Efficiently Selling to SMBs: Finding Paths of Less Resistance

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Despite lots of excitement and investment rushing into the local advertising market, one longstanding pain point quickly realized by newcomers is SMB fragmentation. It’s a killer.

Given that the majority of SMBs don’t “self-serve” (despite the common assumption otherwise), how do you fulfill low ad budgets with the high-touch sales and hand holding they require? And by the way, you have to preserve some margin, and then scale it nationally.

“The customer acquisition cost is too high relative to revenue being too low,” said Swipely CEO Angus Davis at last month’s Leading in Local Conference. “You need to be paid $200 per month or more to support a local sales force. It’s not just cracking the code on product, but how do you sustainably sell to local merchants.”

This of course is nothing new (to most), but we’re seeing some interesting ways of dealing with it. There have always been creative “side channels” to SMB wallets — things like chambers of commerce, ISPs and even places like Home Depot (see RedBeacon) or Costco.

There are also paths of less resistance to SMB marketing budgets like CRM systems, payroll, back office management, reputation management and payment processing. From there, local advertising can be unveiled as a “one-stop-shop” upsell.

Versions of this have come and gone. OpenTable has nailed this “operational lock-in.” Service Magic and others are tied in with scheduling. And Intuit made an early move (via Google partnership) to position SMB marketing along with QuickBooks.

But there are a few reasons we’re entering a more fertile environment for what I’ll call the SMB advertising “Trojan Horse.” Part of this comes down to a saturated market of local advertising: Competing against a smaller batch of operational vendors is just easier.

“SMBs have seven or eight marketing relationships — places like Yelp, Google, Yellow Pages,” said Davis. “But they only have one payments vendor. Do you really want to go in and be their 9th local marketing provider.”

Payment processing is Swipely’s particular flavor of operational lock-in. Here too, the timing could be right given smartphone growth, which has driven mobile payment processing, tracking and marketing via revenue attribution. A closed loop, and all that.

In other words, tying point-of-sale payment processing to marketing isn’t the contrived upsell that my “Trojan Horse” term would imply. These things actually make fine bedfellows, and their coupling increasingly makes sense in SMB product bundles.

Another big reason stems from just how bad the current SMB payments standards are. Davis characterizes it as an industry made up of entrenched players with little competitive pressure to innovate. The last big breakthrough was producing reports in color.

Operational lock-in also creates higher SMB switching costs and thus retention of their business. Yodle bought Lighthouse PMG to bring CRM into the fold. And ReachLocal launched ReachCommerce, a hosted commerce engine for SMBs (great for home services).

These two also have direct sales — a key point in not forgetting the self-serve and fragmentation challenges mentioned above. Davis stresses this point too, and points to SinglePlatform, Yext, Constant Contact, Yelp, OpenTable, DemandForce and ZocDoc. Some common elements between these companies include inside sales with good technology, best practices and low cost of acquisition. But of course you also need a differentiated offer, and a simple one-stop message to solve prevalent SMB pain points.

“Help SMBs not only accept payment but understand them with analytics,” said Davis. “Turn it into action and grow sales with online marketing campaigns that integrate offline sales. Bring them together on the same page.”

Mike Boland is senior analyst at BIA/Kelsey, where he heads up the firm’s mobile local coverage. Previously, he was a tech journalist for Forbes, Red Herring, Business 2.0, and other outlets.

Mike Boland has been a tech & media analyst for the past two decades, specifically covering mobile, local, and emerging technologies. He has written for Street Fight since 2011. More can be seen at Localogy.com