“How can we know it’s worth the money?”
This question is unavoidable, and you better to have a very good answer if you are to convince your manager to invest.
With traditional marketing tactics like printed advertising or the like, this question has often led to wavering eyes and an explanation that branding is important but difficult (or at least the most expensive) to measure the effect on.
The good news is that with inbound marketing, it is actually possible to calculate the value of the effort and show the ROI of inbound marketing. A central part of the inbound is to keep track of the customer’s digital footsteps throughout the journey from the visitor’s first click on the website and all through their journey when, in the end, they become a customer.
Inbound marketing methodology is based on the idea of a funnel – that moves leads down through the funnel through a number of stages during a purchase process.
The stages we work with are:
- Visitor. A visitor to your website.
- Lead. A visitor who has provided contact information, often when downloading content.
- Marketing Qualified Lead (MQL). A lead that fits your customer segment and has shown additional interest in your product with its behaviour on your website and by interacting with your content in, for example, emails or further downloads.
- Sales Qualified Lead (SQL). An MQL, which, due to its interaction with your content, has reached so far in its purchase process that the sales department is now considering reaching out to the lead.
- Opportunity. An SQL, who the sales department has come into a qualified sales dialogue with and possibly have sent an offer.
- Customer. When the cash register chimes!
Conversion rates fluctuate between industries
Between each stage of the funnel, a certain drop will be reflected in a conversion rate.
These conversion rates depend, among other things, on the industry and the quality of the content you make and will, therefore, vary from business to business. If you have not worked with inbound marketing before, you have to base yourself on general benchmarks – even if it will be bound to some uncertainty.
If you search online, you will find benchmarks that differ from one another, and you can, for example, find values for a realistic “lead to a customer” conversion that fluctuates between 1 and 10%.
The example below is based on numbers from several sources, including Aberdeen Group, which is behind a survey that investigated the conversions all the way through the customer journey. See infographics with Aberdeen Group’s numbers here.
However, Aberdeen Group’s bid for an initial conversion rate of 5% visitor to lead is unrealistic high, so we have set it to HubSpot’s benchmark of 2%.
On the other hand, Aberdeen Group’s conversion rate from MQL/SQL to Customer of 10% is somewhat conservative; assuming that one’s lead nurturing is of high quality, we have put it to a higher value. Ultimately, it’s about the same, but it gives us a truer picture of the process.
In this instance, for simplicity, we have combined MQL and SQL into one (Qualified Lead) and struck the last two stages, so Opportunity is omitted as an independent step. Here we have put the conversion rate to become a Qualified Lead to 50% and the Closing rate to 10%.
The numbers will, by nature, be individual for each company and industry and need to be revised accordingly, but it is an excellent starting point for establishing a business case for inbound marketing.
The example above thus gives a benchmark of what one would expect from results from an average inbound marketing effort.
From 3,000 visitors to 3 customers – would this be a good result?
At first glance, it’s clear to see how hard the elimination race is. We start with 3,000 visitors and end up with three customers.
Now, it is important to remember that the calculation here is an attempt to show the isolated value of inbound marketing activities. In fact, it will positively affect far more areas – they are only harder to measure. If sellers actively use your content, it will support their other sales efforts and, for example, shorten their sales time, as it helps the lead understand the challenge and cover their own needs. And with the use of various Social Media, ads/PPC and Email Campaigns it will further increase the end result.
In addition, inbound marketing helps position your company as an expert in your industry, making your sales efforts much easier.
What is a new customer worth?
Using the numbers above, 3000 visitors per month gives three customers per month. I agree that this seems like very little, but if you put some numbers to this, the result will surprise you.
If the Customer Lifetime Value is $6,000, the monthly revenue generated would be $18,000, and the annual revenue will be $210,000. And if this is from the website only, this is a staggering amount! Agree?
However, the above-mentioned numbers are becoming really interesting for people on the management level when you use the lifetime value of a customer and let them know how they can re-invest some of this revenue to gain more customers. With a simple calculation, you can get a number of how much you can afford to use on the marketing to get a new customer.
Annual revenue for new customers: $72,000
Gross margin: 40 %
Lifetime value = $6,000
If you are prepared to spend 25% of the customer’s value in getting the customer, you can invest $7,200 in marketing activities for each new customer. Assuming that the above example of conversion rates gives three new customers a month, you can justify the investment of using 3 x $7,200 = $21,600 on the inbound marketing per year. That is $1,800 per month in website marketing.
So, to answer the question, “How can we know it’s worth the money?”
The results speak for themselves.
Inbound increases traffic – and thus its value – over time
In addition, it is worth taking into account that increased traffic to the site is one of the clear objectives of inbound marketing. This also means that you can project an increase in the number of visitors, which will be of great importance to the bottom line. A rule of thumb based on HubSpot’s own customer data is a doubling in traffic after one year with an active inbound marketing effort. The calculation and end result makes it more interesting when you multiply the traffic by 2.
At the same time, the funnel entry points allow for improving the individual conversion rates along the way. For example, by improving the content, it will affect the needs of the individual at the individual stages of the customer journey or by optimising the Call-To-Actions on the site.
The first conversion rate of 2% is not cast in stone, and even if you do not expect double-digit conversions, it will often be possible to increase it to 3% with a focused effort. It may not sound much, but it adds 50% extra to the bottom line.
Another way of looking at this is in terms of compound interest which you can read about here
Inbound marketing is perfect for B2B
As the business case above illustrates, an inbound methodology is generally better for some companies than others. It will typically give the best outcome for B2B companies with relatively complex purchasing processes and fewer but bigger sales, as the individual customer becomes so valuable that it makes sense to invest in getting the customer on board.
As the saying goes: Those, who invest the most to get the customers win!
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