Insights into Customer Churn

SMB Digital Churn

Brendan King

These stats no longer apply DIY is the lowest churn and it makes sense

Vendasta’s Data

275k 1250+ 5+

SMBs Markets Years of Data

Genesis of Report

Vendasta’s customer data has revealed patterns that may be triggers or causal factors for churn. This is an

opportunity to understand churn and what may be causing it.

Compare Three Sales Profiles

123

Digital Committers

Digital PurePlay

Digital Extenders

Digital Extender 1

Digital Extender Profile 1Traditional Only Sales Force

Characteristics● Cherry pick top existing customers● Usually bundled with traditional products● Usually DIFM High Gross Dollar products● Salesforce sells both digital and

traditional

Results● Digital account base shrinks along same

profile as traditional customers● Loss of verticals and categories ● High churn

“Doom Loop”

2 Digital Committer

Brendan King

Need to come up with a name

2 Digital Committer Profile Digital & Traditional Sales Force

Characteristics● Cherry pick top existing customers early on● Digital-only sales force (often

telemarketing)● Typically a spectrum of DIY - DIFM - DIWM● Traditional sales force can sell digital

Results● Rapid growth until saturation of existing

traditional customers● Growth continues as sales force opens up

new and/or former verticals and categories

Sustainable Growth

3 Digital Pure Play (DIY)

Brendan King

need a profile for web.com (this is actual) that looks like the others

3 Digital Pure Play (DIY) ProfileDigital Only Sales Force

Characteristics● Outbound marketing ,Telesales , Self-serve ● Very low CAC● DIY - DIFM - DIWM● Full service and products upwards creep

Results● Steady Growth with Low Churn● Increasing services and products

Sustainable Growth

What’s Really Important?

What is the one thing that is more important than getting new customers?

All SaaS companies know this answer.

What’s Really Important?

Retaining the ones you already have!Churn is a KILLER!

Potential Churn VariablesWhich of these variables have an effect on churn?

Number of Products

SMB Category

Vertical vs. Horizontal

SMB Service Model

Partner Type

Pricing

Sold as a Offering / Bundle

ie. Restaurants, Real Estate, etc.

Specialization of the Partner

DIY, DIFM, DIWM

ie. Newspaper, YP, Radio, TV etc.

Of the Offering / Bundle ?

?

?

?

?

?

About The Data

● Churn data from March 2014 - March 2015.

● Partners that were Vendasta customers for the entire year.

● Based on Reputation Management; used as a proxy for entire digital bundle that our partners are selling.

Excluded DataIncluded Data● Atypical data / outliers.

ie. Directories which closed● Customers with 0 churn.● Customers with more than 90%

churn in any one period.● Customer with less than 10

accounts.● Accounts that were created and

deleted in the same month.

SMB Category


SMB Service Model

Partner Type

Pricing




DIY, DIFM, DIWM



?

?

?

?

Number of Products Sold as a Offering / Bundle ?

Number of Products & Churn

75%

50%

25%

Chur

n Ra

te

Total Digital Products in Bundle/Offering9 16 23

0%

100%

Average Number of Digital Products

= 11

75%

50%

25%

Chur

n Ra

te

Total Digital Products in Bundle/Offering9 16 23

0%

100%

Average Number of Digital Products

= 11

SummaryA weak relationship found between the number of products that an agency sells and their churn.


Key Points● Partners sell, on average, 11 different digital products.● A weak relationship was found between number of products

that agencies sell and churn.● Number of products sold does NOT equate greater stickiness. ● Thoughtful product pricing, packaging & fulfillment make the

difference.


SMB Category


SMB Service Model

Partner Type

Pricing




DIY, DIFM, DIWM



?

?

?

?

Number of Products Sold as a Offering / Bundle ✕NO

Pricing & Churn

60%

40%

20%

Chur

n Ra

te

Monthly Price$100 $200 $300

0%

80%

60%

40%

20%

Chur

n Ra

te

Monthly Price$100 $200 $300

0%

80% Every hundred dollars that a package increased, it resulted in 8% higher

churn.

Pricing & Churn

SummaryCompanies with lower prices (below $100) had avg. annual churn of

28%Companies with higher prices (above $100) had avg. annual churn of

50%

Key Points● SMBs are more time-taxed & budget-starved than ever.● They require clear ROI, especially with so many digital

options .● The higher the price point, the higher the demand for

discernible return.○ Especially in a DIFM relationship where they're essentially hiring a

company as their outsourced marketing arm.

Pricing & Churn

SMB Category


SMB Service Model

Partner Type

Pricing




DIY, DIFM, DIWM


Of the Offering / Bundle

?

?

?

?

Number of Products Sold as a Offering / Bundle ✕NOYES ✔

Vertical vs. Horizontal & Churn45%

40%

35%

30%

25%

15%

10%

5%

0%

20%

Vertical Partners Horizontal Partners

31%42%

Vertical vs. Horizontal & Churn45%

40%

35%

30%

25%

15%

10%

5%

0%

20%

Vertical Partners Horizontal Partners

31%42%

SummaryClearly horizontal media & agencies continuously evaluate.

Horizontals often tune their packages to verticals.

