What is an example of switching costs?

Moving a company off its accounting or CRM software means migrating data, retraining staff, and rebuilding integrations — costs so high that most firms stay put even when a better tool exists.

Are switching costs good or bad?

For a business they create a protective moat and recurring revenue; for customers, high lock-in can be frustrating. The healthiest switching costs come from genuine value, not coercive barriers that breed resentment.

Switching costs

Business strategy

Switching costs are the time, money, effort, and risk a customer must spend to move from one product to a competitor. High switching costs lock customers in, protecting a business even when rivals offer something better or cheaper.

How it works

Identify what a customer would lose by leaving — relearning, data migration, lost integrations, contract penalties, social ties. The higher those costs, the stickier the customer and the stronger the moat, regardless of the product’s standalone quality.

How to use it

Assessing a business’s durability: high switching costs mean defensible, recurring revenue.
Recognising why you stay with a "good enough" bank, software, or platform.
As a builder, designing legitimate stickiness (deep value) versus resented lock-in.

Worked example

A company runs its entire operation on one accounting platform — years of data, trained staff, dozens of integrations. A rival is cheaper and slicker, but migrating risks chaos, retraining, and downtime. The switching cost, not the product, keeps them.

Where it fails

Switching costs built on lock-in rather than value breed resentment, and customers flee the moment a frictionless alternative appears. Durable stickiness comes from genuine value; coercive lock-in is a moat that’s also a liability.

The deeper point

They reveal that "best product wins" is often false — what wins is the product that’s hardest to leave. The most valuable businesses are frequently not the best but the most embedded, which is why incumbents fear frictionless migration more than better features.

Frequently asked

What are switching costs?: They’re the time, money, effort, and risk a customer faces when moving from one product to a competitor. High switching costs keep customers locked in, even if rivals are better or cheaper.
What is an example of switching costs?: Moving a company off its accounting or CRM software means migrating data, retraining staff, and rebuilding integrations — costs so high that most firms stay put even when a better tool exists.
Are switching costs good or bad?: For a business they create a protective moat and recurring revenue; for customers, high lock-in can be frustrating. The healthiest switching costs come from genuine value, not coercive barriers that breed resentment.

Network effects Economies of scale Compounding Status-quo bias Loss aversion

Editorial synthesis © ReadGlobe 2026, drawing on the mental-models tradition (Charlie Munger, Farnam Street) and the primary sources for each model. · Last reviewed 2026-05-29.