“Local SEM” Churn and the Problem with the AdWords Reseller Model.

“Really, you can actually track online sales generated from AdWords Clicks?” Was the question I got from someone who had a bad first time experience with AdWords and Search Marketing after signing up over the phone with a reseller.

I wasn’t all that surprised. I guess the main issue was simply lack of understanding (on the advertisers part), and an inability to set expectations on the reseller side that proved the downfall, needless to say, the Advertiser was not happy and the reseller lost a client.

It’s a problem I’ve been thinking about for some time, and if there is a better model to jump start the SMB’s / SME’s into local search, then I simply don’t think we’ve found it yet.

It’s a challenge, and an opportunity… SMB’s have so much to gain from Search Engine Marketing, but when it’s not delivered well and expectations are not met, the Small business operator gets burnt, moves on, and our industry is tainted.

I read an article last month by Greg Sterling over at Search Engine Land called – ‘Borrell Shines Light On “Local SEM” Churn’ and I pretty much sat at my desk nodding in agreement. Greg summarized the findings of a report by Borrell on Advertiser Churn in the SMB space. The findings were alarming!

The study showed that local search advertiser churn reached close to 100% on an annualized basis.

* 6-10 percent a month attrition on gross customer count
* Up to 50 percent [of SMBs] quit by 90 days
* Up to 90 percent quit within 6 months

As Greg rightly pointed out, some resellers to better and some do worse, but still the monthly average churn was at 7%. Wow!Why?

I know how well search marketing can work, and I’m sure you reading this either know yourself, or have heard countless stories of success. So why are the SMB’s that buy these packaged PPC plans abandoning it almost as fast as they sign up?
I’m going to quote Greg directly now as I think the primary points he raises are spot on.

From my understanding and experience it can be attributed to several factors that operate to varying degrees in most cases:

* A lack of education for the SMB and appropriate expectation setting
* Not allowing enough time for the campaign to become optimized
* Media salespeople who are compensated on customer acquisition, not customer retention
* Not enough of the advertiser spend going to the media/search buy (as much as 40 percent may go to overhead/profit, yet that may be necessary)
* In a limited number cases, the advertiser seeking to pick keywords or otherwise dictate or manage its campaign from afar (and not well)

Is anyone else thinking – ‘failed business model?’ Well I certainly am.

You see, many of the resellers approach PPC sales as if they we’re trying to sell a Yellow Pages ad to a Dentist. They try and sell this simple, easy to understand package for Search Marketing. The problem is it’s not simple!

Greg’s first point re education and expectation setting is just the tip of the iceberg. With PPC you can’t sell a $19.95 per month PPC package (where maybe $10-$12 actually constitutes media spend) to all local business verticals and expect to generate the same results every time. What about the search volume available – the opportunity? The competition.. the CPC? Advertisers are going to see very different results for their $19.95 too… While one can get on Google with a first page bid of $0.10, another in a more competitive market may have to pay a CPC of $1.00 (or $3, $5, $10) to just get on the first page, let alone a ranking higher up the paid search results. Now in fairness to the most common product offerings out there, there are tiers of ’spend’ that are meant to cater for advertisers that *should* spend more. But, there in lies the issue. Does the sales guy on the end of the phone really understand what it would take to run a successful PPC campaign for a local florist versus an accountant? Probably not, or probably not enought to warrant loosing a sale becasue the $19.95 a month package was easier to sell than the $49.95 per month one they probably should have bought…

The reseller business model (in simplicity) is a volume game, sell the yellow pages Ad – I mean PPC campaign – run some technology solution to build and run the ads, and then sell more. Rinse / Repeat. Oh yeah, and when sold only spnd 50-60% of the Advertisers money on Search Ads. The rest is our margin…

I think it stinks, and no wonder advertisers are not happy.

Now I’m not saying that there aren’t companies out there doing it much better than this, and indeed many are tackling all these issues to ‘try and make the reseller business model viable’. Ouch! Try and make it work – It’s a hard slog. There’s a low barrier to entry in terms of cost, but high overhead for the reseller to support the clients effectively and manage customer expectations.

I don’t have the answers either, but I’m just disappointed that so many SMB’s who could benefit so much from targeted Local search advertising, have given up and have probably moved onto other things… “Hey let’s do twitter for my plumbing services”, “wow my bakery has a Facebook page…” Blah blah…Whatever… consumers are searching for convenience every day. They’re on Google looking for hairdressers, plumbers, electricians, accountants… you name it. SMB’s should be there too, PPC or SEO it doesn’t matter, we just need to develop a business model that fit’s the needs of the largest percentage of Small businesses, and frankly, a 7% churn rate month on month just goes to show that we’re not there yet.

What do you think would work? And if you’re an advertiser who has been disappointed in the past, I’d love to hear from you.