management to right the ship.
So, in short, not only are reviews valuable in future customer acquisition and thus worth commanding a premium or discount, depending on quality, but they are also an indication of the time and effort that will be required to get the business operating at your new post-close standard.
Lastly, if you are rebranding, I think the poor reviews are less of a concern. If it's your first acquisition, I would likely offer a ~15-20% discount to a business with###-###-#### stars on Google.
from Rensselaer Polytechnic Institute in Norwood, MA, USA
As a buyer, you should be on the lookout for improvement opportunities. If you are strong in the areas identified in the reviews as weaknesses, it could be a good value for you.