Advisory Insider: Why Don’t Advisory Firms Grant Free Access To AR?

AR is a facilitator of the relationship, not the beneficiary. Why make them pay?

The cost to run a world-class AR organization is rising. Do advisory firms make it needlessly more expensive?   

ARInsights recently published its 2023 AR Salary Study (see link at the bottom of this blog).  The findings are eye-opening.

·   The median salary for an AR professional in N. America is $163,000. 

·   85% of these AR professionals receive an annual bonus, averaging $30,000/year. 

·   AR salaries in the rest of the world are half of N. America (approx. $85,000 per head)

·   60% of vendors have more than 1 AR professional, and the average team size is between 2 and 5 (with large firms employing a lot more).

Total Staff Costs: When you gross-up salary and bonus figures to include employee benefits, expenses and corporate taxes, the average cost in N. America for an AR professional is $250,000 ($120,000 in other regions).

But these AR costs exclude two major elements: (1) advisory subscriptions; and (2) the cost of doing business with (and for) advisory firms.

Subscriptions to advisory services are a direct cost of doing business for AR.  If each team member has, on average, access to three advisory firms the cost can easily surpass $150,000 per AR professional.  If AR has premium priced, role-based services, $200,000 per head is easy to achieve, even if some of those are workgroup and team member licenses.  These costs don’t include reprints, SAS, speaking engagements, and other media.  Those are typically aligned to a vendor’s sales and marketing budgets, but they can add hundreds of thousands or millions a year to total analyst spend.

Providing advisory firms, the information they request is costly too.  AR teams provide an invaluable service fetching and confirming information for analysts, lining up resources and identifying experts. It all is used to help make analyst research better.   Populating RFIs, entering data into portals, managing peer review sites, providing financial analyses, securing executive interviews, identifying clients for testimonials, and providing content reviews consumes as much as 20% of AR time.  (btw – 20% is an estimate based on discussions I had with several AR pros.  What do you think it is?).  One in five dollars spent by vendors is for the benefit of advisory firms.

Total Real Cost to Employ and Equip AR: The true cost – tangible and intangible – for a single AR professional is approaching $450,000 in N. America and $250,000 in other regions.   For an average team of 2 to 5, total costs range $900,000 to $2.2M, where 45% of those expenses are incurred simply to equip the AR professional to work with advisory firms.  Again, this does not include investments in reprints, analyst days, speaking engagements, etc.

One More Cost: The transitory nature of AR makes it even more expensive for vendors.  ARInsights found that 80% of AR professionals have more than 5-years’ experience, but half of them have been in their current role for 2 years or less.  AR professionals move around, a lot. There are consequential costs for recruiting and hiring on top of all this.

An Imperfect Analogy: (but an analogy nonetheless):

My wife is in the guidance department at a local high school.  One of her primary duties is to coordinate college visits.  These can be onsite at her high school or with students visiting the campuses of the universities.  In advisory terms, think of it as facilitating inquiry. She is at the center of it all. She attends many of these meetings, , makes introductions and then goes mute.  She facilitates discussions.

She acts as a bridge between the universities looking for students and the students looking for schools.  She helps with applications and application submittal.  She populates college admission portals with student grades and activities, and she provides final transcripts for students who are applying.  In advisory terms, she fills in the RFIs. For the hundred or so colleges recruiting students from her high school, she works more closely, more deeply and more often with their registrars and recruiters than any student does.  

Imagine the University of Massachusetts coming to her and saying, “Hey, you take up a lot of our time.  Our recruiters, registrars, alumni, and professors spend more time talking with you than with students.  I know we rely on you to populate our student portals, but this is getting crazy.  We will need you to pay an annual tuition bill to cover our costs.”

OK, it’s not a perfect analogy, but you get the picture.

AR is NOT the beneficiary of the advisory services.  AR is not the design point analysts think of when they write their content.  AR doesn’t use or apply the market share data, pricing models, competitive tools, or messaging/positioning advice in their day-to-day activities. The executives AR connects with advisory firms get all the advantage.  AR is crucial to this process but is not the ultimate consumer.  Yet AR is asked to increase its out-of-pocket costs by 45% to get access to the advisory firm.

