In June 2009 Borrell Associates documented what I’d been hearing informally for over a year before the report came out: SMBs were churning out of the local SEM offerings that Webvisible, ReachLocal, Yodle and others were selling. Everyone I spoke with told me their churn rates were better than average.
That average, however, was about 80% to 90% per year. In one case I know of churn was more than 100% on an annualized basis.
Those huge churn numbers and the alarm they caused within Google were partly responsible for Google shutting down and retooling its SEM reseller program.
The simplified version of the various causes of SMB churn were the following:
- Overzealous salespeople who over-promised on performance
- A lack of education for the SMB-buyer (resulting in a lack of understanding of the products and proper expectations)
- The intangible “peekabo” quality of online advertising — an inherent problem for the SMB vs traditional advertising
- Low vendor margins on SEM that lead to fulfillment problems as resellers often took 40% of the SMB spend off the top and left too little for the media buy
Things have improved somewhat as chastened resellers have created better service and learned from their mistakes. They’ve also diversified products so they’re not relying as heavily on SEM and Google in particular (offering SEO, social, etc.). One formerly Google-centric reseller says it sources less than 40% of its traffic from Google today.
However the churn problem persists. I was told very recently that one of the leading SMB online marketing vendors still has a roughly 70% churn rate, which is still better than the average.
I’m having a debate with people on Facebook about this right now. As David Mihm argued, there may not be a scalable way to address the bulk of the SMB market. Yodle just bought local SEO provider ProfitFuel to address the very low-end of the market. However most of the smallest SMBs will be left out in the cold by most of the vendors working in local (except the “boutiques”) because the advertising spend and the margins aren’t there.
Accordingly small SMBs generally will be left with self-service solutions that most of them won’t use for reasons that we’ve discussed at length in the past. Self service is made more challenging by the fact that the market is more complex than it has ever been.
SMBs can’t simply shun the Internet. If that’s not obvious, the the easy-to-buy, easy-to-understand traditional media solutions they used in the past still work but have become more expensive on an ROI basis as audiences have fragmented.
They can’t go back but they also can’t move forward without help. And that help has been a very mixed experience so far for many SMBs. There just doesn’t seem to be any clear solution “at scale” on the horizon.
June 6th, 2011 at 2:25 pm
I think most of these issues are addressable. The biggest issue is rep and customer training. If the reps set the correct expectations and teach businesses how to determine ad effectiveness – this problem can be corrected with the proper agency to SMB communication.
However, there is often a lack of rep training. I’ve met reps who don’t truly know what they are selling or make promises that no one can fulfill. Most SMB products are so trackable (contacts, phone calls, coupons, etc) that IF the aggregator is doing a good job – their churn should be low.
June 6th, 2011 at 2:32 pm
Brad:
Why do you think the rep training hasn’t happened — or happened properly? I know there’s been rep training in the past.
June 6th, 2011 at 2:49 pm
Greg,
It’s not just rep “training” or getting them to understand the product. It’s helping the rep articulate to the advertiser the benefits of search engine marketing. Remember, IYP churn rates were significantly higher than print (not as high as SEM though) and still are in a lot of cases.
You make a good point about educating the business owner and what is their “frame of reference.” In print YP, they bought an ad and it worked throughout the year. It never went down near the end of the month because their budget dried up, or generated a lot of “bogus leads.” It just delivered (and still does for some advertisers, by the way).
I’m sure this number will drop ad advertiser education improves (a click doesn’t equal a call) and sales forces refine their message.
June 6th, 2011 at 2:51 pm
There is often rep training. Often that training is focused on selling, customer objectives, etc – and doesn’t take into account the product characteristics or the platforms themselves (google, facebook, bing) in why they can help a biz to get new customers.
If you walked a customer through a simple exercise or phone calls to close rates to average sale. They would know what an average phone call made them. It’s then a simple equation to say, you received x calls leading to y revenue and that is higher than your your marketing spend of z – therefore, if you stop this program you’ll lose an average of $k each month. While thats a very simplistic example for a blog post – that’s one of the things reps generally don’t do.
