Understanding Customer Churn Rate and How to Improve Your Churn Rate
August 13, 2018 · Industry Developments
All companies that sell digital marketing services to SMBs share one common frustration: customer churn and how to reduce churn rate. Local search analyst Greg Sterling puts the average annual churn rate for search marketing clients at or above 50 percent, with some companies seeing churn rates even higher.
At LSA|15, the Local Search Association’s annual conference held last April in Los Angeles, Brendan King of Vendasta shared customer churn trends drawn from data from 275,000 customers over five years. Some of Vendasta’s findings:
- Companies with lower prices (<$100/month) had churn rates of 28%, while churn for companies that charge more than $100/month jumped to 50%. Every $100 increase resulted in an 8% rise in churn.
- Providers that specialized in a specific vertical experienced lower churn rates on average.
- The higher the value of a lead for the advertiser, the lower the churn rate. For example, lawyers tended to churn less often plumbers. The exceptions were financial services and auto, where competition among service providers has been historically fierce.
Churn cuts into profits and raises the cost of sales, so all publishers, media companies and agencies who sell digital marketing services look for ways to reduce churn rate and keep SMB clients from leaving. Here are some of the effective strategies we’ve seen – we call these the 5 E’s:
- Expectations: Sales reps often stretch the truth when it comes to setting expectations in order to close the sale. Unfortunately, this short-term win has long-term consequences. Coach sales teams to set realistic goals with new clients. Base these goals on campaign data from similar businesses whenever possible. Advertisers who know what to expect have more patience and are less likely to get frustrated.
- Education: Digital marketing seems scary and “black box” to many small business owners, but it’s in your best interest to help them understand how your programs work to build their business. This means your sales team needs to understand the fundamentals of digital marketing – especially the products and services they’re selling – well enough to explain it to advertisers.
- Edit: Some advertisers want to hear every detail about your technology, analytics and processes; others will tune out as soon as they sense information overload. Sales reps need to be able to assess how much digital marketing knowledge each client needs and wants. Arm your sales teams with the right up-front questions so they can decide whether to share the gory details or only a top-level overview.
- Evidence: SMBs will be more likely to change digital marketing providers if they aren’t getting good data showing what they’re getting for their money. Make sure you have a good online dashboard advertisers can access anytime to see how their campaigns are performing. Sales reps should sit down with advertisers periodically to look at the dashboard together and discuss next steps.
- Evolution: Your clients’ businesses don’t stay the same from month to month or year to year. When small businesses grow, add new services and products, change locations, etc., their marketing goals change too. Make sure sales reps talk to advertisers proactively about how their businesses are changing and what might be coming in the next quarter or year so they can adjust the clients’ marketing programs accordingly. Sales reps who become true marketing partners for their SMB clients build trusted relationships that last for many years.
Reduce Churn Rate
Practice these 5 E’s to help reduce churn rate for your customers.