Introduction - Measure Inbound Marketing ROI
"A recent survey of 1,200 CEO’s indicated that nearly 70% had lost trust in their marketers’ ability to deliver growth, in part because of the inability to show ROI on campaigns." Don't be that kind of CMO!
Inbound Marketing is one of the most important, yet underrated and misunderstood sections of business, particularly this ever so mentioned key performance indicator “ROI”.
So what does this section contain? The lovable, useful and job-saving ROI (Return on Investment). In layman's terms, ROI means how much money you brought in for the cost of your campaign. In this post, I'll break down how to calculate Inbound Marketing ROI, and what metrics to take into account. I'll also throw in some of the proven and most efficient ways to track your Inbound Marketing for that exact purpose.
Why keeping track of those numbers is so important
The average CEO often sees the marketing sector as nothing more than a costly hassle with little to no reward. Without proof or numeric data to show exactly how an Inbound Marketing campaign can be significantly useful, the title CMO can be nothing but a “glorified role without any purposeful impact on the bottom line.”
Without a measured ROI, you as CMO have no possible way to quantify what your business gets in return for its possibly costly campaign. B2B Marketing budgets can, have, and will be slashed without evidence of effect. Why spend all that money on something that MIGHT improve sales? The CEO ponders, but cutting marketing's budget could be a choice that results in the slow death of business.
More so, with a calculated ROI a failed campaign doesn't mean a scolding or vacant position for said CMO. The issue a lot of B2B marketers have is the simple lack of analytic ability in its marketing team, e.g. they don't know what metrics or parameters they should be documenting. When marketing leaders were asked to name the factors that their department was weakest in, 49% stated: "Use of analytics to guide marketing decisions." If a CMO is keeping track of the right metrics, a failed, or not totally successful marketing campaign can become nothing more than a learning experience, or even beneficial to the marketing team in the future.
How to calculate ROI
On paper, ROI couldn't be any easier to explain. You take the revenue derived from the investment, subtract the total cost of the investment and divide the total by the expense of the investment:
Sounds simple, right? It’s a trap. It’s never that easy.
"Hard" and "Soft" metrics
Hard metrics are things that can be easily quantified, for example, if you sold a product for $ 350 and the overall cost of advertising was $ 100 your ROI rate would be = 2.5
Soft metrics, on the other hand, are harder to define, and are not concrete. For example, you can't easily quantify social media attention or buzz, but it is a very affecting factor to your bottom line. You could count every Facebook like as monetary value and treat it like a hard metric, but this is incredibly unreliable, unrealistic and amounts to wishful thinking.
How to calculate ROI for Inbound Marketing
Now that you got your head around the basic formula, and are certainly excited about the return, you will face one dilemma: the investment.
Simply said: profitability depends on numerous things that requires you to look beyond simple sales figures.
Some companies subtract the overall cost of the marketing campaign from how much the customer paid, but what they fail to do is to factor in the ‘true’ budget for marketing and it's totally and completely wrong. CMO’s often fail to take into account other costs for Inbound Marketing, while this creates more work, it creates a more realistic ROI measurement.
The 4 Up-front costs to consider when measuring inbound ROI:
1. Employees costs
An example of a seemingly obvious but often neglected metric is the cost of employees. Working with an in-house marketing team, or hiring freelancers can be costly, and depending on the experience of said employee(s) you could end up paying lots for little.
2. Agency costs
Short term-wise, it's usually cost effective to work with an expert agency. Agency teams work together providing only the skills and expertise needed at the given point of your campaign, meaning you pay for those skills and expertise when they are of use. Long term-wise, it's smart to calculate the ROI of training your in-house team and to gradually shift to that, hence keeping the know-how under your wing.
3. Marketing automation tools
Unfortunately for B2B marketers, bombarding a potential lead with advertising, while simpler than Inbound Marketing, is interruptive and doesn't prove effective. The most effective way to implement an Inbound Marketing strategy is to use marketing automation tools. Factor the cost of the latter when calculating ROI. Yearly costs vary between $2,000 to $60,000. There are "best of breed" solutions as well as "all in one".
These tools provide closed loop solutions that will make a CMO’s life a breeze. The challenge of working without these is titanic. Marketing automation tools have been proven to create marketing improvement, because more feedback for every sector is provided and a potential lead’s behaviour can be monitored and tracked from the source.
