What is Switching Costs?
Nexa Consultancy | Startup & Finance Glossary
Switching Costs are the costs that a consumer incurs as a result of changing brands, suppliers, or products. These can be monetary (e.g., new license fees, data migration costs) or non-monetary (e.g., time spent learning a new system, loss of productivity).
Base Term for Startups: Building a product with high switching costs is a powerful way to create customer "stickiness" and reduce churn. It creates a defensible moat against competitors.
Base Term for SaaS: Enterprise SaaS products often have very high switching costs. Once a company has integrated a CRM like Salesforce into all its business processes and trained hundreds of employees on it, the cost and disruption of switching to a new CRM are enormous.
Base Term Example: A design team that has built its entire workflow around Figma faces high switching costs to move to another design tool, as they would have to migrate all their files and retrain the team.