Still, the practice is often played down and misinterpreted. This is particularly true when it comes to the hugely popular key performance indicator ROI (Return on Investment).
Just look at this article – “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.” You don’t need to be a part of this infamous statistic. You can do things differently, and we can show you how.
In this article, we’ll explain, in simple terms, what this arcane, job-destroying ROI practice is. Simply put, it’s how much you paid for a campaign, versus how much money that campaign brought in, eventually.
We’ll tell you how to calculate Inbound Marketing ROI, and we’ll show you which metrics to keep an eye out too. We’ll also describe a few effective ways to track your Inbound Marketing, to make sure you’re doing all the right things – in the right ways.
The importance of keeping tabs on numbers
Generally speaking, CEOs see the marketing sector as a lot of work and very few benefits. Without numbers to back up their results, CMOs can have a really hard time proving the worth of an Inbound Marketing campaign. If they lack proof, CMOs can be perceived as a “glorified role without any purposeful impact on the bottom line.”
If you don’t keep track on ROI, it will be impossible to you as a CMO to prove what your business gains from a (probably) expensive campaign. If you can’t prove your worth, your B2B budgets will be cut. After all, why would CEOs focus on something that ‘might’ have an effect, when they can focus on something they ‘know’ will have an effect. However, slashing marketing budgets will most likely result in a slow and painful death of the business.
Even a failed campaign doesn’t necessarily mean you’ll lose your job – in case you’ve tracked the right metrics. But that’s the point – many B2B marketers don’t know what to track! At one point marketing leaders were polled on the weakest link in their departments, and 49% answered: “Use of analytics to guide marketing decisions.”
If you’re tracking the right KPIs, even an unsuccessful campaign can become a learning experience. It can even be used for future reference, making sure you get it right the next time.
How to calculate ROI
On first glance – it couldn’t be any easier. Take the revenue gotten from investing, subtract the cost of the investment, and then divide it by the investment’s total cost:
Simple, right? Wrong.
Measuring ‘hard’ and ‘soft’ metrics
Some metrics are easy to track, and we refer to them as ‘hard’ metrics. For example, if you used $100 to advertise something that costs $350, that means your ROI is 2.5.
When it comes to ‘soft’ metrics, things get a bit tricky. These metrics aren’t as easy to define, and their value is hard to determine. Those can be anything from social media mentions to word of mouth. They’re hard to quantify, but they have a profound effect on your bottom line. Sure, you could count your Facebook likes and put a price tag on them, but you’re just trying to leash an unreliable, unrealistic metric.
Calculating ROI for Inbound Marketing
By now you’ve gotten a glimpse of the basic formula and our guess is you must be enthusiastic about the return. However, there’s a problem – the investment. Putting it simply – your profitability is greatly affected by a number of factors that are hidden behind basic sales numbers.
There are businesses out there that simply subtract the cost of a marketing campaign from how much their customers paid. This approach is wrong, as it doesn’t pay attention to the ‘true’ budget for marketing. CMOs are sometimes blind to a couple of hidden costs of Inbound Marketing. Tracking these does create more work for them, but it also creates a more truthful ROI measurement.
When measuring Inbound Marketing ROI, keep an eye out on these four things:
1. Cost of employment
You’d be surprised how often the cost of employees gets neglected. Whether you’re working with an in-house marketing team or hiring freelance content creators, their time and expertise cost money. And when you take their experience and quality into account, you can end up paying a lot and getting very little in return.
2. Cost of hiring an agency
Looking at the short-term, it is probably wise (cost-wise) to work with an agency. They can offer skills that are needed at a specific point in time of your campaign, which most likely means savings. However, looking at the long-term, it might be wiser to calculate the ROI of training your own staff and move from an agency to in-house work at some point.
3. Marketing automation tools
Advertising is simpler than Inbound Marketing, but it’s also interruptive and its effectiveness is questionable. The best way to execute an Inbound Marketing strategy is to employ marketing automation tools. Make sure you keep these in mind when calculating your ROI, as their price can vary from $2,000 to as much as $60,000. There are various types of marketing automation tools, from “best of breed” solutions, to “all in one” ones.
