Service-sector MSMEs with one-time retail clients incur high marketing costs

CRISIL has studied the marketing cost structure of 175 micro, small, and medium enterprises (MSMEs) in 2013-14 (financial year April 1 to March 31). The study was conducted to understand the position of marketing costs within the overall expenses of service-sector enterprises, which are more dependent on marketing initiatives than manufacturing MSMEs owing to the challenge of dealing in variable and intangible offerings. Although marketing expenditure as a percentage of cost of sales varies with the nature and dynamics of the business, manufacturing MSMEs tend to have lower costs owing to their more established and less diversified customer base.

CRISIL's study indicated that service-sector MSMEs dealing with retail and one-time clients incur higher marketing costs than those with corporate clients and a fixed customer base. Further, MSMEs in the education and healthcare sectors had higher marketing investments, at 10.44 per cent and 9.46 per cent respectively in 2013-14, owing to the need to create brand recognition for offering high-quality services and thereby ensure a regular flow of business from a diverse customer base.

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Note: CRISIL has rated over 50,000 MSMEs in India. This fortnightly tracker presents to our readers insights on MSMEs, a key element of the Indian economy.