Calculating the value of online interactions, then coming up with an estimated return on investment (ROI) to inform budgets and forecasts, can be challenging.
Fortunately, in today's data-driven, online world, it's never been easier to track ROI for your marketing campaigns, channels, and tactics.
Many aspects of inbound marketing can be tracked by web analytics platforms.
When configured properly, they 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 overall inbound ROI.
TABLE OF CONTENTS
But first, the elephant in the room . . .
As with any type of marketing, the effectiveness of a campaign relies on a host of factors, like execution, but we'll address this question with real data from our client work.
Main services provided:
Results:
Main services provided:
Results:
As with any kind of ROI, it depends. HubSpot sums up the answer to this question this way:
"The goal of ROI is to make more than a dollar for every dollar you spend on a marketing campaign. What's considered a 'good ROI' can vary based on the type of marketing strategy, your distribution channels, and your industry."
Their parting advice is to compare the performance of similar campaigns to set internal benchmarks for what's above and below average, as well as looking at your sales numbers.
For tactics you've never tried before, it can be worthwhile to invest a modest amount in a small campaign (such as a limited search ad campaign) to see how that performs.
Then, you will have baseline data you can use to determine whether this could be a worthwhile channel for you.
Inbound marketing includes a lot of different tactics. Fortunately, HubSpot, the company that coined the term "inbound marketing," released a partner report a few years ago that included the most popular inbound services offered by agencies.
They were:
This just scratches the surface of what tactics fall under "inbound marketing," but it demonstrates the diversity of methods companies use to pursue their goals. Learn about more tactics.
First, let’s look at some critical factors that will affect your calculations.
Inbound tends to be a long-term strategy.
For example, after two years of work, including website optimization, local SEO strategy, and content marketing (inbound strategies) as well as cutting ad spend (an outbound strategy), we were able to help one of our clients double lead volume.
After 7 years, it had quadrupled.
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 inbound to generate leads which turn into sales? It varies widely, but may take several months to a few years, depending on your industry and goals. Here's what this looked like for three B2B clients.
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.
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:
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
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.
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.
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), 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 this is 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.
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?
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?
Let's say a lot of people are viewing your “10 Ways to Improve Employee Wellness Programs in 2023” white paper landing page and filling out a lead generation form that allows them to download it as a PDF.
It might make sense to add more calls-to-action that lead website users to that landing page throughout your site.
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.
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.
For example, maybe you discover that your white paper entitled “10 Ways to Improve Employee Wellness Programs in 2023” 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:
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.
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.
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.
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.
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.