The other reason.. I still do the AdWords Seminars for Success with Google, and its not uncommon to see a sales rep in the audience. One of the most common reasons reps are there is to learn more about AdWords. Another common reason is ‘I’m selling this product and I don’t know why people should buy it’. I met a rep last year at one of our events who was selling CPM and didn’t know what CPM stood for.
I’m sure some companies have excellent training programs; but I don’t think it’s common.Most reps are former YP sales people who might do some phone call tracking; but could sell on visibility not attribution and revenue. A lot of the YP processes are still in place.
This might not be true for everyone, but I did spend several years building products in this space and working with sales reps (and still do on occasion), so this is just general industry observation from my viewpoint.
June 6th, 2011 at 2:51 pm
The product suite is much broader than SEM now. In a way the temptation, to overcome increasing complexity, is to simply make it all black box and turn the sales message into: we’ll get you X leads. But that might exacerbate the problem.
June 6th, 2011 at 2:53 pm
And Tom stated this much clearer than I did, “It’s helping the rep articulate to the advertiser the benefits of search engine marketing. ”
That’s a lot of the issue.
Reps often still focus on product features and not the overall benefits and value prop.
June 6th, 2011 at 2:55 pm
Brad:
People aren’t just selling SEM anymore. It’s SEO + SEM + sites + reputation mgmt. + Facebook + other.
June 6th, 2011 at 2:59 pm
Greg:
Agreed. But the problems weren’t solved in SEM (PPC + SEO) where revenue is much more trackable, before it was rolled out to social, rep management, etc where value props can be a bit more ambigious.
Therefore, the base problem just became larger.
I see this in selling IYP, display (CPM), social, etc. It’s not a SEM issue – it’s an overall communication and rep + customer understanding issue.
June 6th, 2011 at 3:03 pm
Agree Brad. More products makes it all more challenging.
June 6th, 2011 at 3:10 pm
Greg: I ran one reseller program. I operate a bunch of businesses with partners, including doing the seo and ppc for them, or overseeing it.
I ran the reseller program due to one feature and additionally to see if there ppc results would be better than mine and if I could learn from it. Here are my findings:
The reseller marks up ppc a lot. You get a lot less bang for the buck. Overall results are worse; less calls, less leads. The analysis is a lot less effective than if you see the results yourself. The analysis is filtered in a way that reduces knowledge.
The reseller ran a distribution of ppc ads through a third party that runs the risk of causing a duplicate maps listing. The ad distribution included a redirected phone number used for monitoring calls. That is a potential catastrophe. Despite demands to terminate the third party distribution the reseller hasn’t done so. Its a potential disaster. I don’t get Google providing an attractive reseller program and incentive. The reseller programs look to distribute ads in a way that maximizes markup and in many cases results in far less income to google. I understand the large scale resellers might have 30-50,000 clients across the world, but in assembling that business volume the resellers are sucking enormous amounts of cash into their own pockets and reducing Google’s take. Cripes Google could develop its own sales team, run the ads into its own ppc campaigns and others and still make dramatically more money while managing its own sales force and “feet on the street”.
I don’t believe its a lack of training at all for the sales force. Sales companies of this ilk train their sales teams to sell and empathize with customers, not to dig deep into the issues. The business model for the resellers includes tons of mark up on reselling ads. Its the nature of the beast, not the lack of sales training.
June 6th, 2011 at 3:42 pm
Interesting. Thanks. Anyone want to respond to Dave’s (Earlpearl’s) remarks?
June 6th, 2011 at 3:58 pm
Agree with everything said above. I’ll add that “one size fits all” does not work with this market. Those who are selling SEM to SMBs on a vertical basis seem to be doing better with churn. I have a client that sells SEM to only one vertical and their churn is <20%. This is because they understand what it takes to get a quality lead in that market and they understand the advertiser's business a lot better than a generic SEM shop.
You wouldn't sell McDonald's and Coke the same marketing package, but it seems like a lot of the big SMB SEM players are selling the same thing to plumbers and lawyers.
