Should You Outsource Your Marketing?

Outsourcing, for the small and mid-sized company, can be a very effective strategy to gain access to skills, and services at a fraction of the cost of hiring employees.  There is an adage that a company should outsource everything that is not a core competency.  For years, firms have taken this on in the areas of payroll, IT, distribution, and logistics.  Certain functions, such as sales, marketing, R&D, etc. have been held close within the organization as core competencies due their strategic ability to grow the firm and their intimate knowledge of the growth levers of the business. 

The time to reassess this practice may be here.  One of the largest components of any firm’s costs are in the compensation of its staff.  Even a small department of 2 – 4 people can cost the company hundreds of thousands of dollars in compensation alone, not to mention computers, phone and rented space.  This expense is also not flexible when topline sales may be temporarily weaker than normal.  What does outsourcing deliver?

1. Access to top talent
2. Latest thinking in the field
3. Methods and processes built and tested over time in other organizations
4. Ability to contract and pay only for services needed, rendered 

What About Marketing?

Marketing’s role in the organization is to first set the correct marketing strategy for growth.  Marketing will then take on any of a number of functions in the marketing mix (see insert) depending on the needs of the organization.  Marketers should understand and build the consumer insights that feed communication, and product development.  Marketing’ will also develop and execute the outbound functions of the communication with the customer.  This includes public relations, advertising, social media, market research, promotions, and provide customer and consumer direction for the company’s innovation pipeline.  Marketing staff typically handles even the tactical customer presentations, logos and letterhead, trade shows etc. Smaller organizations do not need all of these areas covered at any one time.

There is a small, but growing, field of contractors that specialize in the area of marketing and can assist management in setting strategy and developing programs typically handled by an internal marketing department.  They will develop these programs or work with outside agencies ensuring that each resource is delivering against the plan.  

Many small firms go directly to a PR, ad, or web design agency to fill the role of a marketing department.  There are drawbacks to this approach.  First, agencies tend to specialize in an area of execution.  This area may or may not align with the strategic needs of the company.  PR agencies will offer great PR programs, advertising agencies will look to advertise, web and social media will provide social media solutions.  Second, agencies still have a vested interest in you spending as much as your budget allows, where a marketer should only be interested in effective spend, flexibility and growing the bottom line of the company.

Many smaller- to medium-sized businesses must keep a keen eye on the day-to-day managing of their business.  Marketing can become a distraction taking up valuable time and energy away from the operational side of the business.  For many firms, outsourcing can be a very cost effective way to gain access to top notch skills to get the results needed.  

Locating in Philadelphia? – Watch out for the “Taxman”

The thoughts that dance through the mind of the soon-to-be entrepreneur are of innovation and the freedom to turn dreams into reality.   Anyone who has done more than dreaming will want to quickly decide where to build their dream.  In a search for cities and municipalities that might be conducive to this adventure, Philadelphia is a top choice – in some ways.

Global top 100 cities ranking for innovation in 2010 by the group  2thinknow ranks Philadelphia #6 in the USA and #30 in the world based on cultural assets, human infrastructure and networked markets. Not bad.  Philadelphia has a rich mix of history and culture, along with a go-get-em workforce attitude.

But, if you add taxes to the equation, the picture changes dramatically.  Taxes quickly become a central issue for a new business when calculating potential cash flow off of “slim” margins over the first few years.  The City of Philadelphia has a problem here.  Its tax rate is almost the highest in the nation for cities.  There may be brotherly love (and great cheesesteaks), but it comes at a whopper of a price:

Tax	Rate
PA State tax rate	9.99% on all net profits
Philadelphia Business Privilege Tax	1.415 mills on gross receipts 6.45% on taxable net income
Philadelphia Wage Tax (on gross wages)	3.9% (Resident) 3.5% (Non-Resident)

In 2001 Philadelphia was ranked as one of the worst cities in the country on a taxation comparison for business.  The Philadelphia suburbs have a more attractive taxation picture.  As a result, the city has seen residents and corporations leave the city altogether.  It is a spiral of sorts, forcing the need for higher taxes in the city to keep services whole.  Philadelphia has reduced its tax rates as more progressive politicians try to restore sanity to this spiral, but they are still burdensome. 

On a personal note, Philadelphia even taxes bloggers $300 if they make any revenue (you know, that $4.50 you made last year with the sidebar ads).

I love Philadelphia, and feel that the people, culture, and business community are great.  Yet, if you are starting up a business venture and are making profit maximization a priority, Philadelphia tax rates make the city a poor location choice at this time.

“Let me tell you how it will be - There’s one for you – nineteen for me” – John Lennon, Paul McCartney “Taxman”