It’s easy to criticize the folks who are pioneering the local online marketing space. Small business customers don’t have a lot of money, have huge needs, and are not well-versed in how PPC, SEO, and all the other acronyms work– nor do they care. For a thousand dollars per client each month, you have to pay for finding clients, educate them on what you do, and yet have enough to spend on PPC, building landing pages, SEO, account management, reporting, call tracking, and so forth. And the venture capital folks want to make a 20x return on their investment. You do the math and see how near impossible it is to succeed in this space.

I’m going to show you what it’s like from the inside, since we have to deal with these economics every day. Even if your cost of sales and marketing is only 20%, product cost is 20%, and general overhead is 10%, you’re still left with only 50% for other variable costs. Nobody will tell you exactly what they’re spending on PPC (except perhaps us– we are at 70% of the client’s dollar), so let’s assume it’s around 30%– an anecdotal figure based on competitor accounts that have come to us.

If you skimp on building the platform, then you can reduce your platform (engineering, design and product management) costs from 20% to 10%, which then allows you to increase PPC spend from 30% to 40%. Yet that extra 10% in spend doesn’t make up for the inefficiencies you have from a platform that doesn’t effectively buy traffic or have landing pages that convert. The largest players in this space, in their relentless focus on customer acquisition, won’t build landing pages on the client site or do SEO to help grow organic rankings. That’s hard to scale. Instead, they will mimic the client’s landing page on their site. Short-run results, but long run waste.

To be able to pay your aggressive sales force enough to keep them interested, you can’t cut the commission, so you cut the product offering:

• Don’t offer SEO (it doesn’t scale, since it requires bodies, small business owners often don’t remember the ftp logins, and you don’t want to lose cycles arguing about design aesthetics).
• Don’t do listings with Google Local Business Center, Yahoo, and Bing– that’s a highly manual process and the business owner often won’t get you the PIN confirmation.
• Don’t help the client add pages to their site or do SEO– you only do PPC to your own landing pages.
• Don’t tell the customer about email marketing and trigger campaigns– you don’t care about retention and neither should they.

Net-net, with an unsophisicated client base and equally aggressive and unknowledgeable sales force, you have the current situation. They are acquiring customers like crazy, yes– but are losing them just as fast when the game is up in a few months. One of the top 3 largest players in this space paid their sales staff a commission up-front based on a one year contract. Yet when clients were leaving after a few months, they had to reverse out sales commissions, which angered the sales force. What sales person is going to want to pay back commissions, especially when it’s “not their fault” that the product didn’t perform?

The problem lies in the way current players are structured– it won’t fly when you offer a rudimentary package being sold by agents that have no responsibility to the client. Sales says one thing and you don’t hear from them again after you give them your credit card. Operations– the folk in the call center– don’t know what the sales person promised, nor are they incented to care about whether your campaigns are generating leads. No matter how much money you pour into this broken model, it won’t fix itself. You’re not going to “make it up in volume”, nor can you make chicken salad out of chicken poop.

There are SEO snake oil salesmen who proclaim the cure to cancer. One of the top 10 agencies in the states called us repeatedly (not sure how they got my number), insisting that they have a special relationship with Google, where Google certifies their links. In fact, every person in their company must pass this qualifying exam, which then allows them to submit pages for organic listings. Whew, so glad that I was talking to a real pro, since I didn’t want to talk to scam artists. How would I, a small business owner, ever know. The fellow fully agreed.

One solution to this mess is to have the sales rep also be the point of contact after the sale. In other words, the client has to talk to only one person– not the next available agent in the Indian call center. This also saves the agency money, since there are fewer people that have to touch the account and be paid. With only $1k a month, you can’t afford to have a lot of people touch the account. The reason agencies haven’t done this is that it would require significant training and it’s hard enough to find good sales people.

Sales people sell– they are not there to stick around and hand hold the client. The best sales people know nothing about the product. If your objective is client acquisition, the last thing you need is to make it that much harder to find people who can sell and manage clients. But if you can do this, then you align the client’s interest with yours– paying your analysts (that’s what we call our people, since nobody is just sales) on retention. Analysts that don’t perform are naturally weeded out with this model.

The second solution is to offer a real platform that will drive phone calls. And that requires efficient search (whether organic or buying of media), plus landing pages that convert. If these firms were to offer simple site building services, listings, email marketing, video, and all the other pieces needed to truly deliver on the promise, they would have to charge $3,000 for each client based on their current level of overhead and sales structure. But when the market becomes educated in a couple years, the snake oil approach will no longer work.

If you’re a small business owner, how are you to tell who is real? There are directory players claiming guaranteed first page listings for only $20 a month. We won’t name names, but you know the players and software providers. Why pay $1k a month when you can have it for $20?

How about Facebook, twitter, and all the other marketing venues competing for your attention? If you’re that local dentist or cosmetic surgeon, you don’t have time to do all these things, much less evaluate what is worthwhile.

What BlitzLocal does is focus on client transparency:

• We spend 70% of the client dollar on clicks and are fully transparent in what we do. For agencies who say otherwise, just ask them to show you the actual PPC accounts and how much was spent. Try asking for an export of the Google, Yahoo, and MSN campaigns– not from the agency interface, but the actual campaigns.
• Clients get the full range of needed services-- we build landing pages on their site, help them get listed in directories, set up call tracking, and educate them on how to write content for their site– and solicit links from neighboring businesses.
• Our contracts are month-to-month. If we don’t perform, kick us out. No 12 months contracts. You will get measurable phone calls or we must leave.
• We don’t have sales people. We have analysts that are trained enough to troubleshoot your campaigns. You talk to just ONE person who is knowledgeable, not an order taker. Our people are paid on client success and retention– it’s only fair.
• We grow slowly: We don’t have 900 people– only 50. And we focus on retention, not client acquisition. In the long run, we will have a larger client base from not losing clients by overpromising.