B2B Marketing Shared Services: Who Pays?

Marketers have a love/hate relationship with the word “free.” It’s love at first click when giving things away prompts prospects to accept a complimentary trial offer; this love fades fast, however, when these prospects fail to convert to buyers. Marketing shared services groups understand this dilemma. When their services come at no cost to internal users, it’s easy to take for granted the time and resources involved; if an internal chargeback model is adopted, external services begin to seem more attractive. The key to effective shared services funding is balancing the right mix of services and cost. In this post, we describe three models for funding shared services, as well as their advantages and disadvantages.

1. Centrally Funded

The simplest model for funding shared services is a central budget. Each year, as part of the marketing budget process, groups considered shared services (e.g. communications, internal creative agencies, market intelligence, analytics, demand centers) receive a share of the marketing budget and deploy resources using that funding to meet expected demand. Internal clients using these services are not required to provide budget for the work they request; while the services are free, there’s no mandate to use them beyond the obvious cost advantage.

Pros. This model enables the shared services team to control its own budget and make decisions about how best to optimize resources. It works when budget and resource allocations are determined based on prioritized needs, and not every internal client must get equal support. Based on various internal client requirements, the shared services group can estimate its own resource demands and maximize effective, efficient delivery. This is also the right model to choose when the objective is to meet cost, quality, process and other consistency goals by discouraging the use of outside resources.

Cons. Groups using a service without being mindful of what their requests actually cost may not be judicious in their requests. In other words, it’s easy to overuse a shared service or request “nice-to-have” work that never gets used. Another issue is internal perception of quality, especially if the shared services group is not measured or held accountable for internal client satisfaction and cost effectiveness.

2. Agency

Some organizations want shared services users to fund the work from their budgets. For each project, the scope and cost is agreed upon with the internal client, creating an internal contract for the work. A very limited central budget covers the salaries of the shared services team and some infrastructure costs, but the majority of yearly program spend comes from outside the group.

Pros. Agency models make it clear that using a resource has a cost, incenting shared services users to make judicious choices about budget allocation much as they would if using an outside resource. This model also drives a shared services to deliver high-quality work because it is competing for budget dollars with outside suppliers. This model is most effective when budget and resource allocation is not centrally mandated; shared services are allocated based on budget decisions by lines of business, geographic marketing groups and sales.

Cons. Agency models are complex to manage and require administrative support to keep track of budget chargebacks. As a result, they add a layer of cost that has no impact on the quality of service. Agency models also make it easier to bypass internal services and use outside resources, which reduces potential for cost savings and other advantages of internal shared services.

3. Client-funded

A third option is a blended model, where some budget is allocated centrally and some is charged back to internal clients via budget or personnel allocation. Chargebacks are used for situations where the request exceeds what’s budgeted, or outside services are required to fulfill the request.

Pros. The client-funded approach balances efficient central management with recognition that additional help may be needed to deliver the best work. It keeps the shared services group accountable for service quality because some funding is at the customer’s discretion. Since central funding is higher than in the agency model, the cost of the services is subsidized, making it more difficult for internal groups to justify taking budget outside. This model works best when geographies or business units are autonomous, but marketing wants to establish some central efficiency for commonly used services. This client-funded model can also help marketing organizations to reduce dependency on a multitude of outsourced service providers, manage these relationships centrally and decide what services should be brought in-house.

Cons. In the client-funded model, discretionary funding is easily withheld or reallocated. The risk is that the shared services group will be funded at a minimal level but will not be utilized or supported by internal clients, which instead decide to outsource or do the work themselves. If the organization wants to drive process consistency and encourage the use of central shared services, a client-funded model slows down that change by allowing variability.

The goal of marketing shared services is to provide equal or better services to what can be found outside the company for lower cost, with the benefit of central oversight and consistency. If quality and utilization are deficient, the budget model doesn’t matter. The shared services group can easily become an underutilized resource and a drain on resources and profits, while internal clients continue to do things their own way. Shared services groups must pay attention first to service quality, then focus on optimizing how services are used by internal customers.

Tags: B2B