Is One Of Patch’s Most-Popular Sites Breaking Even Yet? Here’s Our Math

AOL (NYSE: AOL) launched its 500th Patch site this week and says it has “exceeded every sales goal we’ve set for ourselves.” But the company still won’t say whether any of the sites in its network are profitable. So we decided to try to answer the question ourselves by ball-parking the finances of one of Patch’s most successful sites, the Patch in New Canaan, Connecticut. It gets about 8,000 unique visitors a month, according to Google (NSDQ: GOOG) Ad Planner. Not bad considering the site covers a town with a population of 20,000 and competes with two local newspapers.

In a widely picked up blog post eight months ago, Mike Fourcher, the founder of Chicago-area neighborhood blog Center Square Journal tried to run the numbers on a Patch site in Manhattan Beach, outside Los Angeles, and concluded that the company’s revenue model “made no sense.”

Since then, however, Patch has changed how it sells ads. Late last month, the company discontinued a self-service advertising option that let small businesses buy ads at a rate of $15 per CPM. Now, all ad sales go through the company’s local advertising managers, who charge fixed rates for different ad units. (Those range from $190 to $1,200, according to this rate card). The company has also added new ad units, including online coupons.

Read on for our analysis, which takes those changes into account. We also asked Patch for any numbers they could provide. A spokeswoman would not provide specific figures for any of the costs and revenues we have listed below.

Revenue

Display ads

The New Canaan Patch has six different display-ad slots, all of which were filled with ads as of earlier this week, in contrast to other Patch sites, some of which were nearly ad free. Four businesses (New Canaan Pediatric Dentistry, Prudential Connecticut Realty, the Bank of New Canaan, and MX Energy TV) rotated ads on the home page. A 1/4 rotation goes for $300 a month, so the slot was bringing in $1,200 a month. A second ad slot on the top of internal pages was shared by two advertisers (Barbara Cleary’s Realty Guild and Walter Stewart’s Market). A 1/2 rotation goes for $600 a month, so that would be generating $1,200 for the site.

There are two slots about halfway up the internal pages, each of which was taken up by a single advertiser (Wusthof Outlet Stores and Michaels Limo). That placement goes for $1,000 a month. A third slot was shared by four advertisers (David Harvey Fine Jewelers, New Balance New Canaan, Toyota Highlander, and Design Solutions), each of which pays $250. A fourth slot further down the page was shared by four advertisers (Uniquely U. College Essay Consultants, Darien Woodworking, T&J’s Furniture Moving and Camp Playland). That lower profile spot costs $190 for a 1/4 rotation.

Assuming that Patch is getting rate-cards rates for its ads — and that would be a very generous assumption, especially since several of these advertisers are also putting ads on nearby Patch sites — display ads therefore could be bringing in as much as $6,160 for the New Canaan Patch.

Classifieds

Like other Patch sites, the New Canaan Patch has a classifieds marketplace. Some types of announcements are free (merchandise, services offered) but the site charges $15 or $20 for others (automobile sales, job listings). When we did our survey of the site earlier this week, two of the eight classifieds were paid. Total revenue: $30.

Business listings

Any business can create a listing on the site, but Patch charges for “enhanced” listings that feature videos. So far, two New Canaan businesses (the New England Academy of Dance and Fitness Together) have ponied up. I couldn’t find a price but Yelp’s advertising packages, which also include video profiles, go for at least $300 a month. Assuming Patch can also get that rate, the profiles may be generating $600 in sales for the site.

The company also charges businesses who want to include messages with their listings. I counted two (New Canaan Community Nursery School and Toddlertime Nursery School). $150 seems like a reasonable guess for how much each is paying, considering the price of a classified ad and the possible price of a video profile.

The spokeswoman also says the company charges businesses for “out-of-town listings” and “other tools.”

Other

Patch has been charging businesses to post online coupons since last month, but I couldn’t find any on the New Canaan site. Businesses can also pay for ads in the newsletters the site sends out, but I didn’t see any ads there either. The company also charges for “sponsored announcements.” There’s one on the New Canaan Patch, which was sold to Toyota Highlander. We’ll again guess $150 as the price for this ad.

Total: $7,240 a month

Expenses

Editor:

Like other Patch sites, New Canaan has a single full-time editor. In September, a blogger who attended two Patch information sessions reported that local editors could expect to make between $35,000 and $40,000 a year (The spokeswoman says salaries are “competitive”). Editors also get a MacBook Pro, a Nikon Coolpix camera, a smartphone, and medical and dental insurance. If we take the lower range of the salary scale and add on another 25 percent for benefits and expenses, it means that an editor costs Patch about $3,645 a month.

Freelancers:

Patch editors apparently spend $500 a month on freelancers on one site, according to an August report in Business Insider. The spokeswoman said budgets vary by Patch site.

Ad sales manager:

Patch has a single advertising manager for its sites in Darien, Wilton, Fairfield and New Canaan. Let’s put that person’s salary at $60,000, which appears to be about average for an ad manager, according to this job listings site, and then add on 25 percent for benefits and related expenses. New Canaan’s share of the salary therefore comes out to about $1,560 a month.

Regional management:

The ad manager’s supervisor is the regional publisher for Connecticut. Also, a regional editor oversees groupings of 12 Patch sites. If each of these two managers makes about $80,000 a year (and we then add on 25 percent) New Canaan’s share of their salaries comes out to about $1,400 a month.

Expenses: $7,105

Conclusions

By our estimate — and again, we’re obviously making certain assumptions here — the New Canaan Patch is just barely in the black. Our model has the site making about $135 a month.

To start churning out real money, the site could ramp up its display ad rates and /or add more display-ad units. For example, if Patch bumped up their display ad rates by 25 percent across-the-board, the site’s monthly profit could jump to $1,675 a month. But that kind of price increase might not be that easy to pull off.

A more promising route may be to add other revenue streams — like those video profiles. If the site sold just 10 of those “enhanced” listings, for instance, and did not change anything else, the monthly profit could increase to $2,535, or $30,420 a year. Multiply that by 500 and the network could be making $15.2 million a year.

Please tell us what you think — and let us know if you believe our assumptions are way off here.

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