It Doesn’t Make Sense … Or Does It?

The rising cost and complexity in managing relationships with advisory services is a cause of friction, frustration, and relationship deterioration between AR teams and advisory firms. AR makes the lives of analysts easier, like a guidance counsellor makes the lives of a college recruiter easier.  AR populates templates, provides financial analyses, completes web forms, provides references, and AR does it in the timeframes dictated by analyst publishing schedules.  AR makes sure they have the information they need when they need it. 

What is the value of AR participation and the involvement of senior leaders to that analyst? Can a monetary value be placed on AR helping them?  That 20% of AR time has to be worth something, right?

There Is a Business Case for AR Paying, Though You May Not Like It

Here is the mindset of advisory firms:  They understand AR spends a lot of time and money participating in analyst-driven data gathering efforts and rock fetches.  The invitation to participate is at the sole discretion of the analyst.  But participation in those efforts is the sole prerogative of AR teams. 

AR can decide to participate or not.  It is your choice.  Lack of AR participation will not deter an analyst from creating their research.  Analysts have myriad methods outside of AR’s cooperation if needed.  They do their own primary research.  They have their own end user contacts to query.  They talk to competitors.  They have peer review sites. They read vendor technical papers and marketing materials.  It costs AR time and money (indirect costs) to participate, but AR can opt out at any time.

Therefore, advisory firms will not credit you in any way for taking the time or allocating resources to play.  They don’t see it as a problem.  What they do see as a problem and the reason why they seek revenues from AR is cost of support.  Vendors are incredibly expensive clients to maintain, and AR is the costliest of costly.  And this is where, in my opinion, advisory firms have it all wrong. AR is a facilitator, not a consumer.

Most role-based solutions at advisory firms are priced similarly. Services for end users and vendors are priced roughly the same.  There are add-ons and bolt-ons and unique features to each, but generally you are looking at a $150,000 to $200,000 entry point if you have a couple of team members hung off the main license.

The difference between user and vendor is usage.  A CIO, Data Center Manager, Network leader, CISO, SCM leader, etc., might typically have 4 or 5 inquiries a month and read 5-10 pieces of research.  A mid- to large vendor will have 20 to 50 (or more) inquiries a month and read 50 to 75 pieces of content. 

It boils down to this, IT vendors can be 5-10 times more expensive to support and maintain than IT buyers.  For advisory firms, it is all about the minimum cost required to retain a client.  Advisory firms know precisely what the threshold for inquiry and content is to ensure >80% retention of their licenses.  Vendors are wildly larger consumers.  And this doesn’t account for analyst time and disruptions due to vendor briefings and SAS.   Vendors want more visits, more face-to-face meetings, longer inquiries, and more multiple attendee meetings, etc., which force analyst teams to change their workstreams (it’s a direct cost to them). 

Vendors cost a lot more to support than end-user organizations.  And do you know whose face advisory management sees as these costs pile up?  AR.  AR is the conduit between the vendor and advisory firm.  AR initiates and facilitates all the interactions.  AR is seen as a major cost accelerator – but this is where I see advisory firms making a mistake.   Confusing the facilitation of engagement with the value of the interactions is the wrong approach to growing revenue and ensuring retention.

Advisory firms see AR driving the consumption of an extremely limited resource (analyst time) and creating scarcity.  They see <30% of their revenue stream (the portion contributed by vendors versus buyers) devouring >50% of their analyst time.  This is why vendors are finding it harder and harder to get on analyst calendars for briefings, SAS, inquiry, event meetings, dinners, etc.   Vendors/AR are a disproportionate consumer and advisory firms are struggling to scale analyst resources to AR-driven demands.  So, advisory firms had two choices to align cost of services with cost of delivery: (1) dramatically raise the cost of role-based services to vendors or (2) create a much more expensive service for AR. They opted for the latter.

