Leaders of business-to-business (B2B) companies often wonder if the rewards of marketing outweigh the costs. They wonder what kind of return they will get if they implement a strategic marketing plan that goes beyond the basic minimums of marketing. For most B2B companies, who have traditionally relied on salespeople to generate revenues, there is a lot of uncertainty about how investing in marketing will pay off.
But there is mounting evidence that marketing makes an impact on B2B companies. B2B companies are spending more on marketing – an increase of 18% over the last 4 years. On average, B2B companies spend 9% of their total operating budget on marketing as of 2018, and plan to increase that by another 9% in 2019.
Businesses have different reasons for investing in marketing. For some, it’s about supporting their sales team to be more effective. Sales ‘hunters’ are increasingly hard to come by, so companies need marketing to bring leads in and make the salespeople as effective as possible. Some companies want to build up their reputation – or brand – in the market so they’re well respected and can attract new customers. Yet others know that they have a good customer base but don’t do a solid job of cross-selling other products and services to that captive audience, so they use marketing to improve their communications with customers and grow sales among their existing base.
All of these objectives, in one way or another, add up to the same thing. They grow sales and profits, and they increase the value of a company. At the end of the day, every business leader wants their company to be worth more than it was the year before. Whether they’re thinking of selling their business or not, the ultimate scorecard is valuation, and marketing has become one of the factors that drive valuation for B2B companies.
Here are three ways that marketing increases the valuation of a business-to-business (B2B) company, the price that it can be sold for, and the overall chances of a sale.
For decades, marketing wasn’t relevant in B2B except for the largest companies. But now even the smallest B2B companies need to devise strategies to ensure they’re known in the marketplace. Twenty years ago, this happened through trade shows. Now, it happens online. B2B companies without effective online marketing lose out on countless opportunities to present their solutions to potential buyers. Those B2B companies who market their products and services effectively get more sales leads and revenues, which in turn results in a higher selling price for the company.
B2B companies that invest in marketing can grow their revenues. And sales momentum will increase a valuation exponentially. It is much easier for a company to sell a growth story than a story of flat or declining revenues.
One of the big problems for small businesses is that the owner of the business *is* the business. If the company doesn’t have talented people and competencies beyond the owner, it won’t sell. Building the reputation of the company (not the owner) through B2B marketing —such as thought leadership, public relations and online presence—will help build a company’s brand. The essence of shareholder value (the price a company gets in a sale) for most small and mid-sized companies is in intangible assets—and the heart of intangible assets is brand.
Improved curb appeal
Just like in residential real estate, company image plays a role in a purchase. There are many great companies who do world-class work, but their public image as seen through their website, social media and other digital presence is often a weak reflection of what they have to offer. Increasingly, businesses are how they look online. If a company looks like a non-entity online, it won’t spark any interest among potential buyers. It’s quite likely they will lose opportunities because anyone who looks at the business in a preliminary due-diligence process will write it off.
A common reason that B2B companies invest in marketing is to ‘look bigger’ to potential customers. And it works. When companies invest in their online presence and overall marketing, they begin to attract interest and opportunities from much larger customers. The same is true for mergers and acquisitions -a company that looks bigger online can attract attention from more purchasers. That is not to say that marketing will change how the company’s financial statements are evaluated. Those are things the CFO needs to work on. But getting through the door for the first discussion, that’s something that marketing can help with.
Marketing Plays a Role In B2B Company Valuation
Marketing has come a long way in the business-to-business world. Twenty years ago, it was the department for organizing golf-tournaments and pens with the company logo. Today, smart business owners know that an investment in marketing has a multiplier effect on company valuation. If a typical company is looking at a multiple of 5X EBITDA, a company that has growing sales, a strong brand and can attract the attention of multiple buyers to spark a bidding war – well, that company will achieve significantly more than a ‘typical’ valuation. More B2B business leaders are starting to get savvy about the impact of marketing on company valuation.