How Yelp Works

Chefsheet.com would like to help you understand how Yelp works. 

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How does Yelp work?

If you are in the restaurant or bar business, Yelp is probably a part of your life. Learning that a guest has had a bad experience can (and probably should) be upsetting to any business owner or manager. Yelp ratings can affect your business greatly. A Harvard Business School study found that, for each star, a restaurant should expect a 5% to 9% change in business. Therefore, a three star restaurant on Yelp would see business increase by as much as 9% by becoming a four star restaurant.

Even without a Harvard study, most of us restaurateurs understand that everyone we know (ie; family, neighbors, vendors, bankers) will at some point check our Yelp score. What they see on the business’ Yelp page will tell them something about our business and ultimately about us personally.

What can you do to manage and maintain your business’ Yelp profile?

Yelp is a crowd sourced online review site started in 2004 by two former PayPal employees. The name Yelp may have been conceived as a combination of the words yellow and pages.

The basic concept of Yelp is pretty simple. At its core, Yelp is a searchable directory where users can find all kinds of businesses, from car repair and pet sitting to bars and restaurants. Included with each business profile are the basics that one would have found in the yellow pages of the past: phone, location and business hours. With the power of the Internet, Yelp has expanded from that basic directory. A business listing on Yelp may include business-provided and crowd-sourced photos, reservation links, online ordering links, messages from the business, the latest health department report and of course user-created reviews.

Yelp was not the first online directory to include reviews. As the Internet grew in the early 2000’s, CitySearch and Yahoo Local where the preeminent sites for user generated reviews.  After it’s launch in 2004, Yelp grew very quickly to overtake those competitors. A study from Northwestern University found that people were drawn to the community elements of Yelp. Unlike CitySearch and Yahoo, Yelp allowed users to create profiles, to chat with each other and, perhaps most importantly, Yelp added the ability for users to discuss and to ‘like’ each other’s reviews. 

How does Yelp choose the order in which to display reviews?

When you view a business’ Yelp page, about twenty reviews are loaded and displayed; to view more reviews the user must click the next page buttons. It is safe to assume that many Yelp users do not actually read many of the reviews. Instead, most probably scan the average star rating and read only the first few reviews displayed. An algorithm determines the order in which these reviews are displayed. This algorithm likely considers when the review was created combined with unique details about the user and the review. Users can vote a review up by selecting it as either “useful,” “funny” or “cool.” The more votes the review gets, the higher it is displayed in the order. Yelp users earn different titles based on their participation with the site and the community. Some Yelp users have earned the status of Elite users. Elite users are first nominated and then selected to become elite by committees of other elite users in their area. The elite status is bestowed on users who, in the judgment of the Yelp community, produce great content; this means they create useful, funny and cool reviews. Elite users may also be ordained in part due to how they interact with other users, comment on others reviews and perhaps even participate in in-the-flesh get togethers with other Yelp users. The order in which reviews are displayed heavily favors users with elite status.

If you have a negative review sitting near the top of your Yelp page, it may seem logical to simply post a good review yourself or have a friend post a good review to balance the page. This does not work! Yelp rewards active, engaged users. You could create a profile and post a review, but unless you had the time to keep up with the profile and review a number of businesses, your review would drop from the top of the list (and would likely be deleted). A user profile with a single review does not get a lot of love on Yelp.  Some may attempt to create a number of accounts and flood the zone with positive reviews. Yelp uses some combination of IP address tracking, your computers location on the web, as well as Mac address tracking, and your router or computers network ID, to track users. Users creating multiple accounts from a single computer will likely see the reviews vanish from Yelp quickly as Yelp sees that the same IP and/or mac has been used with another account. If you have a few devices (ie; phones, tablets, computers) which you can move to different IP addresses you may be able to create a few reviews for a business on your own. Just remember that the IP address and the Mac address may be tracked. Also, an account created for just one or two reviews does not warrant great placement in the list of reviews.

Yelp does provide a method for business owners to contact Yelp users and discuss a review. Yelp does not want you to be able market to your reviewers so messages are limited to about five per day and you can only contact any single user once. If they respond you can then respond again, and so on.  If someone has posted a review which you would like removed, your single best course of action may be to contact the guest directly. Yelp is a community that rewards interaction. People use Yelp to be part of a community. When you represent a business, you are a star in that community, and users tend to respond well when you contact them. It may be best to empathize with the users review, apologize and perhaps invite them to return. Often the Yelp user will change the review or remove it simply for having been contacted and receiving an apology.

libel

1) n. to publish in print (including pictures), writing or broadcast through radio, television or film, an untruth about another which will do harm to that person or his/her reputation, by tending to bring the target into ridicule, hatred, scorn or contempt of others.
Read more: http://dictionary.law.com/default.aspx?selected=1153#ixzz3yaDHNp6c

It is possible that a user’s review could be considered libelous (which means it’s BS and affects your business in a negative way). For example if a user posted a review that said:

Restaurantfan2012121 *

“I have eaten at the Vegan Flower about 120 times since they opened last month. This has always been one of my favorite restaurants until tonight. I ordered the flat iron steak with burr blanc sauce and duck fat fries. About ten minutes before I ate the steak I became ill. I realized I had food poisoning and went to the emergency room. I was tested and was found to have salmonella poisoning. Shame on you Vegan Flower, I will never return and I advise all Yelpers to instead try the steak house across the street.”

