Marketing Automation Customer Retention Q2 2014

by Dan Freeman 
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New numbers are out for changes in marketing automation platform usage, and in dynamic markets, things change quickly. Demand for marketing automation software is growing at a healthy clip, but aggregates can mask marketplace turbulence. Behind the 40 plus percent growth rate lies a multitude of customer experiences that determine the ultimate winners and losers.

As businesses struggle to get a handle on the new world of digital marketing, they experiment with new marketing platforms. Marketers try to master this software—to leverage its promise to generate more and better leads, and to streamline marketing processes. In highly competitive markets like marketing automation software, nuances in product features and ease-of-use can make all the difference. The way a new customer is on-boarded, the support or self-help tools provided, and even the reality of the customer experience versus the expectations set by vendors can have a major impact on retention.

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And in the Software-as-a-Service (SaaS) business model, retention is key. Vendors often lose money on new customers during the first year. It’s not until an annual renewal, or at least a period of several months, that customers become profitable. The most profitable customers are usually those with the longest tenure; they've ramped up usage and generally require less support.

Vendors tout their success with press releases about new customers and sometime even publish customer counts and growth rates. What’s not revealed are the dropped customers—the churn.

Until now, that is.

Working with the tech data sleuth firm, Datanyze, I looked at websites that added and dropped marketing automation software during the first six months of 2014. The results indicate that churn is higher than many would believe. For the top 11 marketing automation platforms, the ratio of websites adds to drops was 1.8, meaning that for every 9 websites that added a marketing automation platform, 5 website dropped one.

According to the Datanyze data, Eloqua led the industry with 3,417 net additional websites using its platform. Pardot had the highest add to drop ratio (4.8 versus the industry average of 1.8. Great marketing can generate a steady stream of new customers in a rapidly growing market, but only positive customer experiences will result in high retention rates.

We will be publishing more marketplace data over the coming weeks, so stay tuned.

Before you draw too many conclusions, a few caveats are about the data are in order.

First, Datanyze tracks about 15 million sites, which seems like a big enough number. But keep in mind, there are over 900 million websites. So even the Datanyze Universe represents just small fraction of total active sites. Nonetheless, I believe the 15 million covers an overwhelming portion of total commercial websites that would have the budget to invest in marketing automation.

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Next, the data tracks websites—not customers—so market share headlines should be viewed with some skepticism. A company that installs marketing automation tracking code may put it on single site, or on dozens or even hundreds. That said, as a sanity check, I compared the marketing automation websites tracked by Datanyze with the actual number of customers for several vendors and found the ratio to be within a range of 2.5 - 3.5 to 1. 

Example: Datanyze shows about 32,000 websites using Hubspot. The company said it had 10,195 customers at or near year-end 2013. That’s a ratio is 3:1 websites per customer—a reasonable and believable number. 

There’s also a degree of fuzziness in the data.  

The most significant source of fuzziness in the data may be the use of trials. Since trials frequently don’t convert to sales, vendors that offer free trials (Marketo, for example) may tend to show more adds and drops than those who don’t (Pardot, for example). This can skew the numbers.

Another consideration is that some vendors offer a variety of versions, not all of which should be considered as marketing automation tools. For example, Hubspot has a 'basic' package the includes email marketing and website tracking but not the more salient features of marketing automation such as lead scoring and automated lead nurturing. Nonetheless, these packages will be counted by Datanyze as part of Hubspot's totals.

The last caveat is that in order to identify software packages used, Datanyze analyzes the underlying source code. There is certainly no foolproof way to find this code and to associate it with a particular vendor, but the company believes they catch the overwhelming majority of instances. 

Caveats and fuzziness aside, the changes over the course of the first half of 2014 give an indication of which vendors are succeeding in retaining customers.

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Marketing Growth Strategies LLC has been engaged in research, analysis, lead generation, and client implementation in the Marketing Automation sector since 2009 and has recently revised its highly successful 2014 Marketing Automation eBook.

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