Search engine marketing is big business. But when it comes to serving small, local businesses, SEM providers in all parts of the SEM food chain appear to have some big problems.

That’s according to a study conducted by Borrell Associates, which looked at SEM amongst local businesses.

Forget about growth rates. Forget about dollar amounts. As I read Borrell’s study, one metric stood out: churn rates.

The study breaks the market for SEM services down into three groups:

  • Direct Buyers who purchase search campaigns directly from search ad providers like Google and Yahoo.
  • SEM Resellers and Technology Providers who help their clients (and affiliates) purchase keywords from the search ad providers.
  • Affiliates who team up with the SEM Resellers and Technology Providers to sell their products and services.

The approximate annual churn rate Borrell estimates for each:

  • Direct Buyers: 50%.
  • SEM Resellers and Technology Providers: 60%.
  • Affiliates: 70%.

In some cases, amongst the poorest competitors in the market, Borrell estimated churn rates of up to 90%. Needless to say there’s one word to describe this type of churn: horrible.

Borrell cites two primary reasons for churn:

  • Advertisers don’t see ROI.
  • Some advertisers come to believe that their providers are “taking too much off the top rather than directing most of their spending toward keyword purchases“.

The study provides a good, detailed overview of SEM Resellers in particular and the flaws in many of their business models. But even looking at the 50% annual churn from Direct Buyers, it’s pretty clear that, on the whole, local businesses find SEM to be a tough nut to crack regardless of how they’re accessing the market.

That’s not exactly a surprise. Effective search marketing is often tough for even experienced SEMs. It can take a lot of time, effort and/or money. For local businesses with limited resources and minimal tech savvy, trying to navigate the waters can be daunting.

That doesn’t meant that SEM for local businesses isn’t a potential goldmine but if Borrell’s churn rate estimates are anywhere near accurate, internet entrepreneurs trying to get local businesses to open up their wallets should be concerned that disappointing results delivered by short-term-oriented SEM resellers/providers/affiliates could make local businesses even tougher prospects to sell to in the future.

Photo credit: Koramchad via Flickr.