This review appears to have some problems. First, the Vegan Flower does not serve any of these items. Next, beef can have salmonella but most often salmonella is found in chicken and eggs. It is safe to assume that the poster was mistaken about where they had dined or perhaps had other motives. The Vegan Flower could sue for this post as it is clearly inaccurate. The Vegan Flower would first need to establish that at least one person chose to skip the restaurant due to the review and then must be able to find Restaurantfan2012121 to serve him/her papers. Yelp cannot be sued. The offense was not committed by Yelp, but instead the user. In some cases, and in some states, courts have ruled that Yelp must help the plaintiff find the user for a libel case.  However, Yelp objects to doing this in every way that they can.

Will Yelp remove a review?

All Yelp users, including business owners, can flag a review and request that Yelp remove this review. Yelp does not take any responsibility for the facts of the review; they will generally not remove a negative review complaining about the steak at a vegan restaurant. They will remove a review if it violates their terms of use.  In general, if the reviewer is threatening someone, asking for something like a bribe or revealing private information, Yelp will remove the review. You can view Yelp’s content guidelines here.

Does Yelp remove bad reviews for it’s advertisers?

Yelp’s income comes from business like yours paying for more visits to their Yelp page. Yelp has been accused of selling the removal of negative reviews in exchange for a business purchasing advertising. It may be that this was a misunderstanding or aggressive sales people selling something, which they could not. For some time, Yelp had a plan where advertising businesses could choose a favorite review which would always be seen at the top of the list of reviews. With the controversy around Yelp ad sales, however, they no longer appear to offer this service.

Is there a better way?

Yelp needs restaurants and bars like yours to buy advertising, use their new services like Seat Me for online reservations and Eat 24 for home delivery. Yelps’ income comes from people like you. Yelp is under threat from Google who is working to direct searches and map requests from Yelp to Google’s own review service. Restaurants and bars that Yelp depends on should speak up and ask Yelp to work harder to ensure accuracy in the reviews and work to make the Yelp users more accountable for their words.

Yelp could remind users of libel laws both when they sign up and when they post a review. Imagine a pop-up as a user is posting a review asking them to confirm that the events in the review are accurate and explain that one could be sued for inaccurate reviews.

Yelp could leverage the power of its community of users to police other users. Think Wikipedia. Business owners could flag users who may be abusive or overly negative. If a user is flagged enough, a committee of Elite Yelp users could review their work with remedies ranging from having reviews removed to being banned from the platform.

Yelp could remind users of the average star ratings they post and how this compares to the system average when they are posting a review.  A pop-up could say “you are about to post a two star review. On average, you score businesses with two stars, while the Yelp average is three stars”.

Yelp could include critical reviews (think Rotten Tomatoes) to balance the users reviews.

The future for Yelp, as with any tech companies, is not certain. At present, Yelp is a very powerful tool that many people are using to decide where to dine, shop and spend money. We believe business owners like us should ask for more from Yelp in how they manage this tool.

Tips or service charges, which is best for your restaurant?

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How restaurant service charges work:

In our last blog post, we discussed increases in the minimum wage being enacted in many cities and states in the US.  Wages, or compensation, is what an employee earns from providing the task or service the employer needs in order to run the business. In most professions this is a pretty simple transaction.

The food service business is a bit of an oddball, however. Many people are paid for providing the same service by both their employer and also by the customers that they serve. Since the late 1800s, tipping in the US has become so customary that, now, most waiters receive the bulk of their compensation from tips and not from wages. As we discussed in the last blog, the federal law (as well as many states) allows for a lower minimum hourly rate to be paid by the employer provided the employee is making at least the minimum wage via tips.  This is called a tip credit.

A lot must be accomplished with the money that each customer pays us for a restaurant’s products and services. First, the restaurant must be able to afford to purchase food, pay rent, pay for the food to be cooked, keep the lights on, and be able to pay the front of house staff a minimum wage that complies with the law.  The current system in most fine dining restaurants in North America (per the tip credit) is essentially charging the guest less than the true cost of the experience, and then asking the guest to pay for the service separately to make up the difference.

