In today's data-driven, online world, it's never been easier to track the return on investment (ROI) for your marketing campaigns, channels, and tactics. That said, it still requires some level of comfort with numbers and data analysis.
In this post, we'll take a deep dive on those numbers, and provide some guidance on tracking ROI specifically for inbound marketing, a marketing philosophy that promises greater measurability than ever before.
Before we do that, let's briefly define inbound marketing and discuss how it differs from traditional marketing tactics.
What is inbound marketing?
When defining inbound marketing, it makes sense to talk about how it differs from traditional marketing tactics you may already use, such as cold calls, advertising, and email blasts.
Outbound, traditional marketing presents consumers with ads that interrupt their activities, such as watching TV shows or reading articles. As a result, consumers are getting better at avoiding traditional advertisements.
“As of 2020, $35 billion of global digital ad spend will be lost yearly due to the growing use of ad blockers” (HubSpot).
Due to banner blindness, most people don’t pay attention to banner ads.
“78% of consumers have unsubscribed from emails because a brand was sending too many emails” (HubSpot).
Outbound marketing contacts the customer, hence “outbound.”
Inbound marketing, on the other hand, makes it easy and attractive for consumers to come to you. Instead of ads, you offer them helpful content, such as blog posts, white papers, and videos tailored to their needs and easily findable via Google search: the first place most people—including B2B buyers—turn to when trying to solve a problem.
Through this helpful content, potential customers can help solve their problems, and develop a positive relationship that keeps them coming back for more. This may lead them to become full-fledged customers who will promote you to their friends.
Does this approach pay off? The short answer is, yes. Inbound brings in 54% more leads than outbound, which are also, on average, 61% cheaper to acquire.
So, how do you calculate the value of these online interactions, and in turn come up with an estimated return on investment (ROI) to inform your budgets and forecasts?
This can be a challenging task. Fortunately, many aspects of inbound can be tracked by web analytics platforms, which, when configured properly, can provide a wide variety of analytics data: from the number of form submissions you receive to the number of times your blog post was viewed.
By keeping an eye on the right metrics and performing simple calculations, you can get a better idea of how much return you’re getting for your investment in inbound.
We’ll walk you through ROI calculations for one-time and retainer clients and provide some tips for improving your inbound ROI.
Key factors to consider before calculating inbound ROI
First, let’s look at some critical factors that will affect your calculations.
Inbound tends to be a long-term strategy. For example, after a year of work, including website optimization, local SEO strategy, and content marketing (inbound strategies) as well as cutting his ad spend (an outbound strategy), one of our clients was able to increase lead volume by 55%. After 5 years, that rose to an 216% increase.
Had we calculated our client’s inbound ROI before a year had passed, we would not have gotten an accurate picture. Blog posts, for instance, might perform better over time as they are discovered, engaged with, and shared by enough users to earn enough trust from Google to consistently show up in search results.
What is a reasonable amount of time for my inbound strategies to gather leads and for those leads to turn into sales? It varies widely, but may take several months to a few years, depending on your industry and goals.
Odds are, what you define as a satisfying ROI depends on your budget. One potential goal would be to get a return of 15–20% more than your investment. Naturally, the size and life stage of your company (such as whether you’re growing) may also factor into your desired ROI.
If your budget is large, you probably have more room to experiment by investing in different inbound strategies. This may result in more leads, and some of those leads will turn into sales.
If your budget is small, on the other hand, you may need to channel your investment into fewer inbound strategies, placing your eggs in one basket. This can increase the likelihood that you will spend all your money without receiving much of a return.
Depending on the services your business offers, you may serve one-time clients, retainer clients, or both. You will need to calculate ROI for these two sets of clients differently.
Calculating ROI for one-time clients
How to calculate CAC (customer acquisition cost)
CAC represents the total cost of your inbound marketing efforts in order to secure one-time customers over a particular period of time.
This is the first factor we will find in order to calculate our ROI later on.
The “cost” part of customer acquisition cost can include a variety of expenses, but in the simplest terms it includes all marketing and sales costs to your business, usually including in some form:
- Money spent on the tools and people you use for sales and marketing
- Money you spend on advertising or other promotion strategies
Here is a formula from Jordan T. McBride for calculating CAC:
CAC = (total cost of sales and marketing for all one-time clients) / (number of customers acquired)
For example, if you spent $10,000 on inbound marketing in the first quarter for your B2B accounting firm, and you acquired 5 customers during that time, then your CAC would be $2,000 per customer.
($10,000) / (5) = $2,000
Cost of Goods Sold (COGS)
The second factor we need to find before calculating ROI is the cost of goods sold. This refers to all direct costs that went into a product, including the materials and labor, but does not include indirect costs like sales, marketing, and distribution.
What falls into the category of COGS varies from business to business.
