70 percent of SMBs outsourced marketing functions to agencies over the past year according to a new survey-based report from vcita. That’s up from 32 percent last year – a meaningful jump that’s good news for agencies that provide everything from web development to SEO to social media management.
Breaking those down, 23 percent of survey respondents invested in paid search advertising, 19 percent used social media management, 17 percent used email marketing, 15 percent used paid social media marketing, and 15 percent turned to web development agencies – a fairly even mix overall.
But perhaps more alarming, the report’s biggest ah-ha is that almost 60 percent of SMBs switched marketing agencies in the past year. This validates something we’ve always observed: SMBs represent a fickle market segment that isn’t always easy to please when it comes to local marketing.
Good News / Bad News
Collectively, the above data points represent a good news / bad news situation for agencies. On one hand, demand is high among SMBs, with ample momentum. On the other hand, high turnover puts a negative spin on lifetime value, which is critical to maintain margins given SMB acquisition costs.
Making matters worse, the timing of the turnover isn’t optimal. Specifically, vcita reports that 67 percent of SMBs that churned did so within six months of signing up. That six months of revenue – at low ad budgets that are inherent in the SMB market – compresses margins when considering acquisition costs.
This evokes the classic B-school axiom that acquiring new customers can cost five to six times more than retaining existing ones. Beyond getting stuck with the former option, churning customers sting on other levels such as the missed opportunity of not getting to realize the revenue you worked for.
As for the reasons SMBs churn – a key factor to isolate the problem – disappointing ROI leads with 68 percent of SMB responses. Other reasons include insufficient resources to make the most of agency services (ironic) at 20 percent, and a feeling the agency wasn’t a “true partner” at 17 percent.
Breaking things down by horizontal functions, the sting is less acute for lead-nurture suppliers and SEO agencies at about 2.5 percent churn each. Reasons for this may be that results are more tangible (think: visible Google rankings). SMBs also recognize the level of skill and specialization involved.
Skate to Where the Puck is Going
Counterbalancing some of the above with good news, vcita reports that 52 percent of SMBs expect their marketing budget to grow in the next year. This could alleviate some of the lifetime-value detriments and margin compression noted above, given greater potential revenue per advertiser (ARPA) on the horizon.
Putting some dollar figures behind that, 80 percent of SMBs who use marketing agencies spend up to $3,000 monthly. 15 percent spend up to $6,000. Though it’s not nothing, this underscores the point about low SMB ad budgets (relative to large brands) – a longstanding challenge in the SMB space.
Pointing forward, what are SMBs’ goals – another key factor to help agencies skate to where the puck is going? The most prominent SMB goal uncovered in the survey was not surprisingly to drive sales (29 percent). That’s followed by retaining clients (17 percent) and boosting brand awareness (15 percent).
So there you have it… agencies take note. Meanwhile, all the above was produced by vcita’s inTandem SMB marketing platform. It surveyed 500+ SMBs (< 20 headcount) across verticals in the U.S. in June. Check out more in the full report and let us know which points jumped out to you, or what we missed.