When the minimum wage is increased and/or tip credits are done away with, the relationship between all of this stops working. In states that don’t have a tip credit, the mandated increase in waiters pay means that now the restaurant and the guest are paying the server for the same job twice. The restaurant could raise prices to absorb this increase, but in the end the guests will need to still see the restaurant as a good value. The product has not changed; the guest is getting the same service, but now they are being asked to pay more for it.  Higher menu prices lead to higher tips. Higher tips lead to the guests paying more overall, and charging more may actually lead to a decline in overall business. 

Is there another way? Some restaurants do not allow tipping at all. Guests receive a bill with a service charge amount added to the total so that the entire staff may make a higher hourly wage. The guests pay this service charge, and the restaurant then distributes that income to pay wages as needed throughout the business; both in front and back of the house.

The benefits of the service charge system are pretty simple. A restaurant doing $2,000,000 in sales per year may have a total payroll of roughly $650,000 with about $300,00 of that going to the front of the house. In Los Angeles, the minimum wage will increase from $10.00 per hour to $15.00 per hour (a 50% increase). This would mean an increase in front of house payroll of $150,000, making the overall FOH payroll a whopping $450,000 per year! To cover this increase, another $150,000 must be found in a budget which includes a profit. The servers, bartenders and other tipped employees have just received a 50% raise to their hourly pay!  At this $2,000,000 per year restaurant, the guests are leaving between $360,000 and $400,000 per year in tips. Having a service charge means that this restaurant could essentially collect these tips itself, and then have $360,000 per year in new cash flow to be used to pay for the $150,000 increase to payroll (with the rest to be used to increase pay for the entire house)!

This all sounds pretty good, but there are still some problems with service charges. The first challenge is these new, higher wages for tipped employees must be paid regardless of how much the restaurant is selling. If you think you are eager to cut staff when it is slow now, just wait until waiters are making $25 to $35 per hour. Next, for the purposes of collecting sales tax, most states draw a distinction between tips and service charges. Generally, if the guest is required to pay the charge (and not all of the funds go to the server) then you must collect sales tax on that service charge amount. Depending on your state, this adds as much as 10% to the cost of adding the service charge to a check. Check with your state to know how service charges are considered with respect to sales tax. The sales tax, however, is not your real tax problem. Between the IRS, state taxing agencies, tipped employees and restaurants there is a sort of unspoken understanding which is that restaurant business will do what it can to compel tipped employees to declare tips as income. For many tipped employees not all tips are reported to the IRS. A restaurants share of state and federal payroll taxes is based on the total income the employee earns, including tips. When a service charge is collected and wages increase, the entire front of house income is now effectively normal pay, and most restaurants payroll taxes will likely increase. However, keep in mind that this may actually be beneficial as it could protect you and your staff from the potential of an audit in the future.

Perhaps the most difficult challenge to consider in switching to a service charge is that a service charge is, in effect, taking some of the tipped employees income and using it to pay for the increased minimum wage throughout the entire house. This is a hard thing to be the first restaurant in your market to do. If a server or bartender is told they will no longer make tips at your restaurant, they may just walk across the street and take a job at a restaurant that still accepts tips. In places like San Francisco and New York, a few high profile restaurants are beginning to explore service charges (ie; Danny Meyer). Generally the market tends to make these changes en mass when a tipping point is reached. It may be a good time to keep your eyes on what others are doing and understand how service charges and other changes will affect your business should you one day decide to make the switch.

A new wage for a new year.

And then the holidays were over… Happy New Year from Chefsheet.

In this newsletter we will discuss the current changes in the minimum wage as well as the forces that are helping to bring about these changes. Most restaurateurs understand that increasing menu prices cannot simply pay for increased labor costs. As restaurant prices go up, people choose to order less expensive items, order less in general or just eat out less. For many, dining out is a luxury; it is not something a consumer must spend money on at any price. 

The dark portion of the graph is the minimum wage in dollars. The lighter portion of the graph is the minimum wage in spending ability.

As your labor costs increase, know that Chefsheet was designed to help you reduce your cost of goods and increase your bottom line.  With Chefsheet, you can see which of your menu items are the most and least profitable and how much you should be charging for them. Track your vendor prices and keep your vendors accountable for what they are charging you.  Take comprehensive, clean, monthly or weekly inventories to know your true costs as they are happening. For help with any of this or any other Chefsheet features, contact support to schedule a demo or training.

With the start of 2016 many states and some cities will see an increase in minimum wage.  Almost everyone who has a job in the United States must be paid at least the federal minimum wage of $7.25 per hour. Without discussing tip credits, the only people who can legally make less than the minimum wage are business owners, those who are self-employed, those covered by a union contract and/or people who are interning and receiving college credit for the work they are performing. If you own your own restaurant or bar, you are free to make less than the minimum wage.

