Tutorial: How to Calculate the ROI of an Inbound Marketing Plan

October 15, 2014 Jamie Cartwright

164900811These days, marketing departments tend to describe their work as “sales improvement efforts.” They know that it’s what their executives want to hear.

They also know that their performance is graded based on achieving sales goals. So, it makes sense to brand marketing in a sales-friendly way.

But is your marketing team actually prepared to prove that its marketing efforts have created sales growth—in measured, numerical detail?

For that, you need reliable metrics on your every marketing effort. You need historical sales information. And, ideally, you need some idea of your goals for future improvement. None of this is easy, but if you’re building a marketing plan and you can’t predict your plan’s potential ROI—in real $$$ terms—then, there’s no reason for company leadership to approve a budget.

CFOs want a guarantee of ROI, and for that, you need an objective, evidence-based view of your marketing efforts.

Contrary to popular belief, you can objectively predict marketing’s impact on revenue…but only if your marketing is a measured, empirical process. Inbound marketing not only offers the metrics you need; its strategy also ensures the predictability of a sales funnel, moving prospects toward a purchase in measurable increments.

So, let’s dig into how constructing an inbound marketing plan should enable you to calculate the ROI of inbound marketing.

Building a Plan Based on Your Revenue Needs

The most effective way to think about this is to start with your goals and build a marketing plan that meets those goals on a quantitative basis. Let’s say that company leadership has said they want a 20% increase in sales revenue over the next year. There’s your goal.

sales-funnel-lead-conversions

If this year, your company will see 15 million in annual revenue, then a 20% increase in 2015 would be an additional 3 million. How will you reach it? Here’s where a little bit of historical sales data is handy.

Let’s say that for the past two years, the amount of revenue generated from new customers was $1 million dollars per year. And the average number of new customers each year? 4. That’s $250,000 per new customer.

To get to $3 million, it appears that you would need at least 12 new customers next year. But is that even realistic? Previous sales data can help predict this. If, in the past, your sales teams has closed 70% of sales opportunity leads, then you would need more than 17 new sales opportunities next year. That means 17 pursuits, 17 sales pitches, and a relatively high expectation that you’ll get the business.

Those sound like 17 really, really good leads. But consider how many leads don’t fit a sales opportunity. By our experience, marketing can rarely give 50% of marketing-qualified leads over to any sales team. There are too many who aren’t the right size, don’t have buying authority, or simply can’t afford to make a major purchase. 

So, then, from this goal, suddenly your marketing team will need to have at least 35 new marketing-qualified leads next year! How many plain old leads do you think that equates to? Using an inbound marketing approach, many companies can expect just 14% of their leads will be marketing qualified—just 14%!

That means your company is looking for 250 new leads for every 17 sales opportunities. That’s 250 people filling out a form to access useful content that you produce! That better be some pretty strong content.

Here’s the kicker. Nobody can get 100% of visitors to convert into leads. In fact, a good, healthy estimate is to expect just a 5% conversion rate, per visitor. That means, in our scenario those 250 leads will need to be gathered from over 5,000 annual propsects

Marketing-Budget-ROI

And remember, these are just assumed rates! For some industries, the conversion rates could be higher. For others, they might be a bit lower (though probably not that much). The point is that in order for your company to generate $3 million in revenue, your plan better be prepared to gather at least 5,000 annual prospects, and there’s no other way to do that than to get visitors on your website.

Calculate Customer Lifetime Value (LTV) to Prove Your Plan Will Work

When you begin to consider that your marketing plan must reach 5,000 visitors in a year, that can be daunting for many, many companies. In a B2B world, 5,000 visitors can feel even more overwhelming than the $3 million you’re trying to turn it into.

Sometimes, it’s possible that the goals are too high, given what you can expect from marketing. You don’t want your inbound marketing plan to be full of wishful thinking. By calculating a customer’s lifetime value, we attempt to calculate a company’s desired monthly revenue within a prescribed number of months - which allows the spreadsheet to calculate the growth gap, the difference between the stated goal and what the subject company will achieve if they keep doing what they've been doing. For many companies this is a major “Oh S**T!” moment because that’s exactly when the marketing exec starts to realize their goal would require a serious commitment to overhauling the marketing department in order to work.

By going after the customer’s lifetime value expectation, you get a more objective approach to building a sales and marketing plan than even your CFO has seen!

The post originally appeared on the Weidert Group's Whole Brain Marketing Blog. The Weidert Group is a HubSpot Partner Agency Located in Appleton, WI.

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