Reduce Churn: Are Your Pricing Bundles Working?By Nykea Marie Behiel
Are you pairing the right products and solutions together? Throwing "free" digital products into your package can devalue what you're offering and make the dream of generating MRR slip further away. Retaining customers and reducing churn is one of the biggest challenges for people selling to local businesses.
We work with some of the world's largest media companies to overcome churn. Check out this webinar or the transcript below to help your organization reduce churn and retain valuable customers.
It is 1:00 Eastern and time for the weekly sales webinar. My name is George Leith. It's a pleasure being with you. We're gonna talk about the dreaded CH word today and dig into some of the things that we've learned over the past few years around churn and client churn. Welcome to all of our attendees. I'm actually at the home base this week which is kind of fun. Doesn't happen very often but it's good to be here, not on the road travelling but very excited. A week from today actually, late in the day, will be jumping on a plane and headed to Australia to work with Fairfax Media for a couple of weeks. Next week we're going to share with you on the weekly sales webinar some information surrounding launching new sales people and some of the things that we've learnt around that. You can find out everything that's going on with the Vendasta products suite and the platform inside the product insider. And you can subscribe by just going to vendasta.com. And if you haven't subscribed to our blog yet you are missing out on all sorts of great insights into digital agencies, any of the Vendasta press releases and, of course, details on local digital products. The marketing team and our content group just coming up with some fantastic research and all of that being published in the blogs, so make sure you're subscribing to that.
We've a brand new product webinar series that kicked off here over the last couple of weeks. It happens Thursdays at 3:00 Eastern. And it's a more in-depth dive into the product that you can see on a weekly basis. And of course all of our webinars are recorded. I get asked virtually every week about, "I'm not gonna be able to attend at 1:00 Eastern. Can I get a recording?" All of our sales webinars and product webinars are recorded and you can see them inside the support portal at Inside Partner Central.
Let's Talk About Churn, Baby
So let's talk about churn and you know, it was almost four years ago now that I arrived here at Vendasta and my background, for those of you who don't know, is in media sales and management. I arrived at a tech company, Brendan King, our CEO, and I had known each other for a number of years. I actually had sold him some radio ads and some print ads back in my media days. So seeing that Vendasta dealt with a lot of media organizations, he reached out to me to come in and help him put together a sales department. That's where, you know, we started in building up the sales channel. I heard this word called "churn" and it was, it was foreign to me. I hadn't heard it before because in the media business, we knew what churn was we just didn't know that was what it was called. In the media business we called it "cancellations", we called it "clients that don't renew", we called it "clients that weren't advertising during a specific period of time."
What is Churn?
And I got to learn about what churn means to monthly recurring revenue models and also how to calculate it, the fact that the customers that you lose divided by the number of customers that you've added gives you your percentage of churn. And I started to learn that people were really scared of churn and realizing that over my career as a media sales person and sales manager I was scared of churn as well, only we called it some different things. We're gonna dig into this dreaded CH word. And I will tell you that the way to reduce churn, I don't know if you can eliminate it, but the way to reduce churn is to make sure that your customers are raving fans of your agency. And it is so important, in 2016, to have those raving fans meaning they love you and they know that you would go to the ends of the earth for them and you respect the relationship that you have. And, you know, some people say, "What's the biggest thing that's changed about sales?" I don't know if it's really changed, I think it's always been the case that you need to bring value and you need to make sure that you align expectations and you need to make sure that you build a very solid relationship with your customers so you can have those raving fans.
And how do we make our customers raving fans? Well, you gotta talk to them and you've got to be responsive, meaning if they send you an email you can't wait a week to return it or if they phone you with a question or if they have a concern or if they're looking to yell at you because they don't understand something or something's gone wrong, you need to make sure that you're available to talk to that customer. We're all time starved, I get bugged quite a bit for what my calendar looks like because it is scheduled like crazy. Michelle, in our office, does a great job of trying to keep me organized because I have to be on the phone talking to as many people or in person speaking to people. So I know that we're all time starved but there are pieces of technology that exist that can help us to continue to talk to our customers and to bring that value. And I think we need to be very proactive about that relationship because our clients are time starved as well. And a lot of times something that is very important to us may not be the most important thing to our client at that period of time. Tomorrow afternoon at 3:00 we are going to dig into Vendesta's marketing automation. The title on this slide talks about how we're gonna show you how to generate new revenue and yes, marketing automation can definitely do that. But also, the marketing automation technology that we've developed can help you build a deeper relationship with your customers by adding to that value.
