There are billion dollar companies that run multi-million dollar marketing budgets with just a handful of internal people and a few hand-selected agencies touch they outsource. There are also companies that build large internal teams of fifty to a hundred people to do the same amount of marketing.
Which is best? Probably a blend of the two!
About 47% of mid-size to larger B2B companies both insource and outsources, their marketing spend. Investors like to see more outsourced marketing because it is a variable expense on the profit and loss statement. That means the expense can go up and down based on revenue. Most CMOs like to internalize marketing spend; they feel it gives them a sense of control, they think they can outbid agencies and attract better talent and they feel it lowers costs. Another factor is that some CMOs think their business and their sales and marketing channels are hard to understand and outside business-to-business marketing services companies can’t fully appreciate their business the way an internal resource can.
In this article, we examine the cost illusion that CMOs fall prey to, discuss the six indicators that should determine if and when to outsource your marketing and consider the four steps to determine how to outsource marketing needs.
THE COST ILLUSION
First, let’s take cost out of the equation. I am amazed at how many companies believe it’s more costly to outsource than to insource marketing services. The true costs are about the same.
Most agencies make a 6-8 percent profit on revenue at the end of the day. That means if you spend a million dollars with an agency, they might make on average $70,000 profit from that revenue. Most agencies are lean mean machines that have very little fat and are run by shrewd operators who have been in the business many years and include underpaid but passionate employees who want to work on multiple exciting brands in exchange for less sleep and less financial security.
That $70,000 in profit evaporates very quickly when companies insource and factor the true overhead burden of administrative, office, and other fixed and variable costs, plus the additional expense of hiring the same talent (estimated at about 20 percent higher than what agencies pay their young overachievers).
Hard to believe? Look at what happens when the economy turns south and large company CFOs pencil the true expenses related to marketing The first things to go are the large internal marketing departments. With those expenses quickly re-allocated to outside agencies, changing the fixed vs. variable expense equation that shareholders look for. Bottom line, the cost to do “quality marketing” is the same or sometimes more expensive, to insource then outsource. This is especially true when the economy heads south; do you really believe a company whose core operation is not marketing can outperform an agency?
WHEN SHOULD B2B MARKETING BE OUTSOURCED
There are six areas to be examined when considering when or if you should outsource your B2B marketing needs.
- Bandwidth Expansion: When a company has marketing needs in excess of their internal resources, outsourcing can be the answer. About 47 percent of companies larger than 50 million dollars in revenue have both internal marketing resources as well as external agencies on an as-needed basis.
- Best Practices: When companies want exposure to best practices, they look into outsourcing. Agencies are on the cutting edge of best practices and technologies across different industries and brands. They have the ability to look at things differently and an internal team working on the same brand and product lines every day. Agencies need to execute based on current and best practices to provide value for clients, while most internal marketing departments are slow to adapt to new technologies and new best practices.
- Access to Fractional Resources: If a full-service business-to-business marketing services agency has 50 employees with a variety of skills like PR, digital, strategy, content, social and so on, companies can access these skills to execute projects without having to hire a full-time equivalent person. In other words, companies may have a need but not enough work to put together a five-person social team with a variety of skills (like organic, SEO, link-building, content creation and social platform management), but a full-service firm can provide these skill sets on a fractional basis.
- Complex Strategy: Business-to-business marketing agencies are brought in to do a variety of strategic tasks that may only happen once every year or even less frequently. Working on re-branding campaigns, marketing campaign strategies and development for new product roll-outs, channel and distributor marketing strategies, sales and marketing alignment strategies, website development, industry and competitive research and a variety of other specialized strategic projects can be a good reason to outsource marketing.
- B2B Creative Development: High-level creative thinking and development are more great reasons to outsource marketing. A B2B marketing services agency can take a strategic plan and develop highly thought out creative content and imagery to drive brand awareness and revenue. The big picture creative can then be leveraged throughout a variety of tactical activities executed by either the agency or by the company internally.
- New B2B Marketing Technologies: If you are looking to implement a B2B inbound marketing strategy, a lead capturing and scoring system, a digital sales enablement program or a digital geo-targeting campaign or a variety of other technologies or techniques then outsourcing those projects to an agency is probably the way to go. This gives a company the ability to see if these technologies or techniques work before spending large sums of money to internalize them.
There are other factors to consider as well. These can include geographical expansion (especially internationally), the desire for a company to outsource non-mission critical expenses, the desire for companies to better manage cyclical business conditions, and the management of fixed vs. variable expenses that drive investor interest.
HOW TO OUTSOURCE YOUR B2B MARKETING
The path to outsourcing your b2b marketing services is simple. Let’s break it down into these four steps.
Step One: Assign a point person inside your company to engage potential partners. This person should be someone with good project skills and a bit of marketing experience. They will be the internal contact for all external resources.
Step Two: Determine what type of and how much marketing you want to outsource. Are you looking to outsource just a few projects, or are you looking to engage with a full-service agency to provide a large portion, if not all of, your marketing services? In this step, it’s imperative to understand your projected services, expected results, and budget.
Projected Services: Are you looking at an agency to drive revenue, or to execute projects? Examples around revenue could be new campaigns or new product rollouts based or even lead generation based while project-based services could include things like creating a new catalog building a website or managing social assets.
Expected Results: Are you looking to spend a certain amount of money to drive certain results, or are you measuring success by the quality of deliverables? Think through these questions because they are important in determining the kind of relationship that is best for your brand.
Budget: Being able to quantify budget over a twelve month period of time is critical in determining the kind of outsourcing relationship that works best for you.
Step Three: It’s time to determine the type of business-to-business outsourced marketing agency that is best for you. If you find your budget is under $75,000 annually and you’re really focused on a few critical projects (like creating sales materials, SEO or case study creation), then finding freelancers or a small specialty shop is most likely the way to go.
If your marketing spend is projected to be $75,000 to maybe $125,000 annually. If you are doing a variety of projects then a smaller full-service agency may be the ticket. If that budget is very specific to one or two disciplines, finding a specialty shop may be the best fit.
When your budget exceeds $125,000 and reaches up to $1,000,000 annually, you are probably a good candidate for a mid-sized, full-service agency. Again, this is assuming that the budget is spread out among disciplines.
At $1,000,000 to $5,000,000 a mid-size to larger agency would be the pick. Over $5,000,000 you’ll want a large to mega agency.
Step Four: It is time to determine the type of working relationship you want with your outsource partners: Project pricing or retainer pricing?
Project Pricing is where each project is defined and assessed through an estimation process, then delivered and billed accordingly. This pricing is sometimes called fixed project pricing and is irrespective of hourly rates or time spent on each item.
Retainer Pricing with a fixed monthly amount and a defined or floating scale of managed deliverables. A retainer is typically is tied to time spent in a month, or it may be a series of individual project(s) as identified in an initial full-year plan that is managed over a period of time and billed against a pre-set monthly retainer.
Agency of record or on-demand services allows a client to pick up the phone and direct the agency to do work without going through the project estimation process and sticking to a pre-determined rate card.
Once your company has determined how you should outsource your marketing needs, it’s time to hit the web, do some research, and engage in a few conversations with agencies that could bring value to your business.