The scope of database marketing, the various skill sets required, and particularly the ways the database intersects both IT and marketing, are factors that contribute to why many organizations choose to outsource their database.
Despite the complexities, there are several reasons why a company would choose to install a database marketing solution on its own. For one, company policy may require that customer data stay behind its four walls. Secondly, and perhaps more importantly, database management and the skills related to database marketing may be core competencies of the organization. With adequate internal staff and expertise to create the infrastructure and maintain the ongoing technical and marketing support, an organization can recognize potentially significant long-term gains from an installed solution.
Whether to install or outsource, and how much to outsource, depends on each company’s resources, as well as its internal capacity, skill sets and priorities. Before implementing a customer database, companies must weigh these considerations carefully. Often, this process begins with an examination of the financials.
The examples in this post compare approximate costs for a hosted and installed comprehensive database marketing solution, based on current marketplace conditions as interpreted by Harte Hanks.
Assumptions include the presence of a highly available hosting environment (i.e., back-up generator and associated infrastructure, uninterrupted power supply, sufficient floor space for hardware, Internet connectivity, etc.) and an existing backup environment including a tape library, backup software, backup media, etc.
As these cost breakdowns illustrate, hosted marketing database solutions often cost less than internally installed databases. However, cost is certainly not the only factor to consider when weighing your options. Companies should also keep these variables in mind:
- Ability to meet goals outlined in the business case: Most businesses will develop a business case to justify the expense of a marketing database. If the build is delayed by more than three to six months, any return on investment (ROI) identified in the business case will likely evaporate—and the company will have to continue investing capital until the project is complete. With an outsourced database solution, the vendor is responsible to meet all key deadlines. If they don’t deliver on time, there are financial penalties to help the client brand recoup lost costs. The risk rests with the vendor instead of with the client.
- Desired speed to market: Speaking of on-time delivery, that will vary widely between a hosted and an outsourced solution. Installing a marketing database can take a year or more of production time. An outsourced database can be set up in about six months, or less—resulting in improved speed to market.
- Staff Turnover: Building and managing a database requires specific skill sets. If at any point in time key employees leave, the company must recruit a replacement and bring this new employee up to speed. This impacts go-live dates, which impacts ROI.
- Data Quality/Data Hygiene Software: A clean database is required for effective marketing, so data hygiene software is required. Outsourcing a database includes data hygiene software in the project scope and budget. To install an effective database internally, companies will also have to invest in their own data hygiene solution to ensure the quality of their data.
Still need some help deciding? Download this worksheet: Should You Install or Outsource Your Marketing Database? 20 Factors to Consider (Other Than Cost)
The cost assumptions in this post are being provided for example purposes only and should not be construed as an offer to provide products or services for the stated price. Please contact us directly to receive price estimates or quotes.
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