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Vantage Points: The SMB Churn Story

by | Feb 19, 2016 | Blog, SMBs, Vantage Point

This is the latest in BIA/Kelsey’s Vantage Points series. On a semi-weekly basis, it will tap the perspectives of various lookout points from around the local media and tech sectors. The views expressed do not necessarily reflect that of BIA/Kelsey.  

The SMB Churn Story Is More Complex than We Thought
By Greg Sterling

Small business advertiser “churn” remains a major problem for local marketing providers. Just a few years ago it wasn’t uncommon to hear about sky-high churn rates of more than 80% percent per year.

Things have certainly improved. Yet non-retention rates remain high. An informal sampling of local media sales channels by LSA in 2015 found SMB churn was still about 50% or 60% annually for many providers.

Unfortunately there’s no single answer or easy solution to SMB churn. There are some widely accepted narratives about churn but they may not be entirely accurate – or the reasons behind churn may be more nuanced and complex than widely understood.

Over the past decade, rather than becoming more transparent and “accountable” the market has become more fragmented and confusing. Competing vendors sell similar products with numerous companies making promises they have difficulty fulfilling. And some at the ethical margins knowingly misrepresent their capabilities (e.g., “We’ll make you number one on Google”).

All this creates an atmosphere of suspicion and distrust. Indeed, a 2015 survey, conducted in the UK by Bing and Latitude White, found that fewer than 20% of SMBs trusted their SEO and PPC vendors.

This is the emotional backdrop against which SMB digital marketing services are sold today. Compounding the trust issue is the fact that it has become increasingly challenging in a cross-platform, multi-channel marketplace to determine — let alone prove — “what’s working.”

The conventional wisdom typically recites list of variables as triggers for churn: smaller budgets, lack of sufficient advertiser education, complex product lists, inflated promises and expectations, lack of clear ROI and poor customer service. According to recent SMB survey data, lack of perceived ROI or effectiveness is one of the chief causes of program reduction or abandonment.

These explanations have obvious and logical merit. However data from sales automation platform Vendasta tell a different and perhaps somewhat controversial story about churn. In a free report published earlier this year by LSA, Vendasta reseller data from 275,000 small business accounts was examined along with a set of alternative churn variables:

  1. Number of products sold to local advertisers
  2. Product pricing
  3. Vertical vs. horizontal sales tactics
  4. Reseller media partner category (e.g., TV, radio, newspaper)
  5. Small business advertiser category
  6. Service model: DIY, DIFM, DIWM

The most significant of the factors above were product pricing, service model (DIY vs. DIFM) and sales strategy (vertical vs. horizontal). Of those on the list, the one factor NOT correlated with churn was number of products sold. In other words fewer products sold didn’t equal better retention.

Google has research that argues 52% of churn is avoidable, while 48% is beyond the control of marketing providers (e.g., business failures).

At LSA’s upcoming annual conference in San Francisco (March 7 – 9) we’ll be exploring these and associated topics in great detail in multiple sessions:

  • Google will present on SMB churn based on its data and survey findings
  • We’ll be talking about the “next phase in local sales” and why the old methods may be dead
  • Panelists such as Hubspot, Camilyo and Signpost will discuss new ways to package and present marketing services that are more effective and more consistent with consumer behavior

We’ll also hear directly from local business owners themselves. We’ll show recorded interviews and have a live SMB panel for them to their own stories, discuss challenges and experiences with digital marketing providers and directly answer audience questions.

These will be not only fascinating but practical discussions about SMB advertiser acquisition and retention. Hope you can join in.

Greg Sterling is senior analyst for for Opus Research, tracking the evolution of the mobile Internet. Sterling is also a contributing editor for Search Engine Land and Marketing Land. He is the founder of Sterling Market Intelligence, a consultancy focused on the relationship between digital media and offline consumer behavior.