These tools are designed to simplify a CMO’s life. Without them, a CMO’s work becomes infinitely harder. Marketing automation tools are proven to improve marketing efforts, as they provide more feedback in each sector. Also, CMOs can track their potential leads’ behavior right from the source.
There are tools out there that help you monitor traffic and clicks to your websites. However, these tool won’t show you how your leads turn into MQLs, SQLs, or customers. You’ll still be clueless as to how the sale was generated in the first place. Without marketing automation, you’ll be tapping in the dark. Marketing automation tools generate feedback that will help every business section understand just how sales were created.
4. Cost of creating assets
You can have an amazing blog, great authors and content creators, stellar strategy and the best automated marketing tools available, but without the assets, all of it will have been in vain. You need to create those blog posts, podcasts, ebooks, videos, infographics, landing pages and other content.
Inbound Marketing agencies will always have the best of their writers ready to go. Freelancers can also be used, and can prove to be a great (and cheap) option for a one-time gig. Just don’t forget – this is not the place to save money. Inbound assets are probably the most important factor in your strategy, so make sure you do it right
If you decide to have an in-house team creating the assets, make sure to follow this editing checklist. Add factor creation to your costs estimates.
Handling metrics the right way
1. You know you ought to do it – you’re just not sure how
Usually, CMOs fail at benefitting from their analytics data because most of them don’t know which metrics are valuable. If you don’t know how to process an abysmally big pile of data, it’s pointless to do it in the first place.
“Quality is more important than quantity. One home run is better than two doubles.”
CMOs usually focus on large, result-stimulating data. You need to keep an eye on metrics that point to lead generation and lead nurturing. By now you should be quite familiar with optimizing a site or a blog to create an enduring strategy. Otherwise, you should definitely check out our detailed guide.
Besides ranking keywords and conversion rates, you need to get acquainted with the different lifecycle stages of every successful inbound sales strategy. In other words, you need to know which steps you need to take in order to transform a stranger to a customer.
MQL (marketing qualified leads) and SQL’s (sales qualified leads) are also the two metrics you need to know when someone wakes you up from a drunken stupor at three in the morning. And no, by SQL we don’t mean the database. If that was your first thought, you might want to read up on the importance of MQLs and SQLs when it comes to generating leads.
Big numbers don’t necessarily have to confirm you’re generating leads or conversions. Social media is a fundamental part of an Inbound Strategy and could lead to great results, but it is also vital to keep an eye out on the quality of the leads you’re generating. If not, you’ll keep getting low-quality B2B leads and you’ll end up with a huge question mark above your head.
2. You end up going down the path of least resistance
CMOs are keen on tracking simple data. They’ll often focus on singular metrics, like the number of visitors to a website, the number of emails opens, or how many people attended an event. The problem here is that these metrics speak very little of leads or conversions. They show interaction and could create potential leads, but these metrics won’t tell you which influence was most successful at building leads and creating conversions.
They’ll hardly help you improve your marketing strategy. Yes, at the end of the day – going down the path of least resistance won’t help you much. You’ll still need to roll up your sleeves.
Solutions in sight
Congratulations – you’ve successfully made it through the tough part. Now, after you’ve digested how calculating and measuring ROI works, here are two methods for your consideration (recommended by experts):
This one means you measure every step of your ROI and share it with every department within your company. It’s recommended by HubSpot.
This method means focusing on the right channels and most powerful offers. This will help you get clearer results and get your hands on valuable target audience insights. Finding the perfect customer persona is vital, you can read more about it here. Also, this could result in a shorter sales cycle and more savings, overall.
Putting it simply – Closed-Loop-Marketing reporting allows you to quickly spot if something isn’t working properly. If it isn’t – you can fix it. If it is – you can improve it!
2. Attribution Modeling
This one is a bit more complex, so you might want to read up on our overview of Attribution Modeling. In a nutshell, this method of ROI reporting tracks marketing programs results to assign the value of the first and last programs that touched the deal.
Think about your old metrics that show signs of progress.
“Study the past if you would define the future.”
Essentially, what you want to be doing is constantly thinking about the metrics that improve the effectiveness of your marketing campaigns. If you have data that shows a certain marketing method as successful, it will help CMOs know where to focus their resources. At the end of the day, that means less money thrown out the window. A marketer that doesn’t keep tabs on what works, and does not keep an eye on progress is bound to create losses.