You know that your inbound marketing efforts are definitely working. You see the increase in leads. You see people converting thanks to your lead nurturing program. And you know your sales people are getting more sales-ready leads than ever before. But knowing isn’t usually good enough for your bosses. Higher management wants to see hard facts and numerical details, and that means grading your inbound marketing efforts based on achieved sales goals. If you can’t measure inbound marketing ROI, you’ll have trouble getting a budget approved for future years. After all, numbers drive many business decisions, especially budgets.
Though there’s no doubt that the ROI from inbound marketing is higher than outbound ROI, inbound marketing ROI can be a little tricky to calculate. Inbound is a marathon-like strategy with many interconnected activities and many of the metrics are soft. Though it might seem impossible, or at least challenging, to objectively calculate inbound marketing ROI, it is possible if your inbound marketing is an empirical and measured process.
Here’s how to calculate inbound marketing ROI.
In the past, you couldn’t really calculate the ROI of your marketing efforts. How can you possibly tell how many sales came from your billboard ads or radio spots? You couldn’t, really. But inbound marketing comes with great analytics that can tell you virtually everything you want to know about your visitors, your leads, and your customers. As long as you use them.
To get the most out of your analytics, identify the most important numbers, which can vary based on your goals. If you spend a lot of time and resources on content generation, then definitely look at lead generation metrics from content marketing. Other critical metrics to include in your calculations include organic website visitors and percentage of total leads converted.
Know Your Cost of Customer Acquisition
To calculate inbound marketing ROI, you’ll need to understand your sales and marketing costs, which includes salaries, marketing spend, and expenses during the time span that you’re calculating. Once you know these total costs, you’ll have to divide them by the total of new customers you get over that period of time.
Understand Customer Lifetime Value
Next up, you need to know your customers’ annual spend at your business. Once you have this number, multiply it over the projected life of your customer in order to get the customer lifetime value. Look at your historical data for help here. Note that this will be more of an estimate than a perfect expected life value.
Calculate Inbound Marketing ROI
Now you have all of the information you need to calculate the return on investment of your inbound marketing efforts. Use the equation Lifetime Value minus Customer Acquisition Costs, then divide by Lifetime Value. To get the payback period value, simply divide your Customer Acquisition Costs by your Annual Value.
Once you know your ROI and payback period, you have the basic information you need to help management make informed budget decisions for your department. The higher your ROI and the lower the payback, the more likely you are to get your boss to invest more in inbound marketing.
Tip: Measure ROI over the Long Term
Though you might be tempted to start calculating return on investment after a month or two, try to hold off until your efforts really start to snowball. Inbound marketing isn’t a sprint. It takes time for the efforts to really gain steam. It can take several months for you to get a lead from inbound, and the longer you work at it, the better the results will be. So, wait a while and measure ROI over the long term.