June 6th, 2011 at 4:02 pm
I believe that Yodle has verticalized its sales efforts for some time.
June 6th, 2011 at 4:05 pm
Earlpearl states that “reseller programs look to distribute ads in a way that maximizes markup”. I think that’s one of the main issues with it, when you’re considering that we may be talking about small, local businesses with overall low search volumes. Sales reps need to make larger sales per customer, or it results in them working their fingers to the bone trying to make up for it in volumes of customers. If you have a small business with relatively few local/specific keyword searches, then you sometimes have cases of sales reps pushing people into buying more popular keywords where they’ll end up spending more for relatively fewer conversions.
Then, there’s the quality issue once the sale is made, too. When managing the program, non-performing phrases need to be removed, but this will result in potentially lower spend, so there’s less incentive to do so. I’ve seen instances where Google’s own PPC ad management staff urge clients to expand out their keywords to include broader, more-popular phrases, resulting in lower efficiences and even losses.
There’s a tension between the needs of SMB advertisers and the organizations which sell PPC advertising that hasn’t been adequately resolved by current solutions.
June 6th, 2011 at 4:18 pm
It’s one thing to have a verticalized sales force but I wonder how different the product is by vertical. I am guessing it all gets turned into the same sausage, but that’s just a guess. Actual mileage may vary.
June 6th, 2011 at 4:47 pm
Chris:
Isn’t Boost all broad match?
June 6th, 2011 at 5:00 pm
There’s a lot of discussion here about why Webvisible/Yodle/Reachlocal/etc. struggle to provide great service. I think another part of the churn problem is that only a small % of companies that are sold these services are actually right for them. Andrew is hitting on part of that with the discussion about verticals, but total marketing budget and level of web-savvy are issues as well. There are many very savvy SMB owners (ahem, Earlpearl), that can easily do better on their own (due to the markups and overly-standardized service). On the other end, there are lots of SMB’s that have horrible lead funnels and wouldn’t make a decent ROI even with the world’s best lead-gen campaign. I’ve also spoken with successful businesses that have never spent a penny on marketing, and get sold an online marketing package of $500+ a month. They expect something like the referrals they usually get – no wonder they aren’t happy with the leads.
You can also find plenty of SMB’s happy with the service they’re receiving – I’d suggest most of those just happen to be the right type. Which probably means a not-super-web-savvy owner, whose business did very well with a reasonably large yellow page spend. They know how to make the most of leads, but might not find a better option on their own.
June 6th, 2011 at 5:55 pm
Greg:
We started investing in small businesses years ago. During most of that time I chiefly worked in an environment that was essentially B to B sales; commercial real estate. You could call it real estate, real estate consulting, or high end sales….but when I started for one of the largest firms in the industry, my colleagues and I learned lots more about effective selling than we ever learned about the real estate market. Salesmanship was paramount. I later worked for a small period selling a type of service not that different than the Internet ppc resellers now; that is to say there was a lot of markup. Finally I got involved full time in these smbs we operate roughly in conjunction with the growth of the web.
Most heavily sales dependant firms emphasize sales knowledge over technical knowledge by a factor of probably 100 to one. Highly technical sales is usually handled by a team, including sales engineers that enable a sales team to expound on critical issues. The sales personnel almost never can handle the deep technical issues.
I sincerely doubt that training the sales force will overcome the issues you describe. Its just not in the nature of such businesses. It might well be detrimental to the selling entity. Meanwhile I looked at the published financials for one of the largest such resellers. Revenues were roughly double cost of goods sold. Cost of goods sold were primarily the cost of the ad distribution system. In other words, markup is roughly 100%. That is damn high. Meanwhile cost of sales and advertising, which is probably primarily salaries and commissions to the sales people are extraordinarily high….respectively over 30% of revenues for the two reported quarters I reviewed. Make no mistake the resellers are dynamic sales businesses, pumping a ton of money into their sales teams. I am pretty experienced as Chris (not Silvery
) referenced. In that regard it turns out the results produced by the reseller were not quite as good as what I did. Not that far off either. Of interest because I can document every lead for this particular business…. for one of the only times I could take the extra step of calculating precise ROI….though in this case I wouldn’t put too much weight on it…as the real sales depend ultimately on salesmanship internally, since its a service for a b&m. To the extent that results look reasonable, I can see why a lot of businesses might stick with these services. They do produce results off the web. If a business was a total newby to PPC results off of PPC can look good. Regardless, the markup is enormous, my experience with service is really bad, and I strongly believe that businesses that can afford some time and effort, and really know their own businesses well, can do far better either handling PPC themselves or hiring a service that doesn’t mark up ppc costs as dramatically as do the above mentioned resellers and others.