Know your Weaknesses
The other thing that we need to be aware of in our agency's media companies, we gotta know our weaknesses. And one of the ways that we can find out what those weaknesses are is by asking for feedback after every transaction. You know, when you look back at the days, I can't believe the amount of money that I spent at Blockbuster compared to what I give Netflix every month right now. The old Blockbuster/Netflix comparison has been out there for a number of years. Blockbuster didn't see the headlights on the train coming as that entire industry was decimated by Netflix. I can't really even imagine paying the late fee. Remember the dreaded late fee? I hated those things but you couldn't rent more movies, it was just a broken business model. And eventually someone came along with a better way of doing things. I don't know if Blockbuster was all that responsive to the comments that they were getting. They eventually got rid of the late fees but by then I think it was too late. And we need to make sure that we're always delivering on our competitive advantages inside our organizations. A lot of times we need to over communicate those competitive advantages. Keep in mind that when you have a customer, or a client, that you're working with, there's always somebody trying to eat your lunch. There's always somebody that say they have built a better mousetrap. There's always someone with a shiny new toy and they're waving that shiny new object in front of your customer trying to attract their business. So you need to be always talking about what your competitive advantages are and the value that those bring to your relationship. I think it's really important that we need to know why our customers are cancelling.
What's Causing the Churn?
What is causing that churn? Is it something internal that we can adjust some sort of a policy or procedure? Is it some flaw in our product? Is it the fact that maybe someone has built that better mousetrap and we need to go into development and improve things? But we can't be afraid of the feedback. And, you know, one of the things that I've been trying to do, and I probably don't do as good of a job as I should, but that is make some random calls to our customers on an ongoing basis and ask some questions. And I found that any time that I do that I get some really good feedback and I also build a pretty good relationship. Some of those random customers that I have been phoning, I now phone on a regular basis for their honest feedback. So I think it's very important that we have those stakeholders that we can reach out to that will give us honest feedback and, you know, that clearly understand what their needs are and articulate that so that we can make sure that our product and services match.
PR and Reducing Churn
You know, we've talked about word of mouth and how important it is to small and medium businesses. It's also very important to our agencies and media companies. Negative PR can damage our brand and that public relations that's out there, the negative PR, can be anywhere. It can be on review sites and listing sites and Facebook pages and...You know, it's interesting that when you look at these steps that are mentioned here on how to deal with negative PR, it's very similar to things that we've been talking about on dealing with negative reviews. It's the same thing. You need to apologize whether you're sorry or not. You need to leave some sort of marketing as to how you can, that counteracts that negative PR that's out there and then more importantly talk to the person that is leaving the negative comments. And always reinforce the decision to choose you. You know, this can't be forgotten that it's very important to do this. This is an example of an e-mail that could be put into an automated workflow and maybe you wanna send one at Christmas or maybe you wanna send one around the customer's birthday. All of those tactics have been used and it reinforces, keeps you and your agency top of mind. I don't really consider it to be a trick of sales people. If you really mean it, it's you reaching out and showing your appreciation to the customer.
How many times has somebody that you work with said that they appreciate your business? I think we hear that a lot more from business people because they understand that it's important to say that, to say thank you. And as important as it is to ask for feedback, it's also important to reinforce that you're there because there always is that group of people that are trying to eat your lunch. I want to dig into churn specifically in the digital space. Amy Gill, who prepares the content for these webinars, did a bunch of research over the past month as we prepared for this very important churn webinar, sales webinar. She went back into the archives of some of the in-person presentations that our executives have made at some of the leading industry conventions. We're going to regurgitate that information for you today and that data coming from the over 400,000 businesses that the Vendesta platform touches throughout the world, over 550 partners in the media and agency space and over five years of data that we combed through to come up with some information, information around different sales profiles that the various partners that we have fit into. So these three buckets are the media companies that are using digital to extend their product offering into a marketplace.
