The Paid Search Business: Client Retention
For many years, we operated RKG on the “Field of Dreams” principle: ‘If you build it [they] will come!’
Alan and I loved the idea that, because the channel was measurable and because we thought we could do this as well or better than others in the space at the time, we figured: 1) clients will come find us; and 2) they’ll be happy because the numbers will be good. We focused on the software and the service rather than the marketing and sales under the principle that if you provide a valuable service at a fair price you will do well in business.
It is said that some people choose a barbecue sauce because they like the taste of the sauce, others buy it because they like the look of the bottle. We’ve always focused on the sauce, and that focus has served us well.
As the industry has matured, we’ve come to realize that perception is important as well. We were naive to believe that good results by themselves would keep our clients happy. Expectations do not always line up with the range of possible outcomes, and this, combined with the increasing volume of sales noise with pie-in-the-sky promises, makes retention a constant challenge even for us. We’re having to put a bit more energy into “the bottle” these days.
But for the plethora of agencies who focused on the bottle the day of reckoning seems near. Cracks are starting to show in the veneer because profit margins are under siege for the weaker players in the space.
Acquiring new client accounts is expensive. The sales cycle is long, the RFPs are arduous and, for agencies hoping to distinguish themselves through slick marketing materials and salesmanship, the close ratios are sinking.
Those who rent tools not only have a hard time distinguishing themselves from every other shop that uses the same or similar rented tools, the SaaS licenses cost real money, taking a significant bite out of the bottom line.
Price pressure has also impacted the top line. As competition increases the days of demanding 15% of advertising spend uncapped are gone. Ironically, in our ignorance, RKG set out to be the high quality, high priced agency…only to find to our shock and dismay that we were the only folks in the industry capping fees and we were in fact the lowest priced agency for large accounts.
Agencies based in San Fransisco, New York, Boston, LA, etc. have huge overhead and expensive staff. Couple that with the difficulty in retaining quality staff and the fact that there is a steep learning curve for paid search analysts to climb, and the expense picture and service picture start taking shape.
However, the real problem for the “bottle” agencies is more fundamental: they can’t retain clients. Because the sauce isn’t really very good, the promises made to win the business come back to haunt the folks responsible for client services, and that hard won, expensive sale turns unprofitable because the long term value of client accounts isn’t there. Very few of the clients who’ve left us over the years are still with the firm they left us for — I can think of only one. Over-promising and under-delivering only gets you so far in life.
PREDICTION: We’re going to see a number of the weaker paid search agencies implode over the next year or two.
The first victims will be those who have no bid management software worth mentioning but try to compete in the big leagues. The next wave might be those who’ve outsourced their core software. I could be wrong here, but I think the agencies that have their own proprietary tools, access to all the data, and the ability to customize their platforms and reporting have the inside track.
There will never be universal agreement on the best barbecue sauce, nor will one agency end up being everyone’s favorite. We aren’t satisfied with our sauce, and never will be; it is and will remain a work in progress. Our bottle is improving but is a LONG way behind the sauce. We don’t mean to use this as a platform for braggadocio, but we do see a future where the folks with the watered down sauce in the fancy bottle end up looking for other products to sell.