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Do You Agree with Vendasta’s SMB Customer Retention ‘Formula’?

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A couple of years ago we wrote a report using Vendasta customer data on SMB churn. That report contained some controversial findings, including the idea that DIY products seemed to have half as much churn as “do-it-for-me” offerings.

Late last year, we produced another report (“Churn-busting“) based on a range of interviews, proprietary and third-party data. It sought to isolate churn triggers and present case studies with anti-churn best practices. We identified things that successful SMB-facing marketing firms do or have in common:

  • They’re vigilant about accounts and have regular communication with their customers (at least monthly). But beyond regular communication, another theme is rapid response to problems, concerns or complaints.
  • They’re proactive and transparent about performance. They speak to the customer in language the business owner can understand, rather than industry jargon. They don’t simply push charts and dashboards at regular intervals but explain and interpret what’s going on for the business to ensure an understanding.
  • High levels of industry customization or verticalization also characterize some of the most successful firms
  • In some cases, employees are compensated on the basis of retention.
  • But perhaps the key, overarching driver of operational success is what might be described as “sincerity.” They have empathy for their customers.

Now Vendasta is out with another report, based on an analysis of 100,000 SMB customer accounts on its platform. It identifies a number of variables that are correlated with SMB advertiser retention and lower churn:

  • A needs-based sales approach (sell them products they actually need)
  • Upsell additional products to SMBs within three months of onboarding
  • SMB accounts with multiple products are more likely to be retained after two years
  • Ensure early customer engagement and conduct regular needs assessments
  • Verticalize sales and solutions

Specifically, Vendasta found that “getting clients to engage five times within the first month . . . was found to have the greatest impact on increasing retention” (20% improvement). It also found that customers buying three or four products saw much greater retention than those with only one product.

It’s quite possible that here “correlation does not equal causation.” A larger number of products sold is likely a function of more successful sales, service and customer engagement, which may be the true drivers of retention rather than simply selling a larger number of products. But the correlation held up across the vast customer base examined.

There’s a way in which some of the above recommendations are now “conventional wisdom.” The problem or challenge is that organizations may speak to these issues but not execute well or not be “sincere” in their execution. Sincerity and customer empathy are intangibles; and many organizations talk about customer success but they really care about their own ARPU, rather than being genuinely invested in their SMBs.

What are your thoughts about the Vendasta “formula” above? Do you agree? Where would you differ and is there anything missing from that list?

As a bonus, listen to Charles Laughlin’s wide-ranging “Above the Cloud” podcast interview with Vendasta Chief Strategy Officer Jacqueline Cook (interview begins at 12:37):

2 Responses to “Do You Agree with Vendasta’s SMB Customer Retention ‘Formula’?”

  1. Dew says:

    Hey Greg,

    I completely agree with the limitations you identify in our study—there are so many variables, nuances, and qualitative data points in each partner-client relationship that are hard to identify when approaching such a large data set. I believe that a piece that could tie some of these results we found together more conclusively would be taking a deeper look at the sales strategy and ongoing client success focus that each partner has with their client. I hope this study sparks this kind of further conversation and identification of what the perfect recipe for a beneficial partner-client relationship would be within the local marketing services space. While there are some processes a provider can begin to implement within their organization relayed in the study, such as unified communication and notifications, consistent re-evaluations of client performance, etc., these moves should facilitate building an ongoing, positive relationship with each client and their unique needs.

    Well said in your piece above!

  2. Greg Sterling says:

    Thanks. It’s great that you guys put out the report — for the inputs and discussion. Everyone needs to be thinking about “quality” and “continuous improvement.” The most profound component of the insights in my view is “needs based selling.” It’s a simple idea but most don’t do it.

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