Few things fascinate membership website publishers more than the relationship between cost and revenue for the various operational centers inside their business. We have long known for instance, that editorial or product costs are typically 8 to 12% of revenue for a niche media business. The number can run higher for very small operations and lower for very large operations.
Further complicating the question over the past few years, is the merger of marketing and technology into a single cost center that many now call Martech.
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The technology included here has nothing to do with running the enterprise, such as accounting software or phone systems. Marketing technology typically includes all of the hardware, software, marketing and technology services required to run the organization’s membership website, email, fulfillment and social media functions. These functions incorporate what we call your customer experience management system. As you may know, we build and operate exactly this type of fully integrated customer experience management system.
As such, we are often asked by other membership website publishers what should it cost to run a fully integrated marketing and technology system including both the employees and contractors that operate the system and generate all the marketing content needed to run it.
As a side note, a modern marketing technology system or customer experience management system requires a team whose skills include:
- project management
- content generation
- software development
- system management
- graphic design
- team management
- and the ability to set and manage marketing strategy at a high level
The skillset is diverse and must be managed as part of an integrated team so that software functionality is aligned with the organization’s marketing programs and test initiatives.
In general, there is a trend that shows the larger the revenue, the smaller marketing and technology costs become as a percentage of that revenue. This of course leads to higher profit margins for larger organizations. If you’ve ever wondered why we look for organizations that are already generating at least $1 million in revenue as good partner candidates, we find that the cost of running a comprehensive marketing and technology system starts to become possible with $1 million in revenue.
In fact, most of our partner systems are associated with operating revenue that ranges from $2 million per year to $10 million per year, and the higher the revenue, the lower marketing and technology cost become as a percentage of that revenue.
Our partners spend anywhere from 20% to 50% on Martech. Mature businesses are only spending 20% because they’ve been at it for some time and have strong penetration in their market. Meanwhile, others are spending up to 50% because they’re younger companies and just starting to grow while reinvesting their profits as quickly as they can.
And reinvestment is key. A lot of publishers these days are doing their best to make sure their business doesn’t shrink, when what they should be doing is trying to help it grow. Former president of Hearst Magazines David Carey echoed this sentiment in an interview:
“The degree of difficulty of running a money-losing digital business is like zero. I’m reminded by one of the great scenes from “Toy Story.” You have the skeptical Woody and Buzz, and Buzz is gonna fly, and Woody says, “No Buzz, that’s not flying. That’s falling with style.” I think for some of these companies that have lost a huge amount of money by going back to their investors have been falling with style.”
Strategically, membership website publishers who wish to succeed must be willing to over-invest in marketing and technology to grow their business so that ultimately, marketing and technology costs become low enough as a percentage of operating revenue to drive strong operating margins.
This understanding is common among startup organizations that are well-funded. Legacy publishers find themselves in a position today where they need to behave as startups from an economic strategy perspective.
Marketing and technology systems represent a significant initial investment that will be repaid over time. While it is possible to take a phased approach to building out your marketing and technology systems and business processes, delaying or extending the process over too long a period actually has the impact of both increasing the required investment and delaying the payback.
Membership website publishers are not alone in being challenged by this set of economics. Most mature businesses avoid large investments that will take years to pay back. The Internet has disrupted our industry such that publishers have no choice but to make these kinds of investments in rethinking both their infrastructure and business processes to survive and prosper in the new digital-first publishing environment.
The Internet is both a creator and destroyer in our industry. Mequoda exists to help you navigate the process and emerge with a publishing business that is more successful and profitable than anything in your history.
Over the past two decades, we’ve guided more than 300 niche publishers through the process of transforming themselves from legacy print publishers into multiplatform operations that often dominate their industry niche and generate operating margins that surpass those created by their legacy print business. Learn more about how we can help you apply these strategies to your publishing business by scheduling a FREE consultation today.