In the wake of COVID-19, many companies are looking for ways to shave costs. For B2B companies, that often results in getting rid of internal marketing teams. We’ve seen this firsthand as a B2B marketing agency — we have been fielding calls throughout the pandemic for organizations that want to outsource their entire B2B marketing function, or at least most of it.
I have written on the subject of outsourcing a few times over the years. During good times, companies think it is in their best interest to bring all their services in house, believing that it saves them money. The same is true when uncertainty abounds in the economy — companies move to outsource those services, thinking it will be better for their bottom lines.
Which is true? Both.
The Cost Illusion
I am amazed at how many B2B companies believe it’s more expensive to outsource than to insource B2B marketing services or vice versa. The TRUE costs are about the same, so it really comes down to needs, skillsets, quality and ROI.
On average, agencies make 6 percent to 8 percent profit on revenue. That means that if you spend $1M with an agency, they might take in $60,000-$80,000 in profits, not including media pass-throughs. Most B2B agencies are lean machines run by highly experienced marketers, and they are staffed by passionate, skilled employees who enjoy the opportunity to work across a variety of brands and industries — an opportunity that most companies can’t offer, and one that makes up for a salary that is approximately 20% less than the same role on an in-house marketing team.
You may be raising your eyebrows at the $60,000-$80,000 profit number, but consider the alternative. Insourcing comes at a cost. Administrative, office and other fixed and variable expenses must be factored in, as well as the cost of hiring the same talent at corporate rates (and don’t forget about benefits). It adds up quickly. The hourly rate of $150 or more an agency will charge you may well be cheaper in the long run, and it definitely gives you more flexibility as the volume of work ebbs and flows.
A CFO’s Point of View
I have worked inside agencies and with B2B clients as a consultant conducting deep financial analysis on this subject, as have many other B2B CFOs. They have broken down the amount of work generated by internal B2B marketing departments, factored it against ALL internal and external costs, and measured it against ROI.
Who wins the insource vs. outsource argument? Again, both.
The actual cost comparison difference between insourcing and outsourcing of marketing can fluctuate by about 10 percent on either side of a net “zero difference” (one versus the other) and may depend on the type of marketing a company is doing. More importantly, the cost equation comes down to the quality of the marketing and the ROI it generates.
The evidence is all around us. When the economy turns south and CFOs look for ways to save money, in-house marketing teams are often the first to go. The company is then likely to reallocate marketing spend to outside agencies to change the fixed vs. variable expense equation that shareholders look for in tougher times.
When to Insource
That said, there are a few considerations when it comes to determining which marketing activities should remain inhouse, one of which is brand consistency. At many large organizations, it is easier for inhouse marketers to hold their executives, sales teams, marketing teams and others accountable — something that an outside agency may have difficulty navigating and policing. It’s also easier for them to balance the needs of disparate teams that may have quite different ideas about the way forward. That’s not to say a good agency could not take on that role, but it would be a learning experience for all concerned.
Another consideration is the business relationships you’ve built throughout your channels to market. B2B agencies can be quite knowledgeable about your channels and equally skilled at marketing to, through and with them, but they should not manage the relationships with the key players you depend on for success. That doesn’t make sense strategically.
Balancing In-house and Outsourced Roles
About 47 percent of mid-size to larger B2B companies use some combination of insourced and outsourced marketing services. Investors like to see more outsourced marketing because it is a variable expense on the profit and loss statement. B2B CMOs typically want more internal control, thinking they can attract better talent while lowering costs and improving results. They may also believe that their business, sales motion and marketing channels are hard to understand, and that a B2B marketing agency will not be as effective as an internal resource.
Here’s what I’ve found over the years. For B2B companies under $250M in revenue that are looking to outsource most of their marketing costs, it is good to retain an internal marketing champion such as a CMO or VP and/or a small team that can navigate the leadership team, sales team and channel partners while working with an external agency that can drive the marketing process, strategy, and execution. See additional guidance for companies of various sizes below.
How to Outsource Your B2B Marketing
Step 1: Choose a Leader
Assign a person inside your company to engage with and assess potential agency partners. This person should be someone with a good understanding of marketing who has the knowledge and political sway to advise the executive team and/or make critical decisions on their own. They will serve as the liaison between the agency and the business.
Step 2: Do the Insource vs. Outsource Calculation
Which marketing activities do you want outsource, and how much do you plan to invest? In this step, it’s imperative that you understand your projected service needs, budget and expected ROI.
- Projected Service Needs – Do you want your agency to drive revenue or execute projects? New campaigns, lead generation services, e-commerce conversion and new product rollouts may fall under “drive revenue,” while project-based services could include creating a new catalog, building a website, developing sales enablement assets, or managing your social media channels. Be very clear about what you think you’ll need.
- Budget – Quantify your marketing budget over a 12-month period, as this will be essential in determining the type of outsourcing relationship that will work best for you.
- Expected ROI: How will you measure success? Some companies want to spend a certain amount of money to drive specific results. Others look at ROI in terms of quality. Determine your KPIs before you reach out to an agency.
Step 3: Choose the Right Type of Agency
If you determine that your marketing budget is under $100,000 annually and you’re focused on a few critical projects (such a creating sales materials, improving SEO or developing a case study library), then freelancers or a small agency that specializes in what you want to do are most likely the way to go.
If your marketing spend is projected to be $100,000-$200,000 annually, and if you are doing a variety of projects, then a smaller, full-service agency may be the ticket. However, if your projects center on one or two marketing disciplines, finding a specialty agency may be the best fit.
When your budget is between $200,000 and $5M 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.
A mid-size to larger agency would be appropriate for companies with a budget of $5M to $50M. Beyond that, you’ll want to engage a very large domestic or global agency, depending on your geographic reach.
Step Four: Choose the Type of Working Relationship
Here, the choice is between project pricing and retainer pricing.
Project pricing is just what it sounds like — every 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 involves a fixed monthly investment and a defined or floating scale of managed deliverables. A retainer is typically tied to agency hours used per month. It may also be a series of individual projects over the course of a year that are managed and billed against a predetermined monthly retainer.
Agency of record (AOR) or on-demand services allow a client to pick up the phone and direct the agency to do work without going through the project estimation process or sticking to a predetermined rate card.
Once your company has determined that it should outsource a majority of its B2B marketing services, 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.