According to Jason Fernando, if you sell products, you can calculate COGS by adding any yearly purchases related to material and labor to your inventory at the start of a year, then subtract your end-of-year inventory from that number.
If your business sells services rather than products, on the other hand, you might include the cost of sub-contractors in your COGS, or you may not have any COGS at all.
How to calculate inbound ROI for a single, one-time client
Here’s a simple formula for calculating ROI for a one-time client:
(Sales Revenue - COGS) / CAC = ROI
At its most basic, your ROI represents your total sale to a client, minus the money it takes on average to acquire a customer through inbound marketing and sales and the costs to your business of delivering your product or service to that client (COGS), divided by your CAC.
We’ve already calculated the CAC ($20) for your B2B accounting firm. If your COGS was $1,000 and you earned $10,000 in sales revenue for this client, then:
([$10,000] - [$1,000]) / $2000 = 4.5
Your ROI is 4.5x, meaning for each dollar (x) you invested in inbound marketing, you profited $4.50. As a general rule of thumb, you should aim for your ROI to be $3 or above, according to ProfitWell.
Calculating ROI for retainer clients
How to calculate average customer lifetime value (ACLV)
Since most B2B companies have multiple clients—some or all of which may be on long-term retainer agreements—it might make sense to think about value over the lifetime of your relationship with each client than about value on a single, one-time sale.
To calculate your average customer lifetime value (ACLV), simply calculate the average amount someone pays for your product or service (purchase value), then multiply it by the average amount of times they pay this purchase value, typically on a monthly, quarterly, or annual basis (average customer lifespan, or ACL).
APV x ACL = ACLV
Let’s say your IT consulting business has an average purchase value of $10,000 and your average customer lifespan is 5.
$10,000 x 5 = $50,000
Your average customer lifetime value is $50,000.
How to Calculate Overall Inbound Marketing ROI
Now that we’ve got that out of the way, here’s a basic formula for calculating ROI for all your clients, retainer or otherwise:
(ACLV - COGS) / CAC = ROI
You have to consider how much revenue a single client relationship has brought in over the entire time you’ve served them, on average (the average customer lifetime value, or ACLV). Then, you must subtract the cost of delivering your goods or services to clients during that same timespan (COGS), and divide it by the cost of acquisition (CAC).
Let’s say the CAC for your IT consulting firm is $2,000. If your client has a ACLV of $50,000 and your COGS is $5,000, then your ROI is 22.5x.
($50,000 - 5,000) / $2000 = 22.5
Regardless of the types of clients you serve, your ultimate goal is to keep your customer lifetime values up and your customer acquisition costs down. So how do you do that?
Tips for improving inbound ROI
Most of the strategies to improve your CLV/CAC ratio boil down to one thing: conversion rate optimization.
In the most immediate sense, this making sure your sales team is doing everything it can to convert an acceptable number of leads into paying customers. But it also means identifying what things most often result in lead conversion on your website and encouraging more website users to do those things.
Think of this as tracking a customer’s journey by starting with their conversion and working backwards. What intermediate steps led the website visitor to lead conversion?
For example, if you discover that many people are viewing your “10 Ways to Improve Employee Wellness Programs in 2020” white paper landing page and filling out a lead generation form that allows them to download it as a PDF, then it might make sense to add more calls-to-action that lead website users to that landing page throughout your website.
Quantify Inbound Lead Value
Tracking the value of inbound leads your website is essential for informing and quantifying marketing decisions. You can calculate the monetary value of leads quite simply.
Here is a formula for calculating lead value from Formstack:
(ACLV) x (inbound lead-to-sale conversion rate) = lead value
If your average customer lifetime value is $30,000 and your sales team converts 10% of inbound leads to customers, then each of your leads is worth an average of $3,000 to your business.
($30,000) x (0.1) = $3,000 per lead
You can use this information to set lead generation cost targets and make marketing decisions. For example, it makes sense to spend $1,000 on marketing to generate a lead worth $3,000, but it doesn’t make sense to spend $4,000.
Track Engagement Metrics
Engagement metrics allow you to quantify what pages and topics are most interesting to your site visitors, particularly those who end up converting into leads.
These metrics can help you reconstruct a viewer’s buyer’s journey. By backtracking in this way, you can identify your key conversion actions and conversion assists, which can help you invest your time and money into the channels that will give you the best return on your investment.
- Conversion points—which lead generation offers or other conversion points (a "contact us" or"get a demo" page, for example) on your site are most often converted? Allows for learning which offers or messaging your visitor are most likely to respond to.
- Pages viewed by leads—which page views most often result in lead conversions? Indicates important pages in your buyer's journey.
- Lead conversion rates—what percentage of visitors convert to leads? Allows you to track which channels produce the most qualified traffic.
- Bounce rate—how many people land on a website page and then leave without taking further action? Allows for identifying opportunities for improving content or adding a more relevant CTA.
