"We churn ~20% of our customers off every month"
"We churn ~11% of our customers off every month"
"We churn ~10% of our customers off every month"
These are all quotes from various owners of marketing productized services.
As I've built up Lead Cookie, I've come to realize something about the productized service space...
Marketing services can make for very bad productized services.
While you can productize marketing services like I have done with Lead Cookie, or how Brian Casel has done with Audience Ops, it comes with problems.
That is not to say they can't still be great businesses, but it's worth pointing out the flaws before you get too deep in the weeds.
In this article, I am going to dive into those problems and what you should be thinking about when scaling up a marketing service.
Why marketing services have high churn
One of the biggest things I have come to realize about running a niche marketing service is that we are simply a "tactic".
Lead Cookie offers done-for-you Linkedin Lead Generation. We are very productized, systemitized, and we sell the same thing every time.
While this is great, we also do experience a high level of churn across our customer base.
As I have gone through and analyzed our churn, I found a few consistent trends that kept popping up.
Too many leads - This is a serious problem for some small businesses and we are now looking into new service lines to support this problem.
The channel is saturated - We can reach a point where we simply run out of quality leads for a customer's specific niche. At this point, the channel is saturated and they switch their dollars elsewhere.
Investing marketing dollars elsewhere - Sometimes customers are getting good results from our service, but they see an opportunity for a higher ROI of their marketing dollars elsewhere.
Low results - While we try to only sign customers who we are confident will see great results, we do have customers churn who don't get the results we expected.
Out of those churn reasons, #2 and #3 are what I really want to focus on as this is a huge problem for all marketing services.
Here's the big problem:
Marketing services inherently have churn built in because of how people think about marketing.
People consistently switch marketing channels to try new things.
Channels will naturally reach saturation causing people to switch.
This fundamental understanding is something you need to realize for your marketing business because it means that regardless of what you do to combat churn, you will most likely have a high rate of churn.
For example, I was speaking with a friend who had an influencer marketing business. He was telling me about trying to set up a recurring model for their service.
My feedback was simple- "Well what happens when you reach all the influencers for that customer's niche?"
It's simple. At that point, they will experience diminishing returns by trying to go to smaller influencers, or the company will invest those marketing dollars into another channel.
The same is true for another friend who is launching a podcast booking service. I asked, "What happens once you reach out to all of the best podcasts for that particular guest?"
That customer will naturally churn off.
The difference of productized "support services"
If you look at the classic example of WP Curve, they offered Wordpress support as a service. This is something that people need all the time. While people may churn off for any number of reasons, they won't churn off because of "saturation" or "investing their dollars elsewhere".
Website support is a true recurring problem that is not going anywhere.
"Don't try to fix a one-off problem with a recurring model"
My adviser, Alex McClafferty, repeats this mantra over and over again when people are in the early stages of their business.
And while it's easy to convince yourself that marketing is a "recurring problem", the truth is that most individual tactics are not.
Marketing as a whole may be a recurring problem, hence the agency model.
But a single marketing tactic that can be ran and produce great results forever? Well, if you can show that to me, then I will write you a check for $1M.
Even ads reach a point of saturation or viewers begin to experience ad fatigue.
No channel is perfect, so your customers will naturally churn off if you try to plug them into a channel forever.
Productized marketing services best serve as tripwires
What I just shared with you took me a long time to realize about Lead Cookie. After doing everything under the sun to combat churn, I eventually realized that it was just naturally baked into our product.
Now that doesn't mean it's a bad product or a horrible business.
It just means that I need to think about the business differently.
Instead of looking at the productized service as the 100% core of the business, I now look at it as a tripwire product into additional services.
Currently we are looking into building out several service additions to Lead Cookie, such as part time SDRs, paid ads, and cold email.
While I fought diversifying our product line for a long time, I am coming to now realize that it is essential to extend our customer lifetime value and increase our average revenue per customer.
But the question becomes, "Well aren't you just turning into an agency then?"
In a way, yes.
But the way I look at productizing services is more of a mindset that you bring in to how you run your business. While a standalone productized service is great, in marketing I do believe that an "agency model" is actually more robust for the long term.
In an agency model, Linkedin Lead Generation becomes the tripwire for more back-end services.
Podcast outreach becomes the tripwire for more back-end services.
Influencer marketing becomes the tripwire for more back-end services.
You need to start to own your niche first, but eventually the churn of a single marketing channel will cause you to hit a glass ceiling.
At that point, you need to turn your eyes toward other service lines and figure out how to expand.
So should I not start a productized marketing service?
I'm not saying that you shouldn't build a productized service in the marketing space.
But I am telling you to acknowledge what you are getting into.
Ask yourself if the channel you are offering will reach saturation and if customers will re-allocate their dollars to other marketing channels over time.
If that's the case, it's not a bad thing, but you just need to realize that you will have natural churn baked in to your service.
Lead Cookie is a great business. It's not a $10M business (at least not in its current state), but it treats me well and I am learning a tremendous amount from running it.