I was in St. Paul, Alberta, Canada, last week working with a group of digital extenders. It's a newspaper organization, Great West Newspapers that are adding the Vendesta platform to help their customers in small and medium markets throughout the province of Alberta. I'm gonna dig into some data around other digital extenders that are inside our platform, part of that 550 partners that we have. Then we've got the digital committers. These are the traditional media organizations that have committed fully to digital and have some specific digital sales team, meaning they're not selling a quarter page ad in the newspaper on the digital call. They're fully committed to digital. They have teams, that's the way that they feed their kids, is just with digital commission. We're gonna talk about that group with some data around that and then we're going to talk about pure play digital agencies and I see a bunch of them logged into the webinar this week. Pure play organizations that all they do is sell digital. They've never even thought about selling a newspaper ad or radio ad. That that's not what they do. They are a digital organization. I wanna talk about some of the things we've learnt from those organizations when it comes to churn.
So the digital extender is the traditional sales force that we're trying to teach on how to sell digital. Next week we're going to dig into a webinar all about launching those types of sales people that have phenomenal relationships with their customers and now are tasked with adding a digital products suite. And we also have the digital committers and some of the things that we've learned about those folks is that they have the traditional sales force but now they've added a digital sales force. And what we find a lot of times is they're out getting low hanging fruit. They have a relationship in a marketplace with an agency. The agency has stated that they have a client with some need around digital and they're going to deal with an organization that they know and trust that has specific digital specialists. And then we have all of the agencies out there in the digital pure play space. I heard a gentleman, on a panel in San Francisco a couple of months ago. He was a very successful. C.E.O. of a very large organization, I won't mention who it was specifically but he was asked the question at the end of his presentation as to who his biggest competitor is and he said his biggest competitor was, and of course he did the quotation marks in the air, "I got a guy." I hear this all the time, be hard pressed to find somebody that talks to more sales people, that talks to clients on the street more than I do. What I hear all the time is, "How do I compete with the "I've got a guy that looks after this." Well, the pure play digital agency are the guy. That's the person that's looking after this digital. You know, they're very committed to it, they understand it really well and a lot of businesses like dealing with the "I've got a guy," that focused agency because they can super serve that business. And we found that they have steady growth with very low churn. So these folks are doing quite well in this space with that digital only sales force.
I wanna look into some potential variables. What Amy was able to do in her research, looking through all of this, was to come up with some of the variables that we wanted to talk about today. The question is, do the number of products that I'm selling in my agency or my media company have an effect on churn? Does the pricing that I'm selling it at have an effect? How am I bundling it up or how does the solution work?. If I'm selling horizontally meaning I'm just going out and I'm knocking on doors and selling to dentists and doctors and lawyers and funeral homes and salons, that's the horizontal sale where I'm in a market and I have a territory, is there a change between that and vertical where I just sell to car dealers or I just sell in the medical space? Does it matter what the potential client is that I sell to, the category of the customer? And what about that service model? Really would like to know if the service model has an effect on churn as well. So, here's what we've done. We went through the data and that "we" being I'm talking about it but our marketing department, research department, dug through the data from March of 2014 to March of 2015 for our partners at Vendesta, for the entire year. It's based on reputation management, we're using that as a proxy for the entire digital bundle.
A few things that we've excluded from this data, customers that had no churn, customers with more than 90% churn because there's obviously something really broken there, customers of ours that had less than 10 accounts and accounts that were created and deleted in the same month meaning there might have been some sort of an administrator problem rather than the client bought on the first of the month and cancelled on the tenth of the month. For you sales folks on the call that does happen by the way, unfortunately. So that's the information about the data that we're going to share. First off, let's look at the number of products. Did the number of products have an impact on churn? What we found was there was a very weak relationship found between the number of products that an agency sells and their churn, whether they had one product that they were selling, they were very specialized or they had 20 products, it didn't really matter. It wasn't numbers of products that affected that. Here's a couple key points when it comes to products. On average, our partners sell 11 different digital products. There was very little relationship found and the number of products sold does not give us greater stickiness so that wasn't, the product wasn't a big thing when it came to one of the potential churn variables. I think that was a surprise to some people who put this data together.