- Time on page—how long do users spend on a given website page? Helps you to measure how interested people are in your content.
For example, maybe you discover that your white paper entitled “10 Ways to Improve Employee Wellness Programs in 2020” is a common conversion point.
Next, send more people to your primary conversion points with conversion assists. These are tools you can use to help visitors convert. Website-based conversion assists usually happen in four places:
- Homepage—Place a call-to-action in a visible place on the homepage that links visitors directly to the Contact Us page. This way, users who are coming to your site ready to have a sales conversation can easily do so.
- Blog—If your business maintains a blog, articles have the potential to be powerful magnets for search engine traffic. Every blog post you publish should include a clear next action that invites the website visitor to take a conversion action: downloading a white paper, signing up for a webinar, or—if your blog content speaks to prospects lower in the funnel— getting in touch via a "contact us" or "get a free demo" form submission.
- High-traffic internal pages—Including calls-to-actions on pages where visitors are likely to land is a must as it's the next logical step for someone interested in working with your business.
- Chat tools—Online chat tools are a popular way for website visitors to quickly reach out to someone they want to interact with. While it may not be possible to have a salesperson ready to chat at all times, many tools enable users to set up away messages and filtering systems that allow chat participants to better find where they need to go or leave a message with the expectation that someone will get in touch.
Keep track of leads who've come to you through the above-mentioned paths. Marketing systems like HubSpot even keep track of CTA engagement metrics without having to do additional set-up.
Identify what has already worked, and do more of it.
Audit your existing content, such as web pages, blog posts, and social media posts to determine which were the most successful.
Was there a particular blog post that received many more views than others, a social post that received a lot of likes, or a web page that is frequently visited (other than your home or contact page)? This may be a clue as to what interests your visitors.
Next, make that web page or blog post bigger and better. For example, make a free guide out of an existing blog post by expanding on the topic and adding useful subtopics.
You could also try creating content that explores different aspects of the same topic, or more of the same content type. For example, if your binding company received a lot of likes from a book mending video you posted on YouTube, maybe you should post more how-to videos.
Optimize your content strategy with educated guesses about what your target audience likes based on what they’ve liked before.
Improve your ROI by managing your CAC/CLV ratio.
- Get paid upfront. Adjust your pricing so that you get more money right away when you acquire a new customer. This can potentially help offset the lag in revenue you may experience after spending money on customer acquisition (McBride).
- Retain customers. Since the acquisition of customers is so expensive, it is often profitable to delight your current customers in order to retain them. According to a HubSpot study, 29% of companies with declining or stagnant revenue stated they valued investing in customer service, compared to 55% of growing companies (Clint Fontanella).
- Engage new customers immediately. Engaging new customers right away may encourage them to spend money, which can offset acquisition costs.
- Write content. Content marketing is an inexpensive lead generation option. In fact, it’s the backbone of inbound methodology, since it provides potential customers with useful information and/or entertainment, and, in doing so, it builds awareness of your business’s brand. According to HubSpot, marketers who prioritize blogging efforts are 13 times more likely to see positive ROI.
If you’re curious about what makes a piece of content that will attract leads, check out our library of content marketing posts.
Optimize your inbound marketing dollars by 1) identifying which channels are already working, 2) lowering your customer acquisition cost, and 3) raising your customer lifetime value.
Tools for tracking ROI metrics
Page engagement under “behavior” in Google Analytics
Google Analytics is possibly your most powerful tool for tracking specific engagement metrics for your website, which can help you calculate the monetary value of these interactions.
It provides a big-picture view of your website, from click-through rate, to page views, to the source of your site traffic. It’s easy to filter the data in a number of ways, including by date range, so that you can focus on a snapshot of time. If you want to calculate the value of a page view within a set period of time, Google Analytics is a great way to capture and view that data.
Plus, it can help you identify potential weaknesses in your website (such as pages with a high bounce rate), which you can address to improve your website. Beefing up your website can potentially increase your conversions, resulting in a lower CAC.
A contact in HubSpot
HubSpot’s Customer Relationship Management (CRM) tool is extremely useful for tracking individual contacts: something that Google Analytics cannot do. You can see when an individual first makes contact, when they return to your site, when they convert, and every interaction in between.
This tool keeps track of each contact and organizes them into a list, so that you can easily access client and lead information in one place.
Being able to access the breadcrumbs of a customer’s buyers journey—from page views to conversions—can help you identify which pages on your website are key conversion points, and funnel site visitors to those pages more often. Hopefully, this can result in more conversions and a better CAC.
Measure your way to inbound success
One of the advantages of inbound marketing (and digital marketing in general) is that it’s so easy to measure. With the right metrics and calculations, you can present your CEO or colleagues with the CAC, CLVs, and ROI of your inbound campaigns.
Gathering data about your inbound efforts can help you make more informed budgetary decisions to optimize your total inbound ROI in the long run.