The Switching Cost Problem - Why Your Clients Keep Leaving… and What to Do About It

Let’s start with the uncomfortable truth.

If you’re delivering a single service at arm’s length - with no deep integration, no proprietary IP, and no meaningful ownership of outcomes - you’re not a partner… you’re a vendor.

And vendors get replaced the moment something cheaper, faster, or shinier comes along.

Most agencies don’t like hearing this, but it explains a pattern many quietly accept as “normal”: clients churn out after 12–18 months, despite solid delivery and positive feedback. The work is good. The relationships are fine. And yet… they leave.

That’s not a sales problem.
It’s a switching cost problem.

The Leaky Bucket Most Agencies Ignore

Winning new business feels productive. It’s visible. It’s measurable. It keeps the pipeline looking healthy.

But if the clients you win today are gone in a year or so, what have you actually built?

Not a compounding business - a treadmill.

You’re running hard just to stay in place. Each new deal barely moves the needle because revenue is constantly bleeding out the back door. Teams stay under pressure. Case studies never mature. Institutional knowledge walks out the door with every churned account.

If you want real lifetime value, long-term client advocacy, and an agency that grows without constantly resetting itself, there’s only one lever that truly matters:

High switching costs.

What Switching Costs Actually Mean (and What They Don’t)

Let’s be clear about what this is not.

High switching costs are not about trapping clients in punitive contracts. That’s lazy, short-term thinking - and it creates resentment, not loyalty.

Real switching costs are earned.

They exist when leaving you would be genuinely difficult because you’ve become embedded in how the business operates. Not politically. Not contractually. Operationally.

High switching costs show up when:

• You replace functions, not just execute tasks

• Your work is built around proprietary systems, processes, or IP

• You’re involved in decision-making, not just delivery

In other words, removing you would require rebuilding capability - not just swapping suppliers.

What High Switching Costs Look Like in Practice

Consider an e-commerce agency that goes far beyond “running ads.”

Over time, the client is fully bought into the agency’s proprietary tech stack, internal tooling, and performance frameworks. The agency isn’t just executing campaigns - it’s effectively replacing multiple internal roles across growth, analytics, and optimisation.

For the client, bringing that capability in-house would mean hiring, training, tooling, and trial-and-error. Keeping the agency is cheaper, faster, and safer.

That’s not lock-in by force.
That’s lock-in by value.

Or take a digital transformation firm working with a large bank.

Developers, business analysts, and project managers are embedded directly inside the organisation. They attend internal meetings. They understand legacy systems. They carry institutional knowledge that doesn’t live in documentation.

Firing that agency doesn’t mean switching vendors.
It means dismantling an entire function and rebuilding it from scratch.

That’s friction - the good kind.

Why This Matters More Than Ever

Agencies are no longer just competing with each other.

They’re competing with AI tools and self-serve platforms that are getting better, faster, and cheaper every quarter.

If your only value is execution, you’re already losing that fight.

AI will always be faster than you.
And eventually, it will be cheaper too.

Execution is becoming commoditised. Depth is not.

Depth comes from:

• Real relationships built over time

• Proprietary systems that compound in value

• Services that reinforce each other instead of existing in isolation

Which brings us to strategy.

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The Venn Diagram Approach to Growth

One of the most common mistakes agencies make is adding services reactively - chasing whatever’s trending or whatever prospects ask for next.

That doesn’t create stickiness. It creates sprawl.

Instead, growth should be intentional. Think in overlaps, not additions.

Ask yourself:

• What naturally sits adjacent to the work we already do?

• What makes us more embedded in our client’s business model?

• What creates multiple dependencies instead of a single point of failure?

Each additional service should make the whole relationship harder to unwind - not just broader.

This isn’t about being manipulative.
It’s about being genuinely valuable in ways that accumulate over time.

So What Now?

If you want your agency to thrive long-term -not just survive quarter to quarter - you need to design your business model around increasing switching costs.

Do that, and the benefits compound:

• Higher customer advocacy

• Lower employee churn

• Growth that actually sticks

The real question is uncomfortable but necessary:

Is your service offering designed to be hard to leave?
Or are you still operating like a freelancer with a team?

Because competing on price and speed is a race to the bottom.
And AI is faster than you. Always will be.

The agencies that survive the next decade won’t be the ones doing commodity work more efficiently.

They’ll be the ones their clients literally can’t afford to lose.

Not because of contracts.
But because of integration.
Because of dependency.
Because they’ve become part of the infrastructure.

Build something harder to leave.

Want to chat about it? Email me on Janusz@gyda.co