How Pricing Affects Churn
Now on pricing. The pricing of the offering, sometimes known as a "bundle." A lot of you hate that number or that name "bundles". Bundling has a negative connotation so I like to call it a solution. I'm coming to you, Mr. Restaurant or Mr. Real estate agent, with a solution and here's the price. Did pricing impact churn? And it did, quite dramatically actually. So companies with a higher price for reputation above the hundred dollars mark had an average churn of 50% while customers and companies with a lower price, below that hundred dollars, had an average churn of 28%. So pricing had a big impact. SMB's that are more time taxed than budget starved than ever, they're looking for that clear return on investment. They have so many digital options. And the higher the price point the higher demand for that return. So if I'm paying a whole bunch of money, I'm really keeping an eye on what the ROI is. I'm paying 999 for reputation intelligence, okay, yeah. It's doing its job. I get an email alert every once in a while. So that's what we found. In the Do It For Me relationship, they're hiring the agency as an outsourced marketing arm. That's what we found. In the DIY, they were hiring a tool that could give them a little bit of data. So that's some things that we found around pricing of the bundle or service. We also found that a number of media companies were just throwing in reputation to add value to an advertising package. That's, you know, only those people that were adding digital to their traditional. The people in the middle group that had the specialized digital salespeople but were still part of a traditional media company, they were operating in that Do it With Me type category. So just a few things that we found out about pricing and churn.
Vertical vs Horizontal
Then the vertical versus horizontal, the specialization of the partner. We have a number of partners that just sell into a vertical and we have a lot of partners that sell horizontally as well. What impact did that have on churn? And we found that the horizontal partners had higher churn. The vertical partners probably understand a lot better how to talk to those potential businesses. They're only dealing in one vertical, they know exactly what they want, they get lots of feedback from that, they're specialists in that space. So we found that they had a lower churn rate. Let's talk about the businesses that we're selling to, it's classified here as SMB category. These are the customers. These are the various clients that we're calling on. And the SMB category and churn, it definitely had an impact with the various categories that we were selling to. Restaurants have a much higher churn rate than real estate agents and than doctors. So the higher the value of the lead, the client that we're calling on, the lower the churn and the greater the retention. So real state agents, they're selling to, you know, million dollar properties or doctors or medical organizations...Dealing with a big medical organization right now that has 460 locations. It was way lower churn there. Financial and auto were exceptions to the rule, they are highly competitive. So that's what...those areas, it's really interesting when you look at auto and financial services but those are highly competitive spaces. When an agency opens up and they say, "You know, I've kind of been working with car dealers and I wanna be big in the auto space." Well, that space is crowded. Some of the very best people are in that space. It's super, highly competitive vertical. Usually, by the way, those highly competitive verticals are the ones that are serviced by a specialized partner.
Does Service Model Affect Churn?
And then what about the service model? We talk a lot at Vendesta about Do It Yourself, Do It For Me where we're just gonna take care of everything and then the Vendesta model for our digital agency where we do it with the customer, we really get them involved. Which one of those has the higher churn? Do It For Me, all the time has a higher churn. Do It With Me has a much lower churn rate, and when I mean Do It With Me it's with that constant feedback loop from the customer. You're always talking to them maybe with a monthly call or a weekly call. You're getting their feedback on approval of social posting and approval of ad campaigns and approval of review responses. So there's a constant loop. The Do It For Me is, "Yeah, are you gonna take care of this?" And then you go back to them and say, "Yeah, here are the things that I did for you the last six months of the last year." It's got a higher churn rate on it because it's very highly scrutinized for ROI. On the Do It With Me, I think because we're touching them more often in that Do It With Me model, we've reduced churn significantly. And then on the Do It Yourself, it's usually sold at a much lower price so then it's not under as much scrutiny for the return on investment. So these are some of the things we learned around DIY, Do It For Me and Do It With Me. And Do It With Me is that middle ground that's a safe and sought after spot for agencies.
