SMBs and 'Churn': Learning to Stick with Your Partner

April 11, 2016 Peter Krasilovsky

 

Here’s a scenario: You accept the importance of digital marketing solutions, and have invested in one or more solution providers. But you don’t see the results you were expecting.  So you quit the vendor you chose, and pick another one.  And then, you start all over again and choose another one.

From a business development POV, frequent changing of your technology and marketing vendors – “churn”  --  isn’t ideal.  It doesn’t allow you to constantly improve your results as you and your technology and marketing vendors learn what works. Digital success  is ideally based on building and applying a digital strategy over time.

If you are among the churners, you are certainly not alone. Estimates vary, but most service platforms tend to see “churn” rates of 3-6% per month —or up to 72% a year.  (Booker’s own churn rate is a healthy ½ percent, but the lessons of churn are useful for all.)

A chunk of the churn could be characterized as “organic” – Google has calculated that 48% of all churn occurs when businesses close, go through reorganizations, or have different marketing needs when seasons change.

But that still leaves 52% of SMBs on a regular churn cycle.  Why is the churn rate so high? One reason:  many SMBs have an unrealistic timetable for achieving results. If SMBs settle in and stay with a tech vendor for at least one year, the churn rate becomes much, much lower.

Churn rates are also lower when:

  1. Businesses are serviced by vertical specialists who understand their specific issues (ie. Auto, real estate, restaurant,  salon, medical).
  2. Superior, error free customer service is provided. Research by LSA/Thrive Analytics suggests that a perception of bad customer service will account for 25% of churn.
  3. Higher transparency in the results.  SMBs like to see exactly what they have paid for, and register real ROI from the results. And that doesn’t always mean “clicks and search.”

Other explanations are less cut and dried, with contradicting research results.   One industry hypothesis, for instance, has been that SMBs are less likely to churn if they are sold a comprehensive suite of services because they are “locked in” and can’t leave without major switching costs.  

Recent research by  The Local Services Association, however, suggests that the other side of the coin is also true:  Big spending SMBs will quit if they feel like they ultimately aren't getting a good ROI for their investment. 

Other research suggests that SMBs that depend on tech vendors to maintain their services (Do It For Me) will stay with the tech vendor because they are committed to the vendor and are less likely to second-guess the investment they have made with the vendor.  But this isn’t very clear, either.  Many Do It For Me SMBs tend to graduate to Do It With Me tiers as they seek more control over their technology destiny and costs.

At the end of the day, churn is something that should be avoided by SMBs because it delays their progress. There is no substitute for carefully choosing vendors; establishing clear communications and budgets; and expectations for working with them.

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