June 6th, 2011 at 9:29 pm
Hence, Groupon.
June 7th, 2011 at 1:57 am
Let me first say that all of the comments that I have read so far have merit. As a sales trainer who works with resellers in 17 countries and has over 25 years experience “in the street” working with thousands of small business owners and trained thousands of salespeople (and has also had the opportunity to work with Brad Geddes), there is another element that is missing in this conversation. I’m going to phrase it this way…a landscaper is not a landscaper is not a landscaper. Let me explain. By most reseller’s own admission, less than 25% of their sales force conducts an in-depth “Needs Analysis”. Many do ask questions during the sales interaction, but how many sales reps could provide answers to the following questions and the end of the call: 1. What are the main focus areas of the business (or how do they make money and in order of what are the most profitable or desired types of customers)? For example, residential and/or commercial landscape design? Do they provide and make money from excavating services? Residential and/or commercial lawn maintenance? Can they design and install rock walls, ponds, waterfalls, etc? Do they design and install landscape lighting? Do they have a nursery where they can provide trees, plants, all types of flowers, etc.? I’m barely scratching the surface…but you get the idea. If you spoke to ten different landscapers there is a strong possibility that you would get ten different answers to those questions. My question is…would the product solution be the same for each? Obviously, it shouldn’t be…but many times it is. 2. What is the landscaper’s capability and capacity to handle more of each type of business? Does he have one crew or ten crews? How many specific types of jobs is he doing now vs. how many more could he do or would like to do…and what would the difference mean to him in money? The answers to these questions play an extremely important role in determining what you will recommend to one landscaper vs. another. 3. Geographically where does the landscaper want to attact customers from? Is it the same for residential vs. commercial? 4. What is the landscaper’s unique selling proposition? Is there a specific reason why a potential client would be better off doing business with him vs. another landscape contractor? I could keep going…but again, you get the point. The answers to these questions are critical in determining the right number of AdGroups, Keywords, Ad Copies, etc…not to mention other media they may have the ability to offer in the form of print ads, categories, headings, etc. Many sales reps are running so fast to make a sale that these details are missed which can dramatically influence the effectiveness of the campaign or the ad program the small business owner bought…which will obviously determine how happy they are with the outcome. I have personally been on many calls where the small business owner has said, “Yes, I did get clicks and calls from this program, but they were not the types of customers I was looking for.” Everyone who has commented on Greg’s post knows all of this already, but it’s worth mentioning because all of these points play an important role of not only becoming a small business owner’s “trusted advisor”, but also in developing and recommending the proper ad program and setting the right expectations. I fully agree with the rest of the comments on helping sales reps to be more knowledgeable in the products, but all of the product knowledge in the world won’t matter if the sales rep’s only goal is to make a sale…it has to be to be to make the “Right Sale”.
June 7th, 2011 at 4:44 am
Thanks Mike and everyone for the thoughtful comments.