What Matters with Churn?
So those are a few things that we learned. No, the number of products doesn't really matter. But yes, pricing, vertical versus horizontal, SMB category, partner type and business service model all had a dramatic impact on churn. Here's the realities of the type of customers that are out there. The customer on the far left hand side of your screen has one to four employees, they have way more time than money. They're only spending $2,500 a year on digital marketing services. These are all BIA/Kelsey pieces of data, they've researched this and found out this very dramatic information that speaks to why we have to figure out different deliveries for these different types of businesses. By the way, one and four employees make up 63.3% of all businesses that are out there in the marketplace. Then we have the 5-9 employees spending about $20,000 on marketing services a year. They make up 17.5% of all the businesses out there. They probably have some sort of a flashing open sign in the window and their preferred model, because they have less time than money, see spending more money, their preferred model is Do It With Me or Do It For Me. They really don't...they're indifferent to whether they want an in premise salesperson or not. On that far left hand side, I forgot to mention that their preferred model is Do It Yourself and they don't really need somebody in person. They will deal with somebody over the phone because, again, they're trying to get that lower priced option. So that's why you wanna throw DIY type solutions at that 1-4 employees. Then on the 10-99 employees, they almost always have the flashing open sign in the window. They make up 19.2% of all businesses. They spend about fifty three and a half thousand dollars on marketing services and they value an in premise sales rep. They place a very high value on that, having somebody actually come to their business and work with them.
Now, why am I mentioning this flashing open sign in the window? This actually comes from a senior vice president of a publishing company that I had breakfast with here a month or so ago, someone with a long tenure in the industry, pretty much as long as I have been in the media industry working with businesses on their marketing. And he said to me, "You know, one of the biggest problems that we have in our media organization is that our sales people have just been calling on the flashing open signs." Meaning, they go door to door in a sales territory, they call on the clients and 10-14% of all those customers go out of business every year and they've not done a good job of the people that don't have the flashing open sign in the window. In fact, they probably don't have a door that a customer could walk through. A business that has a virtual doorway where they're operating out of their vehicle, like my buddies that are in the mortgage business. I've got some friends that used to work in banking now they sell mortgages, they work out of their house. They're in their car all the time with a laptop showing up at the person that's trying to qualify for a mortgage and buy a house. They go right to their home to run their business. They spend a bunch of money on advertising and they need to be doing marketing and they may even have their own website. Or the insurance agents. Sure, you could go to an insurance agent and buy insurance but a lot of those people work remotely from their vehicle, again, showing up at the customer's home and they do the deal. Life insurance people have done this forever. There's a lot of businesses out there and a lot of business opportunities.
So I just wanted to mention that as we look at the realities of businesses out there, they're either in that left hand category that love DIY, the businesses that have more time than money to spend on marketing. And then as they grow up and they get more employees they start spending more money on advertising and marketing. They don't mind Do It With Me or Do It For Me. And then at that bigger end, and that's where everybody's going for the media space, I mentioned that way earlier, that the traditional media organizations are really pushing into that 10-99 employee range with the $55,000, that's where the money is, that's where they're going. And those people really value the in premise sales person. So those are the realities of the customers and we have to deliver to them the right price. So we get asked this all the time, what does that right price solution look like? And this is a solution, a retail rate for a solution on the street right now. I know sales people that are selling with it and you know, we get a lot of intel from those folks and we've been building this out. If you've been attending these webinars over the past years you'll look at this and go, "Yeah, that's kind of like something George has shown me before but there's some different deliverables here." And that's because the product set that we're using to execute these solutions keeps changing and improving. So they Get Found, it's got a little bit a listing in it, fact, it's got quite a bit of listing in it. Reputations, got a little bit of reputation and they're responding to reviews not actually asking for new reviews, just responding. And then we're connecting social accounts and giving the business a place to go in there and do some DIY on their social. That's being sold at $329 on the street and there's way better, you're more than doubling your money on that package through the Vendesta Digital Agency. And even if you had your own person doing it, utilizing our tools, you'd be more than doubling your money.