Voila! Role-Based AR Licenses.  If an AR role-based solution can bring balance by generating more revenue/margin and by making AR more efficient (i.e., use less analyst resources), perfect. Advisory firms know AR isn’t the primary value target, but they need to recoup costs.  They know AR doesn’t consume the full extent of advisory advice and data, so they devised a role-based seat to protect margins. There is an unwanted side-effect, however.  The cost model is becoming prohibitive for AR.  A 45% levy on AR headcount costs is a heavy weight to bear.

Roll it all around and swizzle and what do you have?   An AR team that feels underappreciated, misunderstood, and exploited.  An AR team that feels a never-ending squeeze to pay more for licensed access they don’t fully benefit from or often need.  Demands on their performance are growing from their leadership and pressures on cost control are growing. AR increasingly feels advisory firms aren’t listening when advisory firms need AR more than ever.

So, what can be done?

If I were king for a day, I’d find a way to phase out all AR access costs.  I’d work with sales teams and AR teams to design 3- to 5-year contracts where the final year has AR access at $0.  Here is the caveat: overall spend targets need to be achieved via increases in commitments from vendor executives and BU leaders.  Trade spend on AR role-based solutions for relationships (and spend) on other role-based solutions. If AR isn’t the prime beneficiary, then both sides need to agree to get the prime beneficiaries more access.

As an example, if current vendor spend is $1M per year and AR licenses are $350K, the commitment from the advisory firm would be to cut $350K in billings (the AR licenses) if the vendor committed to filling that hole, plus an agreed-to level of year-on-year growth.  In the final year of the contract, all AR professionals would have access to the biggest, most robust access entitlements for free and there would be significant additional spend from the product development, marketing, sales, channels, and R&D teams – as well as C-levels.

As a sales leader at an advisory firm, I’d much prefer having 10 more senior executives engaging via their own license than 10 AR professionals paying for their access.  I’d rather have AR working with me to expand engagement, interaction and value than have AR ration access because the executives who would benefit from access can’t afford it.

This plan would put AR and advisory sales teams on the same journey to grow access. If AR is an active supporter in not just allowing, but directly helping, the advisory firm expand its reach and as long as the revenue opportunity is greater than the expected loss in revenues from giving AR free access, make it happen.  Its better for AR and for the advisory firm. It’s a win/win.

If you like what you see, please sign up for this free blog.  If you disagree with these points of view and want to debate, discuss, or clarify, please leave a comment in the blog or DM me in LinkedIn.  

This is my seventh blog entry on Analyst Relations from the perspective of an advisory firm insider. If you are interested in more Insider Views and how AR can drive accelerated value from their investments, here are my recent blog posts:

(1)  The impact of recessionary pressures on analyst firms, how they react and what it means for IT vendors.   Substack Link: (Your AR/Influencer Strategy Is Not Ready for 2023 (substack.com)

(2)  Strategic Selling skills are gap in thinking and a blind spot for better aligning with analysts and influencers.  Substack Link: (For AR Leaders, Strategic Selling is a Blind Spot (substack.com)

(3)  How to drive new areas of value, interaction, and impact (without necessarily spending more money).  Substack Link: 9 Reasons AR Should Think About Their Relationships with Advisory Sales Teams (substack.com)

(4)  Assumptions about Advisory Firms That Can Derail Your Journey to Next-Phase AR.  Substack Link:  Insider View: These Assumptions Can Derail Your Journey to Next-Phase AR (substack.com)

(5) Strategies raise AR Impact and Effectiveness. Substack Link: Advisory Insider: Picture This AR Strategy and Widen Your Aperture (substack.com)

(6) How Strong Earnings Reports from Gartner and Forrester will Impact AR Engagement. Substack Link: What do Gartner (IT) and Forrester (FORR) Earnings Mean for Analyst Relations? (substack.com)

Here is the link to the ARInsights analysis of AR compensation and priorities:

INFOGRAPHIC: AR Salaries in 2023 | Analyst Relations Software (arinsights.com)