Tools that enable you to keep track of the traffic, or the click to your website don’t show you what influences leads to become MQLs, SQLs and eventually customers. You may have methods to receive the numbers but no real information on precisely how a sale was created. Without marketing automation tools, you’re almost playing a guessing game.
Marketing automated tools create feedback that is not only useful for marketing, but allows for every section of the business to know what methods result in sales and should be included.
4. Asset creation costs
So you have a stunning blog, you have in-house/ outsourced experts working on your strategy, and you’ve implemented automated marketing tools. What's missing? Oh, that's right, the core. You will need to create assets for your Inbound Marketing, i.e blog posts, ebooks, infographics, landing pages, CTAs and more).
Inbound Marketing agencies will have tier 1 writers and designers ready on demand. Freelancers can also result in a cheap and effective option for ‘one off’ content. Just remember that your inbound assets are probably the most important factor in your Inbound Marketing strategy, this is not the place to cut costs. If you decide to get your in-house team to create the assets, make sure to follow the following editing checklist. Factor asset creation costs into effect.
Where CMO’s handle metrics wrong
1. “I know, I know, I should measure Inbound Marketing results, but I just don’t know how.”
A primal reason that CMO’s fail to use their analytic data in a beneficial way is that most of them don't know what metrics are of value. It's all well and good having a warehouse full of data, but utterly pointless if you don't know what data is relevant or how to process it.
"Quality is more important than quantity. One home run is better than two doubles."
Marketers tend to track the large, great looking data that simulates results. As a CMO, it’s your job to keep track and monitor the most important metrics when it comes to generating leads. By now, you are certainly familiar on how to optimise your website or blog in order to create a long-lasting marketing strategy. If not, we strongly advise you to read our detailed guide.
Next to keyword rankings and conversion rates, it is important to understand the lifecycle stages for successful inbound sales. Simply said, you must know the steps to turn a stranger into a customer.
MQL (marketing qualified leads) and SQL’s (sales qualified leads) are as well key metrics you should know by heart, as they are the basis to improve your marketing and sales approach to incoming deals. If you just thought about SQL being a database, then we advise you to read our detailed article on the importance of MQLs and SQLs when it comes to generating leads.
But big numbers don't confirm the generation of leads or conversions. While social media plays an essential part of Inbound Marketing and may lead to numerous results, it is important to track and monitor the quality of leads generated. Otherwise, you will end up asking yourself why you’re not getting high-quality B2B leads.
2. “I just measure what is easy!”
CMO’s love to collect the easy data, and often only focus on singular metrics, how many visits to a website, email systems to track how frequent emails are opened or how many attendees at events. The problem with prioritizing metrics like this is no promise of lead or conversion, and no variation in its methods. These metrics show interaction, yes, and generate potential leads too, but this data doesn't show in concrete what influence was successful and the most efficient at gravitating leads and securing conversions. This metric alone isn't enough to result in marketing improvement. To put into other words, there’s no easy way out.
Finding your way out of the maze
Good news: the hard part is over, so make yourself a nice cup of coffee and let the information sink in. Now that you understand the whole process of calculating and measuring the ROI, there are two recommended methods by marketing experts you should consider:
The method of Closed-Loop-Marketing is recommended by HubSpot. This process makes sure that every step of measuring your ROI is documented and shared between departments.
With this method, you have to focus on the right channels and offers that are the most powerful ones, help you to get clearer results, and gain insights into your target audience (as discussed here, defining the ideal customer persona is important to target your marketing strategy). It can also shorten your sales cycle and help you save overall investment costs.
In other words: The Closed-Loop-Marketing reporting helps you to quickly identify if something is broken or not. If it’s broken, fix it. If not, make it shine!
2. Attribution Modeling
A second, important method of reporting the ROI is tracking results of marketing programs to assign the value to the first (or last) program that has touched the deal. Since it is quite a complex method, it’s best to read through our overview of the attribution Modeling.
Reflect on past metrics that show Improvement.
“Study the past if you would define the future.”
No matter how big a number is, or the effort took, the primal thing to think upon is which metrics advance your marketing effectiveness. Data that proves one particular marketing method is working, will let the CMO know where to focus their time and resources, leading to less waste of financial investment. A market leader who doesn't keep track of practical results and data creates no progression and leads to financial loss. So, if you want to keep your title of a CMO, better stay on track.
If you found this useful, I invite you to download our FREE Digital Marketing MUST Reports and Measures eBook. This is your guide to start measuring what truly matters in your campaigns and take control of your spend. Get your FREE copy now >>