When Does In-Housing Marketing Make Sense for a Startup?
Clients often ask, “when does in-housing marketing make sense for startups?” In this month’s blog post, we break down the economics of in-house marketing and when it can make sense for your business.
Product Marketing versus Customer Marketing
The first distinction that needs to be made is between Product Marketing and Customer Marketing.
Product marketing involves key marketing activities such as branding, product messaging, and positioning that serve to promote a new product in-market. Usually the Founder, or Founders, of a startup take on a lot of the product marketing ownership, especially if the CEO is responsible for the overall vision for the company. When creating a new product or service, there should be fresh language to describe it and a unique value proposition to communicate to potential buyers. Since they’re intimately involved from the onset, Founders usually know how to communicate this most successfully and, as such, outsourcing Product Marketing generally doesn’t make sense for early-stage startups. In the end, you should leverage as much free advice and customer feedback as possible; the go-to-market messaging needs to be clear and compelling to the consumer, which can and should be verified by the consumer!
Customer marketing is the practice of acquiring customers via channels, either earned (also called organic) or paid. It focuses on elevating and leveraging current customers’ experiences to improve retention and growth. Successful campaigns rely on properly segmenting your audience, effectively engaging with current and future customers, and maximizing retention and growth for your business. Keep in mind that some channels, such as Social Media, may have earned activities and paid activities that you can leverage in tandem to acquire customers.
The Economics of Customer Marketing
Regardless of whether your activity is paid or earned, it’s imperative that whatever your approach is, it’s profitable. To calculate this, a simple equation to measure for success is Revenue - Cost of Labor - Cost of Campaigns (typically the cost of software, data, and/or ads) = Profits.
One of the biggest and most overlooked variables of that equation is cost of labor, as full-time marketing employees are expensive, and it is rare to find marketers who are adept across several platforms. This creates a challenge for companies seeking to in-house their marketing operations profitably, especially if they’re seeking to be active across multiple marketing channels.
As an example, take an early-stage startup that commits $5K/month to their marketing budget. This alone can feel like a big investment, but $5K/month is the entry-point for hiring a full-time, entry-level marketing manager who can help get your campaigns off the ground. With $5K/month spent on labor, there is $0 left to spend on actual marketing, and even worse, the entry-level hire won’t be adept across multiple platforms. This plus their limited technical capabilities can lead to additional engineering or consulting costs down the line, forcing you to return to the outsourcing model you were attempting to avoid by inhousing in the first place! Not an ideal situation to be in but a story we hear all too often.
On the other hand, take a second startup that leverages an expert partner to get their multi-channel marketing execution off the ground. They commit $3K/month to a startup growth agency that provides multiple resources who each bring a decade’s worth of experience to the partnership, a level of experience that can easily cost $100k+ as an internal hire, and they still have $2K/month to invest in data, software, and digital ads. As a result, for companies with limited marketing budgets, the economics of leveraging a startup growth agency are difficult to argue against.
When Does In-Housing Marketing Make Sense for a Startup?
Let’s fast forward and imagine the Founder in our example above hires the startup growth agency. Through their partnership, their marketing efforts efficiently scale her business, solidifying her ARR, ultimately landing her a Seed Round, then her Series A.
With the additional capital available, the company commits to spending $50K/month through the growth agency and is earning a 2x return-on-ad-spend. Business is booming and things are starting to scale up. The CEO’s attention is being pulled to newly emerging priorities, and she can no longer be expected to oversee marketing directly anymore while managing the other aspects of the business.
At this stage, it’s often necessary for the CEO to pass on the baton of product marketing ownership, and if not a pinch sooner, a hire is made between the Director of Marketing and CMO level to take on this responsibility. With the new hire, additional bandwidth is available to push to explore and expand to more channels to maximize their momentum in the market. The existing growth agency relationship allows them to easily test additional channels by expanding their already successful strategies, and this testing pays for itself in profit gains and is performance driven to scale the campaigns further.
Replacing the agency is an option to consider at this point, but would likely require three additional hires such as a Facebook marketer, a Paid Search marketer, and a Marketing Analyst to manage the necessary daily responsibilities accomplished by the agency. Each of these hires would add $60k+ to the payroll, not to mention create a huge switching cost and potential loss in campaign efficiency during the 3-6 month transition and ramp-up time frame. Thus, in-housing things will eat into marketing profitability substantially, and until the overall marketing budget scales to a point where the profitability equation (Revenue - Cost of Labor - Cost of Campaigns = Profits) justifies it, it is almost always more economical to stick with the successful partnership you’ve built with the growth agency.
When it comes to marketing, in a perfect world product-marketing and customer marketing are best done in-house. However, the reality is it’s difficult to compete with the economics of contracted resources for customer marketing until your budget has scaled sufficiently. The need to scale up resources in-line with marketing budget creates difficulties due to the large upfront costs of marketing talent, and the switching costs involved with ramping up an internal team can slow execution down to a crawl.
While often viewed as a short term option, startup growth agencies are built to evolve with you as you scale, adjusting the service delivery to match your shifting needs over time. They operate efficiently, keep abreast of evolving platform updates, and stay laser focused on driving the best performance while maximizing revenue growth. As a result, if you’re able to find an agency that is ready to start small with you and grow with you over the long term, you’re setting yourself up for success.
If you’re looking for this type of partner, Stackmatix could be your solution. From pre-seed to Series C, we aim to generate qualified sales conversations and purchases through bespoke, automated sales and marketing solutions to maximize revenue and marketing return. Kick off an email thread at email@example.com for a free growth consultation to explore how we can work with you to expand your business.