Why IT Firms Need to Align Marketing with Procurement

The IT sector has struggled in recent years. But where do IT companies continue to spend a significant portion of their revenue? More importantly, how can they cut down on this spend while maintaining a competitive edge at the same time? 

In the IT sector, the selling, general and administrative (SG&A) expenses – indirect costs – account for 10% to 25% of total revenue. Often, marketing accounts for up to 50% of these expenses. 

Research suggests that marketing spend in technology firms is expected to increase further, as companies launch targeted campaigns to promote Gen AI-powered solutions and services. For example, marketing spend is set to rise in categories such as software, data center systems, IT services and devices. 

How can organizations optimize on this category spend to derive maximum value? 

The answer to this puts the spotlight on another function – procurement – that specializes in supplier negotiations, payment terms, discounts and buying strategies. 

Here are four challenges of managing marketing spend in IT companies and how procurement can overcome these challenges: 

1. Challenge: Outsourced Operations 

In many IT companies, internal marketing teams outsource several marketing activities to external agencies. These agencies are aware that the marketing team is focused on ROI and quality, and cost control is not an immediate priority. Agencies therefore quote higher rates to capitalize on their requirements. 

Solution: 

Let your procurement team do the talking here. Procurement knows how to handle negotiations, win favorable terms and conditions and capitalize on cost-saving opportunities. It is therefore vital for IT firms to bring together marketing and procurement teams to identify and shortlist suitable external agencies. 

2. Challenge: Poor Spend Visibility 

Internal teams often sign multiyear agreements with agencies. However, these agreements lack details of standardized hourly rates for resources, clearly defined roles, engagement models and quality control mechanisms. This leads to poor visibility into agency expenditures. 

Solution:

To achieve greater transparency and accountability into agency spend, enterprise procurement teams should consolidate spend data annually across all marketing agencies. This can improve financial oversight and build agility to respond to market changes. By streamlining procurement, enterprises can gain better visibility, track spending and make informed decisions. 

3. Challenge: Limited Procurement Resources 

Due to insufficient resources in procurement, many companies hold their business units accountable for sourcing and agility. As a result, there aren’t many RFPs, contract reviews, agency evaluations and compliance checks. 

Solution: 

Companies that have less resources in procurement should reinforce their in-house teams with outsourced talent and services. Experienced procurement personnel can leverage their negotiation skills as well as advanced technology and tools to enhance cost savings. 

4. Challenge: Too Many Suppliers 

Internal teams in IT companies often engage in spot buying with different suppliers. As a result, these companies have a large supplier base, leading to inefficient operations. 

Solution: 

Procurement should work closely with marketing to identify key suppliers and consolidate the supplier base. Working with a smaller set of suppliers can improve operational efficiency, reduce costs and enhance service delivery. It can also allow procurement to derive greater value from each transaction. 

IT Firms Need Marketing and Procurement to Work Together 

While marketing teams in IT companies may feel they can handle procurement on their own, they aren’t very skilled at negotiating favorable prices and contracts. Often, their priorities are different from cost savings. 

There is a need for greater involvement of procurement, which can use negotiation strategies and tools to bring down this spend. By optimizing marketing spend, procurement can improve efficiency and cash flow and drive fiscal discipline. 

To learn more, download our bulletin Marketing in Tech Companies: How Procurement Can Optimize Spend and Boost Profitability