LSA15: Triggers and Causes of SMB Churn

Churn is a tremendous problem among providers of vendors serving SMBs with digital marketing solutions and services. Brendan King of Vendasta gave a look into some new research as to why this is happening.

As a bit of background, Vendasta’s platform supports 275,000 SMB’s in 1,250 markets and the data they analyzed in new research spans over 5 years.  Using this mature and robust data, Brendan gave a preview of some research to be released in conjunction with LSA that his team is doing to better understand and analyze the causes of SMB churn among providers.

Vendasta examined the following variables and their effect on churn:

  • Number of products sold as an offering/bundle by the provider
    • There were high churn rates for providers with both a small and large number of products offered and there were likewise low churn rates for those same types of providers. With that being said, there is no discernible relationship between the number of products that an agency or provider sells and their churn rate.
  • Pricing
    • Companies with lower prices (less $100 per month) had an average churn of 28%
    • Companies with higher prices above $100 average had an annual churn of 50%
    • For every $100 increase, there was an 8% increase in annual churn rate
    • A likely explanation for this relationship is that the higher the price point, the higher the demand by the client for a discernable return
    • There was a strong correlation between churn and price.
  • Vertical specialization vs horizontally broad providers
    • Vertically specialized providers are able to provide a higher ROI and experienced less churn than horizontally broad providers.
  • SMB category
    • There are significant differences in lead value for SMB categories.  A lead for a lawyer is worth much more than a lead for a restaurant.
    • Findings revealed the higher the value of the lead that the package creates, the lower the churn.
    • Financial and auto are exceptions – the probable explanation is that these are highly competitive industries with many new players competing for the SMB business.
  • Partner type – newspaper, radio, TV
    • TV experienced high churn while radio had low churn.
    • Churn relates to bundling and trajectory of traditional sales – when bundled with digital, churn was lower.
    • This churn rate may change as those traditional sales teams gain experience selling digital.
    • Also certain media appeals more to certain business categories, so the results likely overlap some of the other variables.
  • SMB service model – DIY (do it yourself) / DIFM (do it for me) / DIWM (do it with me)
    • DIY models experienced low churn.
    • DIFM models experienced high churn.
    • Reinforces the need for media and agencies to have low cost DIY solutions
    • However, the service model may also be a proxy for price – DIY is low in price while DIFM more expensive

Some may question the significance of these findings given the perceived low value of the DIY crowd who don’t spend much on advertising.  However, 63% of SMB’s have 1-4 employees and prefer DIY model.  There is no question the traditional business model is under attack and there are providers who are tapping into the small business market that pose a threat to the traditional model.

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