June 7th, 2011 at 5:41 am
All of these posts unfortunately have one thing in common which is to blame poorly trained salespeople. The actual problem has many layers. The ReachLocals, Yodles, YPs of the world are not designed to be best solution (which I know is probably contrary to what they say). Rather they’re for the SMB’s that either don’t have the time and/or knowledge to do it themselves. A properly designed program done with Search, Social, Email, Web Design, etc. will always beat out the resellers’ programs. The churn problem stems from 1) sales reps doing what they were hired to do… hit their quota. You can’t have it both ways. That is have high quotas and be choosy who you sign up. I’m not a sales rep but I’m sure you have to make 25 or more calls just to speak with a potential decision maker. Now bare in mind the sales rep stills needs to hit his goal so does it surprise anyone that he might not talk too much about expectations and just try and get the appointment? 2) a proper program involves not only a deep discovery which some reps certainly do but for that information to get relayed back to the support staff setting up the campaign (that rarely happens well). 3) a proper program also involves a well designed website. Unlike the old yellow page world where the publisher helped design the ad the ad is now not the text ad, or facebook page, etc but the website which these resellers either do not do or do not do well. 4) the margins the resellers must have to have a sustainable business 5) the fickle, hard headed nature of many small business owners. I to have worked with some people posting comments here including Brad.
Let’s phrase this question another way: If you were the CEO of ReachLocal, Yodle, etc. what would you do?
June 7th, 2011 at 3:48 pm
Bob:
The sales pitch is a “best solution”. Therein lies part of the problem. My experience is that it is far from a “best solution”. Additionally when I sat in on the first couple of meetings, way before I gave any indication of knowing anything about the web….the sales pitch included allusions to how PPC was better than organic. Way way way not true. To get back to the original post by Greg and reference to “high churn rates” I can see why smbs could try it based on the salesmanship and then leave it. Its definitely not a lot of bang for the buck.
I’ve experienced other problems with the resellers. That leads to another story, though. In the meantime, I wouldn’t suggest investing in the businesses. There is a big gap IMHO as to the efforts of the resellers as currently constituted and the interests of the SMBs. Either they are going to have to do a better job at matching needs or some other entitties will come up with better solutions.
June 17th, 2011 at 6:52 pm
[...] Some discussion on this being a sales “training issue” recently took place over on Screenwerk, but I think there is more to it than [...]
June 17th, 2011 at 7:46 pm
[...] Some discussion on this being a sales “training issue” recently took place over on Screenwerk, but I think there is more to it than [...]
June 21st, 2011 at 12:55 pm
[...] churn remains a major challenge with Google reseller partners. Average churn rates remain as high as 80% to 90% per year in some [...]
June 29th, 2011 at 3:24 pm
I believe the Internet moves too fast and is too complex for many of the sales reps to get it. When I worked for ATT we had plenty of training, but many of the reps and managers started from such a low point of interest that they needed a TelePrompTer to tell the story. For example, the GM of my old branch has 3 connections on LinkedIn. Last year he hosted an event for prospective advertisers on social media advertising — huh?? The attitude of many was we spend all day online, we’re not going to FB, blog, or socialize online when we get home.
Yellow pages were a simple product, the Internet is not.
June 29th, 2011 at 3:26 pm
Please excuse my concluding bad grammar. Hit send before editing. Oops.
June 29th, 2011 at 5:24 pm
Just saw Julie’s comments. Between the time I made my last comments and today, I’m now part of the Churn number. Why?
Customer service was miserable. Ultimately their interest was in taking our money, maximizing it to their advantage and not giving us customer service when a problem arose.
Let’s see: Some issues
A) PPC activity was worse than what I had done
B) Their PPC approach was cookie cutter….not some special program as marketed. Its developed to generate maximum clicks that don’t have stickiness C) Details of the contract allow them and encourage their performing in ways that are different than what they “sell” in their sales pitch.
D) Oh my oh my. That PPC campaign has enormous mark Up….and its not optimally effective….not even close.
E.) No follow up by them at all….like they really wanted to interact and service us–> NOT
F) Data in their “analytics” was inferior to that provided by other services. So we didn’t learn anything at all.
But what ultimately frustrated me was absolutely horrendous customer service.
More to report…..but I’d advise to stay far far far away from the SMB resellers referenced above, one of whom is the one we left!
June 29th, 2011 at 10:26 pm
Dave this is very helpful “first person” data and confirms lots of the anecdotal information I’ve been hearing.