According to Borrell Associates and Clickable, 50% of businesses that buy local search ads directly from Google & other online companies, don’t come back the following year.
Many online advertising resellers and affiliates, who serve local businesses, churn half their customers within a year.
Some lose as many as 90%.
The report suggests that missed expectations and a lack of return on investment (ROI) for local-business customers contribute to the change. The churn rate for ReachLocal, LookSmart and Yodle — companies that purchase search ads on behalf of local advertisers — is around 60% annually.
Locally placed search advertising in the U.S. should grow 30% during the next five years, from $4.1 billion in 2008 to $5.3 billion in 2013, according to Borrell.
In general, the smaller the advertisers, the higher the churn rate. Smaller local advertisers have less patience, want to see a return on investment within three months, and don’t typically understand advertising, Borrell says. “If they spend a few thousand dollars, they damn well better hear the phone ring or get business in the door,” he says. “National advertisers have more patience, and spend between $10,000 and $1 million per month.”
It’s obvious that many local advertisers are small business and as result don’t understand online advertising well at all. Problem is that many of the people that sell local advertising have no idea what they are selling either. By this I mean the sales people at CitySearch, Looksmart, Yellowpages.com, etc. I’ve spent hours talking to these people about segmentation. They don’t get it. They offer package deals that simply do not convert. Adwords on the other had offers some segmentation and can work well depending on the service or product. My 2 cents.
Having worked for a 3rd party adword reseller for a brief period…here are my observations…smaller companies (those spending under 1k per month) often do not have the type of websites that convert well, they operate their biz on a month to month basis and often are relying on friends and family memebers as their advertising/marketing consultants…It amazed me how many small business still dont even have a website and would not commit to spending $500 on adwords, but were still buying mailers, print directories etc…third party resellers as named above struggle because they have to add a healthy 35-50% margin on the top and often are more concerned with the monthly spend rather than the actual conversion and improving this metric…I think there is a huge market moving forward on the local side, but there are a ton of companies going after this business and 95% don’t do it the right way
Nice posts ED and DON thank you for the info, I have always thought that a lot of small businesses would be short sighted, saying we spent $500 where are the sales ? I know Local search has been getting talked and hyped for awhile, it will be interesting to see if it goes big time. Again IMO
The clear winner in local search is google, the more companies that pop up trying to resell adwords will drive awareness and dollars to their business, nothing better than having thousands of sales people on the street selling your product and not having to compensate them from your revenues…