Yesterday I spoke to a CEO who sells SEM (though a partner) to the local, small business market. We had a very interesting conversation about pricing, revenue sharing and churn.
Here’s the basic situation. There are multiple entities selling Google and Yahoo traffic to local businesses. The local businesses themselves are generally confused about this market, although they broadly know and understand they need in. There’s very little transparency despite all the metrics.
What do I mean by that? The SMBs have no ability to compare services and competing sales claims except by trying the services and then, if they’re dissatisfied, moving on to the next one. It’s a bit of a crap shoot in that way.
The CEO and I discussed how these products have high rates of churn for several reasons. Among them, the sales channel promises are often at odds with what is delivered in terms of traffic and leads (or calls). Very often several parties take a cut of the advertiser spend, which may not leave enough to generate real value for the advertiser when the spend is made at Google or Yahoo. Accordingly the diminished monthly spends are not enough to drive real traffic and value. Hence churn.
There’s also the paradox that the available metrics may be creating problems. When there were no metrics local advertisers could assume that their advertising was working. But now that they can see clicks and calls, the very fact of those metrics may create confusion or dissatisfaction: “Why am I only getting 27 clicks and three calls?” Most SMB advertisers simply aren’t interested in all the data. Some are but most want to “set it and forget it.”
Unlike the old days, you can’t “go home again.” A local advertiser who tries Local SEM Product A and has a bad experience, or who doesn’t believe she’s received good value for her spend, can’t simply go back exclusively to the print newspaper or yellow pages as once might have been possible. While there’s still value there, the ads turn out to be more expensive on an ROI basis because of diminished usage.
Here’s what needs to happen in my view:
- The SMB audience needs to be segmented by spend
- The ad products need to be segmented. Someone with a budget under a certain threshold shouldn’t be sold SEM. That SMB should receive a rich profile, inclusion in all the sites that matter (including other directories, verticals) and so on.
- Only above a certain spend (maybe $500 per month) should local advertisers be sold SEM
It’s a disservice to sell traffic at pricing levels that are too low to deliver volume or to create unrealistic expectations with inflated claims about results. Both drive churn, which is inefficient for everyone.
I’d be interested in hearing others’ opinions.