This question measures structural lock-in—the economic and operational friction that keeps customers from leaving.
Switching cost is the moat. Without it, the company is competing on continuous value delivery against an ever-growing field of alternatives, including AI-generated ones.
How to Calculate True Switching Cost
Switching cost is not just the dollar amount to buy an alternative. It is the total cost of transition:
Migration effort: Engineering time spent exporting data, transforming formats, and importing into a new system—calculated as engineering hours × fully-loaded cost
Retraining: Time for users to learn the new system, productivity loss during transition, and formal training programs
Integration rebuilding: Every API connection, every webhook, every automated workflow must be rebuilt
Data transfer risk: Potential data loss, corruption, or gaps during migration
Business disruption: Downtime, parallel running costs, and risk of errors affecting customers
Organizational change management: Internal politics, stakeholder buy-in, and decision-making overhead
The 12-Month Threshold
Why 12 months? Because below this threshold, switching becomes a routine business decision rather than a strategic one.
3-6 months: Switching is an operational decision a department head can make
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
