It is the nimble that survives in the long run.  No business class model or framework is inherently advantageous over the other, but those that adapt to the situation and apply the right tool/framework/model are the survivors of a brutality competitive market. These moments of adaptation are not what we get to define, but define us based on our choices. Now is the time that many are choosing to adapt from a fixed cost performance marketing operating structure (in-house performance marketing team) to a variable cost structure (white label performance marketing partnership) to be the nimble survivors of tomorrow.

What is a Fixed Cost vs. Variable Cost Performance Marketing Structure?

Fixed costs are those that do not change (or do not change quickly) with the growth/decline in revenues. As revenue grows, the cost of production decreases as a percent of revenue, driving gross profit. As revenue declines, the cost of production increases as a percent of revenue, compressing cash flow. For marketing services businesses fixed costs are often:

• Salaried employees
• Software contracts/licensing for tools/services
• IT/software infrastructure
• Other G&A items (insurance, legal, etc.)

On the flip side, variable costs are costs that scale  (sometimes in a linear fashion) with growth or compression in revenue. As revenue grows or decreases, variable costs move in “lockstep.” Variable costs have the advantage of reducing scale risks for a business (only use what you need) and increasing the agility of the business by making it easier for it to adapt to market dynamics or changes in customer demand. For marketing services businesses variable costs are often:

• Media spend and fees (can sometimes be fixed-like as well)
• Third-party fulfillment vendors, contractors, freelancers, etc.
• Variable compensation structures (e.g., bonuses)
• Software licensing usage fees/overages

What is Outsourcing AKA White Labeling?

White labeling (or outsourcing) is the bridge between transitioning fixed costs to variable costs. White-label providers perform marketing tasks on behalf of the marketing services provider. The marketing service provider is the customer-facing operations, which often includes reporting, sales, client relationship management, etc. while the white-label provider is the in-ad platforms, website optimization, website implementation, etc.

Why Move from Fixed to Variable Cost Structures?

Now that we are done with the definitions, we can begin discussing why variable cost structures are what I believe to be the key to survival and scale for our previously discussed nimble businesses. First, I must confess that my personal opinion on this matter is biased – I run a white-label platform, Semify. And while I believe deeply in the value we create for our partners, I don’t expect you to trust me on faith alone. I will prove it two ways: 1) I am going to prove it with theory, and 2) I’ve got the numbers to back it up.

As promised, theory first. These are the key points that are driving the market to adopt white-label providers for marketing services:

1. Cheaper at Scale: It is often the case that the white label provider is working across a larger scale than your business. This cost advantage becomes your cost advantage as the white-label provider scales.
2. Reduce Cash Flow Risk/Variability: A variable cost model allows for near real-time alignment of costs with revenue. There are no sticky costs that compress gross margin as revenue volatility increases.
3. Speed to Market: Investment cost in new services is reduced to zero by leveraging the services of the white-label provider(s).
4. Accelerate Learning Curve: The compounding of knowledge across all the partners of the white-label provider gives your business an advantage over the broader market. Your learning accelerates not just with the speed of your team’s learning, but with the speed of multiple teams’ learning.

Now the numbers. All of the math in the consideration between fixed vs. variable cost is here in a publicly available Google Sheet tool. There are toggles for how your team is structured (I suggest making a copy before adjusting) to see if the math makes sense for your team. The main thing to remember is that building a team has hidden costs: Hiring employees means hiring managers, adding software licensing seats, adding software usage costs, laptops, desks, welcome swag, travel, entertainment, and the list goes on. These costs can balloon as the business scales as we show in the below summary table. Play with the model here and prove to yourself that the math (and the above theory) are valid.

At the end of the day it comes down to this: Does specialization matter? Yes, it does: A brain surgeon is better at brain surgery than a home metal roof installation. Then reflect on where your business is supposed to specialize to create an unfair advantage. If that’s not performance marketing, then white label is the future of unlocking your cash flow, performance, and growth.