How much to spend on analyst contracts [AR practitioner question]

question-mark-graphic.jpgInquiry: SageCircle received the following inquiry via e-mail: “Is our use/cost of the major analyst firms at about industry standard or better – especially as it relates to analyst contracts?”

“Are we spending the right amount on analyst contracts?” is a common question that SageCircle receives. This is one of a group of “standards” or “benchmarks” inquiries (see The Size of the AR Team [AR practitioner question]) that many AR managers wrestle with, often in response to their management’s demands for justification for budgets. While clients want us to provide a simple rule-of-thumb for analyst contracts (e.g., as a percentage of vendor revenue), we cannot provide it. Through our research, we have discovered that comparable vendors (in terms of markets, total revenues and number of employees) can have dramatically different analyst contract requirements.

The more important questions that need to be answered are: “Are the contracts providing us the services we need to reach our defined goals?  Are we managing the contracts to get full value? 

For end users clients, usually IT managers at large enterprises, the answers are much more clear cut. Even though enterprises use analysts for a variety of purposes (see Why technology buyers use the IT industry analysts), these purposes basically fall into either strategic and tactical decision support. Thus, spending can be focused on active topics and activities, especially where internal expertise is not available.

How much IT and telecommunications vendors spend on analyst contracts is dependent on a variety of factors. In this SageCircle blog post, we will focus on identifying the factors.

Breadth of usage – How many different functions in the company will analyst research and advice be supporting? The broader the usage, the more spending that is required. However, some spending can support multiple uses.

  • Influencing the analysts
  • Providing fodder for marketing collateral and public relations
  • Supporting product management and marketing decisions
  • Advising executives
  • Enhancing competitive intelligence for sales efforts

Contract ownership model – How centralized or decentralized is purchasing and ownership of contracts. In theory, centralized ownership can reduce spending by eliminating duplicate purchases and maximizing discounting opportunities.

What is included in “spend” – Do the vendor focus on the annual contract or include all the point purchases such as analyst consulting days, conference sponsorships and consulting projects.

Besides pan-company factors, there are also a number of AR-centric issues that need to be taken into account when deciding how much to spend with analyst firms.

Complexity of analyst situation – This factor looks at how many firms and analysts are relevant to the AR team.

  • How many non-overlapping product groups do the analysts cover?
  • How many analysts cover more than one of your products?
  • What is your mix of major analyst and small boutique firms?
  • What is your mix of your revenues from mature vs. emerging markets? Do they map to SBUs of different sizes?
  • How many signature research reports (e.g., Gartner Magic Quadrants, Forrester Waves) are published on your market(s)?

AR charter – How broad is the AR team’s responsibilities?

  • Does the program focus mainly on “Shaping Marketing Perception” among a small group of key analysts?
  • How many analysts is the program attempting to influence?
  • Does the program use advisory and client inquiry to improve company decision making?
  • Does the program support the Sales organization?
  • Is the program a strategic initiative with active executive sponsorship, or just a “checkbox” to be completed by Marketing before each product release?

Stage of AR effectiveness/maturity – The more mature the AR program the more it needs to increase its analyst spend as it seeks to influence more analysts, use more best practices, and get more people in the company involved in the influence effort.

  • Is the program new and, therefore, focused on building awareness and gaining coverage among a basic audience of analysts? Or, is the program mature and striving to achieve dominance in its markets?
  • Has the program developed an “Extended AR Team” to provide additional “off-budget” resources from other departments (e.g. business development, marketing intelligence)?
  • Do executives fully support and actively participate in AR’s outreach efforts, such as an executive buddy program?

Types of AR best practices planned that require client status – While there are a number of AR best practices that do not require the vendor to be a client of an analyst firm (e.g., briefings and analyst summits), there are techniques that definitely require the vendor be a client. These techniques include but are not limited to executive buddy programs, reviewing plans and press releases, and analyst roundtables.

SageCircle Technique: To sort through these variables, SageCircle recommends developing an analyst spending component to the AR Strategic & Tactical Plan to:

  • Identify all uses for analyst services
  • Identify how analyst contracts will be managed
  • Indentify the breadth of AR’s responsibilities (e.g., influencing only or also sales support)
  • Identify budgets to be tapped, both AR and non-AR
  • Identify measurable goals for the analyst services
  • Specify how usage of analyst services will be maximized

Bottom Line: There is no magic “Rule-of-Thumb” that AR managers can use to estimate – or justify – their spending with analyst firms.  However, the appropriate budget for analyst contracts can be determined through the AR planning process. Basing analyst spending recommendations on your AR plan’s intended business results more accurately estimates the budget size and breadth of services you need while providing proof points to convince executives of AR’s value.

Question: Do you have a formal AR plan that incorporates analyst services spending requirements?

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