Verticals are able to provide a higher specialized ROI.

SMB Category


SMB Service Model

Partner Type

Pricing




DIY, DIFM, DIWM



?

?

?


YES ✔

SMB Category & Churn

Annual Churn Rate

0% 20% 40% 60% 80%

Mining & AgricultureTransportation

ShoppingFinancial Services

Industrial GoodsArts

RestaurantsAuto

ProfessionalHome Services

EducationHotels & Travel

Beauty ServicesFood

HealthActiveOther

Event ServicesReal Estate

Local Services

Annual Churn Rate

0% 20% 40% 60% 80%

Mining & AgricultureTransportation

ShoppingFinancial Services

Industrial GoodsArts

RestaurantsAuto

ProfessionalHome Services

EducationHotels & Travel

Beauty ServicesFood

HealthActiveOther

Event ServicesReal Estate

Local Services

SMB Category & Churn

SummaryGenerally speaking, the higher the value of a lead (for the SMB) the lower the churn & greater the retention (ie. Local Services, Real Estate, and Health).

Financial and Auto are exceptions. Highly competitive and often churn as large cohorts (ie. Brands/Franchises).

Under siege by vertical players.

SMB Category


SMB Service Model

Partner Type

Pricing




DIY, DIFM, DIWM

ie. Newspaper, Radio, TV etc.


?

?


YES ✔

YES ✔

Partner Type & Churn

Annual Churn Rate

TVAgency

IYPSEO / SEM

PurePlayNewspap

erVertical

Radio 0% 25% 50% 75% 100%

Brendan King

Need to change/clarify the type names. ie Horizontal/Agnostic. Would like to add a "pure play digital" ie web.comAslo have to clarify that this is SMB churn by partner type

Jeff Tomlin

TAke out Kudzu, BML and add Web.com - change name to Pure Play Digital

Jeff Tomlin

Call websites 'Agencies'(they are agenies that sell websites)

Partner Type & Churn

Annual Churn Rate

TVAgency

IYPSEO / SEM

PurePlayNewspap

erVertical

Radio 0% 25% 50% 75% 100%

SummaryChurn Relates To:

● Bundling and trajectory of traditional sales.

● Experience and length of time selling digital.

● Pricing of digital by partner type.

● Types of SMB categories partner types sell to traditionally.

SMB Category


SMB Service Model

Partner Type

Pricing




DIY, DIFM, DIWM



?


YES ✔

YES ✔

YES ✔

SMB Service Model & Churn

60%

Annual Churn Rate

45%

30%

15%0%

DIFM

DIWM

DIY

SMB Service Model & Churn

60%

Annual Churn Rate

45%

30%

15%0%

DIFM

DIWM

DIY

SummaryDIY

● DIY still has the lowest churn…by far!

● Self selected / Engaged users.● Reinforces the need for media &

agency to have low-cost DIY solutions.

DIFM● Highest churn and by definition

highest priced.● SMB demand an “ROI”

DIWM● DIWM "middle ground" as a safe &

sought-after spot.● SMBs outsource “work” but still

engaged.

SMB Category


SMB Service Model

Partner Type

Pricing




DIY, DIFM, DIWM




YES ✔

YES ✔

YES ✔

YES ✔

Okay, So What?

What is really important?

What model do you need?

What is the prescription?

Given the SMB Realities

1-4 5-9Yearly Spend$2,506.00

10-99Employees EmployeesEmployees (Core/VSBs)

Yearly Spend$20,694.00

Yearly Spend$53,440.00

Total % of SMBs63.3%



Preferred ModelDIWM / DIFM

Preferred ModelDIWM / DIFM

Preferred ModelDIY

In-Premise Sales Rep ValueIndifferent

In-Premise Sales Rep ValueMinimal

In-Premise Sales Rep ValueHigh

SMBs 10 to 99 employees - Advertising & Marketing TrendsSMBs with 2 to 9 employees - Advertising & Marketing TrendsLCM Wave 18 Advertising Trends of Core SMBs

Given the Market Realities

DIYLow Cost Digital Solutions

DIFM / DIWMHigh Spend

That the traditional business model is under attack!

Given Traditional Media Co Realities

● In-Premise sales force● High cost of customer acquisition● Shrinking verticals / customer base● Few (if any) DIY / DIWM products● Multiple products & reporting options● Scaling issues

Devon Hennig

Topic proven with Borrell paper: https://www.borrellassociates.com/industry-papers/papers/assessing-local-digital-sales-forces-2015-update-detail

To Succeed You NeedA platform solution that allows you to sell to SMBs in the method, pricing, and model that they want to be sold in.

Must Include:● Marketing automation to lower cost of customer acquisition● Sales force management and measurement● Scalable solution to provide DIY/DIWM/DIFM● Low cost DIY/Freemium Solutions with a clear path to upgrade● Digital sales force / Tele sales● Single Solution for partner and SMB● Extensive Customer Reporting and deep integration of products● Easy and cost effective onboarding and support● White label branding ● Integration with back end systems

Competitive Landscape

Mobile: 306-717-3808 Twitter: @[email protected]

Brendan KingCo-Founder and CEOVendasta Technologies Inc.