On the surface, inbound marketing sounds like a great way to drive more traffic, convert more leads and close more sales. But how does your business know if it is going to work? And even more importantly, how do you know the investment in inbound marketing is worth the return?
In the following blog post I will explore the factors your business should consider when trying to calculate the ROI on inbound marketing. By the end you should be able to prove to yourself or your boss that inbound marketing is the right marketing tool for your business.
A Three Step Process
In order to calculate the ROI of inbound marketing, you need to predict the change that inbound marketing is going to have on each stage of the inbound marketing process. Therefore, your analysis should look at the change in the following:
- Traffic to your website (attracting strangers)
- Conversions on your website (converting visitors)
- Your close rate
You should also consider the life-time-value of a customer and the cost to undertake inbound marketing.
First, estimate the increase in traffic that your content is expected to bring to your website. To do this, look at your current web traffic. For example, let’s assume you generate 1,000 monthly visitors to your website with your current website content. Start your analysis with a conservative number like a 10% increase in web traffic. In this scenario, we would estimate our new monthly traffic at 1,100 visitors (=1,000 * 110%).
As with any analysis of this type, you should also extrapolate out your return based on 25% or 50% increases for comparison’s sake. But results like these take time so you’ll want to make prudent assumptions when calculating your ROI.
If done strategically and methodically, your business can use content like blog posts, articles and videos to drive this additional traffic to your website. For example, with our experience working with clients, we have seen increases in traffic as high as 900% over the course of a year. According to InsideView, B2B marketers who use blogs generate 67% more leads than those that do not. Traffic increases like these will help you fill the top of your marketing funnel with more leads.
The inbound marketing process does not end once you’ve increased the traffic is on your website. In order to continue marketing to your visitors, you need to capture their contact information. This is done through calls-to-action, landing pages and conversion forms. If your business has never had any conversion forms on your website, you will probably see huge gains in conversions once you begin the inbound marketing process. And even if your business already has a conversion form like an email opt-in, using inbound marketing best practices and A/B testing techniques can dramatically increase your site’s conversion rate.
Going back to our example, let’s say you only convert 5% of your site visitors into leads before inbound; therefore, you had 50 monthly leads (=1,000 visitors * 5% conversion rate). However, after improving conversions (and accounting for the original increase in visitors due to content), you are now converting 10% of site traffic into leads and now have 110 leads (1,100 visitors * 10% conversion rate).
The last thing to consider in calculating your inbound marketing ROI is the close rate. Ask any sales reps if they could close more sales if they knew their lead was already interested in a product or service and they would unanimously say “Yes”. This is exactly what inbound marketing can do for your sales team. It pre-qualifies your leads and gives your sales reps a list of people that they are more likely to close.
In this context, I don’t think it comes as any surprise that the close rate on leads will increase. Per our example, let’s say our close rate improves from 5% of leads to 10% of leads. We’ve now improved from 2.5 sales (=50 leads * 5% close rate) to 11 sales (=110 leads * 10% close rate) because of inbound marketing.
From a holistic point of view, the effects of inbound marketing are compounded. You not only increase your traffic but you also increase your conversions and close rate. The total increase in customers with inbound marketing in our example is close to 450% even though the increases were only 10% of traffic and 100% for conversions and close rate. Just small changes to each stage of the process can lead to big results.
Life Time Value (LTV) of a Customer and Cost
In order to truly calculate your inbound marketing ROI, you must also consider the LTV of a customer and the cost of your inbound marketing efforts. To continue with our example, let’s say the LTV of a customer at your company is $1,000. You have thus increased your monthly sales from $2,500 to $11,000, an $8,500 increase. As long as your monthly investment in inbound marketing is less than this, you will have realized a return on your inbound marketing.
To talk about your business’s unique inbound marketing ROI, please contact Joe Matar at firstname.lastname@example.org