Twenty-nine states have passed laws increasing the minimum wage above the federal minimum wage. A county or city may set up its own minimum wage provided it is equal to or greater than the state minimum wage. The federal minimum wage was last increased in 2009. Many state and local minimum wage laws have automatic annual increases. These increases may be scheduled in advance or may be indexed to inflation. Inflation indexes are generally set to the Consumer Price Index or CPI. The CPI tracks the prices of items such as food, energy and clothing in a geographical area. Indexed minimum wages will generally increase annually by the same amount as the CPI for the area increased in the previous year. Most indexed minimum wages can only go up or remain flat. This means that during an extreme recession or depression, when price growth is negative, the minimum wage can not go down.

A tip credit is a means of calculating a tipped employees tip income as part of the income needed to meet the minimum hourly wage.  Federal law says that tipped employees must also be paid $2.13 per hour. Many states have two minimums, one for tipped employees and another for non-tipped employees.  Seven states do not allow tips to be considered in minimum wage. In a state with no tip credit, a waiter making $40 per hour in tips will still be paid the state minimum wage, whatever it may be. For the purpose of taxing income all states and the federal government combine tips and hourly pay. Both the employees and the employers pay payroll taxes based on the combined earnings. All benefits such was workers compensation, disability and unemployment are also based on the total amount of tips and hourly income.

Since 1938 there have been different times when the minimum wage has been increased both federally and at the state level. Over the past couple of years there has been a great deal of energy around increasing the minimum wage with Seattle, San Francisco, Los Angeles, New York and many smaller cities. San Francisco first divorced its minimum wage from the California minimum wage with an increase in 2004. The increases over the past few years largely began in Seattle Washington.

In New York, Seattle, San Francisco, Los Angeles and many other cities and states, the primary group midwifing these minimum wage increase is The Service Employees International Union or SEIU.  SEUI represents just below two million workers in fields ranging from health care to restaurants and hotels.  SEIU, with partnership from other unions and community groups, funded the campaigns to raise the minimum wage in pretty much every city and state that has seen a recent increase. SEIU is a funder of the ‘Fight for Fifteen’ group and spent about $10 Million to organize employee walkouts at New York City fast food restaurants.

Members of SEIU are very unlikely to be affected by the minimum wage increases regardless of which industry they work in. Unionized restaurant workers are mostly found in hotels, convention centers and large venues. Most union restaurant workers already make more than the new minimum wages. Further, many union contracts are exempt from elements of US labor laws which means that a union worker could be paid less than the minimum wage in some cases.

Why are SEIU and other labor unions so interested in increasing the minimum wage? First, a rising sea lifts all boats. If non-union workers are paid more it follows that unions will be able to negotiate better contracts for their members. Also, for a long time, unionized restaurants have been at a disadvantage to independent, non-union restaurants. A unionized hotel bar needs to charge more than the independent bar on the corner as the hotel bar has much higher labor and benefit costs. For SEIU’s part, they state that their members believe in bettering the working conditions of others, regardless of if they are in a union.

A few things to know and consider:

Any wage increase is only to be paid from the date it went into effect. If your payroll does not start on the 1^st of January, make sure you are calculating your minimum wage employees pay based on the effective rate before an increase multiplied the hours before the increase plus the effective rate after the increase multiplied the hours worked after the increase. Minimum wage employees may have two pay rates on a single check for the pay period that covers the New Year.

Is there another way? The tips paid to waiters may represent an amount of about 18% of your restaurants sales. Currently all of this money is going to just the tipped employees. Some restaurants in high minimum wage markets have already begun switching to a ‘service charge model’ where the guests are asked to or are required to pay a service charge so the cooks and servers are all paid higher wages. The challenges with a service charge model may be attracting front of house talent and committing to a higher rate all for your employees all the time.

Automation and outsourcing – The restaurant business is a pretty analogue business, but there may be ways to accomplish daily tasks more efficiently.  There are answering services, services that can take reservations and orders online, bookkeeping services that process your books off shore and more. Every restaurant is different but there are ways to downsize labor if necessary.

What to expect in the future – Local and state increases in minimum wage in cities such as San Francisco, Seattle, Los Angeles, New York and other places where these increases have passed are popular with the voters and the public. Many large cities have become very expensive places in which to live. Politicians and voters see people struggling with higher rents, higher home prices and generally higher costs of living and wish to do something, perhaps anything, to help. Options such as increasing the minimum wage are popular as they cost the government very little, do not require tax increases or money to be transferred from other government programs, etc. Following a successful minimum wage increase in San Francisco, SEIU supported other initiatives such as paid sick leave, fixed scheduling to avoid last minute changes to a workers schedule, employer sponsored health care and other legal mandates that offer new benefits to employees.

While higher minimum wage may help many Americans, it will affect the efficiency and bottom line of restaurants everywhere.  Are you ready?

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