Switching costs

What it costs a customer to move to a competitor, counted in money, time, risk and retraining.

Enterprise software embedded in a company's workflow has high switching costs because the migration risks breaking something that works. A bank current account has moderate ones. A consumer subscription usually has none.

The observable proof is retention. Net revenue retention above 120% at a software company is switching costs measured rather than asserted, and low churn at flat prices means the same thing.

Prices that can be raised without losing customers is the sharpest test available.

They come in three forms and each shows up differently in the accounts. Financial switching costs appear as long contracts and prepayments. Procedural costs appear as high implementation revenue relative to licence revenue. Relational costs appear as long tenure and low churn among the largest customers, which the customer-concentration disclosure hints at.