What is the Cost of Inbound Marketing vs. the ROI Realized?
October 7, 2015
By Mike Wolfe
There’s a lot of buzz around inbound marketing – and rightfully so. According HubSpot, the average company saves $20K per year by investing more in inbound marketing vs. outbound. That stat alone might be enough to get the attention of most executives and managers, but what does investing in a successful inbound marketing strategy entail? What are the costs? And what do companies that invest in inbound marketing actually get out of it? In short, you get out what you put in.
Identifying Inbound Marketing Costs
It’s important to realize that for an inbound marketing campaign to work well, time and effort need to be put into both the planning and the execution. Skipping or taking shortcuts in any phase of the process to save money can have a negative impact on results – especially if the quality of one or more key components is sub-par.
Here are some typical costs of inbound marketing that shouldn’t be skimped on:
Research – When putting together an inbound marketing plan, buyer personas need to be created and buyer’s journey data gathered about the target audiences and their behavior when it comes to making purchasing decisions. This research lays the foundation for your inbound strategy so if it’s not done properly, the rest of the process will be off track.
Premium Content – To attract and convert visitors into leads, companies need to provide valuable (educational) content that the defined personas actually want. Developing this content on an on-going basis requires subject matter experts that know and understand the market, as well as each buyer persona, those personas’ buyer’s journey, and by extension, the tips or insights that those personas find valuable based on where they are in their buyer’s journey. This content also needs to be planned, packaged and delivered in an easy-to-understand format.
Website/Landing Pages – Because a website is one of the main components of the inbound marketing process, it should be well-designed using best practices. It should also be developed with targeted personas and the buyer’s journey in mind. The site should be visually appealing, highly readable and extremely intuitive to navigate as you may only have one shot at converting a visitor into a lead. Landing pages are another key component that should be optimized with similar best practices, personas and the buyer’s journey in mind. To achieve optimal results, the website and its landing pages should be constantly reviewed and tweaked for improved performance. Developing a top-notch website and A/B testing the copy, design and CTA’s on the homepage or landing pages may take time and resources, but can make a big difference in the overall results.
Email (Lead Nurturing) – Inbound marketing emails deliver premium content to target audiences with personalized messages. These messages nurture leads through the marketing funnel by offering prospects some direction on how they can read more about a topic, download content or request an interaction with sales– depending on where they’re at in the buyer’s journey. Because the timing of messages in the buyer’s journey is very important for results, email marketing software can help to organize and target specific contacts and will prove to be very helpful in reaching the right audience with the right message.
Blog – Marketers who emphasize blogging are 13x more likely to see an increase in ROI year over year (HubSpot). Just like premium content, blog articles need to be valuable and interesting to the defined target personas. That is to say that personas need to find information relevant, insightful and helpful or they’ll be less likely to convert or even return to your site at all. Writing persona-focused blog posts requires knowledgeable authors, either internal or external, who can provide industry insight and helpful advice that not only educates, but also guides prospects through the marketing funnel.
Social Media – Social media is typically free for everyone, including companies. But social media management is not. Success in social media means reaching, interacting and engaging with your audience through the valuable content you provide – and that takes time and a strategy.
Analytics/Reporting – When it comes to measuring and reporting the success of inbound marketing campaigns, analytics are crucial. Without the proper data, the ability to interpret it, or the know-how to adjust inbound marketing campaigns based on results (or lack thereof), it can be difficult for marketers to achieve success – especially when something isn’t working and monthly reports are approaching.
Calculating Inbound Marketing ROI
Companies that effectively use inbound marketing build trust with their audience and establish themselves as a thought leader in their industry. They engage potential customers, lead the conversation, influence buying decisions and build relationships that last. But proving the return of inbound marketing can be challenging. There are many variables that aren’t measurable, so trying to identify a precise number that conveys the value of your inbound marketing activities may cause you to ignore the more intangible values such as trust, influence and relationship with customers.
Here are some typical formulas (and considerations) for calculating costs and return on investment:
Cost per Lead
Total Spent on Inbound Marketing ÷ Number of Leads Generating
Think long-term. Inbound marketing strategies require an investment of time and hard work before you start to see results, so give it time to come to fruition. Also keep in mind that, when optimized for SEO, your cost per lead should fall over time as you build a library of valuable content that is found organically.
Cost of Acquiring Customers
Sales/Marketing Costs ÷ Total New Customers
When sales and marketing teams work cohesively together, the cost of acquiring new customers can be lower. Not only can inbound marketing generate more leads for the sales team than traditional paid marketing, but those leads can convert to customers at a higher rate. According to HubSpot’s State of Inbound Marketing report, 54% more leads are generated by inbound tactics than traditional paid marketing and 42.2% of companies using inbound methodology increase their lead-to-sales conversion rate.
Customer Lifetime Value
Annual Amount Spent by Customer x Expected Life of Customer
The goal of inbound marketing is not only to attract and convert customers, but to delight them as well. So, again, think long-term. It costs money to attract and convert visitors into leads and nurture those leads into sales, but consider the lifetime value a happy, raving customer. If your company has a high customer retention rate and you’re in an industry where customer referrals carry a lot of weight, it pays to build trust and a relationship with new customers as you acquire them – which is precisely what inbound marketing does.
Return on Investment (ROI)
(Customer Lifetime Value – Cost of Acquiring Customers) ÷ Customer Lifetime Value
While it may be difficult to come up with an all-encompassing value of your inbound marketing plans, of course ROI is still important to measure and track to keep costs in line. Marketers who measure ROI are 17x more likely to see the same or greater ROI over previous years (HubSpot) – which of course is the end goal. Just keep in mind that, like traditional marketing, inbound takes an investment in the form of time, resources and money in order to pay off in the long term. When given time to work and executed properly, the ROI will show that inbound marketing is a valuable strategy that pays dividends.
What has been your biggest challenge when proving the ROI of inbound marketing?
About the author
Mike Wolfe is an Inbound Marketing Strategist at SmartBug Media helping clients find success through inbound marketing. Read more articles by Mike Wolfe.
Subscribe to get our new blogs delivered right to your inbox
Other insights you might like
Conversion Rate Optimization: 10 Fast Tips for Busy MarketersRead More