Creating a Smart Investor Relations Budget: Part I

Posted by on May 7th, 2012

I was going through my usual reading list when I saw a survey from NIRI that got me thinking. Wouldn’t it be valuable for readers to understand how to build an investor relations budget? So I decided to start a series of posts that deal with cost, planning, ROI and other IR considerations.

Today’s post, the first in the series, addresses the key costs of an IR program:

1. Who’s going to do the job?

Large companies have an in-house Director of Investor Relations and a small staff to manage day-to-day activity. These folks come at a pretty hefty price tag and have achieved a high level of success either on Wall Street or in the legal or account professions. I’ve worked with some of the best IROs and I believe they earn every nickel of their salaries and then some. I am estimating that these packages can range from $180,000 to $350,000 per year.

Smaller companies don’t have the same budgetary resources as the big guys. In some cases, there is no in-house IR executive (the CFO assistant bears the brunt of the work) or there is a marketing or PR professional that handles IR in addition to their many other responsibilities. Most small companies that value their shareholders and understand that IR is a necessity decide that an agency is the best route. They typically assign a liaison between the outside representatives and the C-suite. Estimates here range from $120,000 to $300,000 per year depending on if you take the agency route or combine an agency with a dedicated in-house IR executive.

2. The price of communicating

The cost of communicating via press releases is nothing new to public companies. However, your new IR director and/or agency is rightly going to suggest that you improve disclosure and consider doing more to keep your shareholders and potential investors informed. An experienced IR director will tell you that every press release is an investor release, even if you are only announcing your participation in a trade show.

While there is no clear formula for success, and many companies operate under the “if you build it they will come” strategy.  No communications pro would consider this passable, but let’s assume a bare minimum of four earnings releases per year. Based on my experience, I am also going to suggest that you assume you will release one news release per month at a minimum and as many as two per month. Budget in $1,000 per release and our range for this category is $12,000 to $24,000 each year.

3. How will I find new investors?

It’s pretty simple. Without some of the nifty targeting tools provided by Thomson Reuters or IDC and the like, you won’t have an easy time of it and these services are not cheap. I estimate a cost of $20,000 to $60,000 per year, on the low end. However, if you are working with an agency, they likely subscribe to a top targeting technology. So, even though they might pass some of the costs through to their clients, you are only paying a fraction of the total cost for access. If you have an agency, the costs are manageable at around $5,000 or less per year.

4. Non-deal road show = Big business travel bucks

Now that you are reaching out to new investors and letting them know you are the next big thing since “Crocs” hit the market, you have to show up to the meetings. I recommend clients go on the road for at least three or four days per month, some have an appetite for more and others less. Any way you slice it, you will be going to NYC and you will probably pay $400 per night. I won’t even get into the cost of air travel. So let’s just ballpark a $5,000 to $10,000 per month estimate, or $60,000 to $120,000 per year.

So looking at the key costs for an IR program, you are budgeting somewhere between $200,000 to $600,000 (depending on the options you select and the size of your company) just for the basics. To be continued….