Most Popular. We see lots of these packages being sold by salespeople every single day. We're close to 10,000 sales people on our platform and we're getting a lot of intel from sales organizations. I was working with a group last week. We're gonna be working with a group here starting on the 3rd of August for 13 fabulous days and going into market in Australia working with those sales people. They'll be selling a package that looks very similar to this Find and Protect at $499 retail. It's got a lot of listings in it. It's got a lot of reputation in it that helps the business with reviews around the whole reputation and it's got a chunk of social in it where we're posting and boosting. And the ability for the business to connect their social accounts and be able to do some work inside the social marketing tool that we have here at Vendesta. So Find and Protect is another bundle that we see working really, really well. And then we've got that big package for the big business at $799 a month, Protector Pro. That is a Do It With Me or a Do It For Me solution where the business is saying, "Yeah, just take care of all this stuff and send me a report at the end of the month and check in with me and let me know the things that you're doing." So all the reviews are gonna be responded to. We're gonna take a list of customers and generate reviews. We're gonna make sure that we get your listings corrected. You know, we see this package being sold as well to those larger businesses that I mentioned are on that upper end with spending the $53,000 plus on their marketing services.
So there's some packages that we have been working with organizations and putting out there on the street. All of those prices that I'm showing you are monthly prices, monthly recurring revenue. And if you do a good job of delivering those packages and showing value then you have those raving fans. And the idea is, if it was me in the agency business and I tell our agency partners this all the time, if it's a one person agency, go get three or four of these a week or two of them a week and just keep adding to them. You're probably gonna lose one every once in a while but if you do a really good job of making those people raving fans, you got a chance to make yourself a very nice living with this. Now, if you're an agency with a number of sales people, again, you want them to be out there using their snapshot reports, their marketing automation and delivering on a couple of these a week where they get signed orders and yet paying the business' credit card and you start building that monthly recurring revenue. The idea is that you would continue to service that customer and then you would add another two or three or four or whatever the cadences that you have based upon the size of your organization and the potential of your market.
So our goal here with the weekly sales webinar is to take you through a whole bunch of data around sales. I like to give you some real world information that we've learnt in working with sales organizations. A lot of the things that I speak about in the webinars come from questions that I get when we're out talking to sales organizations and questions that our success teams are getting when they're talking to you, our partners. This product webinar series that we started on Thursdays at 3:00 Eastern is coming to us from demand from our partners. They're saying, "You know, we love that sales webinar. It's great. George doesn't really dig too deep in the product, I'd like to learn more about how the product works and how you can deliver these things." That's what we're going to be covering off in the product webinars on Thursday at 3:00, because we really believe there's two different needs that we're solving with these webinars, you can't really roll them all up in one. The webinar around sales is around the sales story. You could put it in front of a sales person, they could watch. It's salesy. The product piece should be put in front of a product person and deliver all of the product nuances that they need to know about how to operate the Vendesta products suite which changes, as you know if you're a partner, changes at a lightning pace. We are improving all the time and a big reason for that is the space that we're in is changing dramatically on ongoing basis. We have to continue to change.
So that was the need for that second webinar, to be very product focused. And I encourage you to sign up for the Product Insider. It's a very good piece of content that we produce. Its main goal is to keep you abreast of the changes that are happening to the platform, new releases, the things that we're working on and are coming soon, and the things that are living inside our beta program where we're looking for your feedback as we bring out these new improvements to the Vendesta platform and products suite. Really appreciate the attendance at this week's webinar. A reminder that we record these and we post them always to our support portal so you can see them and any other webinar that we produce, are all there. We'll be back next week. We're gonna dig into some real world sales training moments that we've captured over the past six months and give you some things that you could utilize as a sales manager or an agency owner or a media vice president, that you could put in front of your sales team that will give them some aha moments as to how they can deliver digital marketing solutions to their customers and build that holy grail that we're all shooting for, monthly recurring revenue from raving fans. Thanks again for your partnership. Thanks for joining us. My name is George Leith. I will see you when I see you.