Starting an inbound marketing program can be exciting (and frightening). You know it’s an essential strategy to help your business grow, but getting buy-in from internal stakeholders is difficult because of the long-term resource commitment, both financial and human capital.
Any CFO who survived the Great Recession will no doubt expect to see an objective marketing plan that provides tight cost estimates and realistic expectations of results, including the value of the new business and the time needed to realize the revenue or margin.
Calculating inbound marketing payback for industrial manufacturers can be challenging; sales cycles are long, the range of potential customer lifetime value is broad, and the actual number of customers closed during any fixed period is typically relatively small. That’s why we always remind clients of the purpose behind a payback analysis: to see if there’s acceptable payback for the budgeted spend across a relatively broad range of potential results.
You may have noticed we use the term payback. We do that because it’s a simpler concept than ROI. It answers a really straightforward question:
How long (usually in months) does it take for an investment to provide a return equal to the amount spent?
We covered payback calculators in a previous post: It Doesn’t Add Up! Beware The Inbound Marketing Payback Calculator explores why, even though it’s a simple concept, payback math can be complicated and nuanced, and why it needs to be customized to each business.
We also answered an often-received question when it comes to the topic of inbound marketing payback in this video: When Will I See Payback from an Inbound Marketing Program? succinctly covers various factors that influence payback.
With those as kindling, let’s fire up the discussion about calculating inbound marketing payback. Here are three steps we recommend you walk through.
1. Start Smart
Figure out your starting point. That applies to your business performance and your lead generation efforts. If in the next year you do nothing different in your sales and marketing efforts, what do you expect for the next 12 months for revenue? And likewise regarding your website’s ability to attract and convert leads. What are your website metrics today that you’ll use as your base to determine growth?
The difference between your status quo trajectory and the growth you desire is what you want to satisfy through your inbound program.
2. Determine Funnel Method Targets
Since now you know how much growth you’re seeking you can work backward (assuming you know what new customers are worth) to determine how many new customers you need from your inbound efforts.
To construct your sales funnel with KPI targets (a 1-year target is a great horizon) go at it from both directions. When you start at the top you’ll look at current site sessions, what competitors are doing to compete for search rankings, and the overall relevant search volume in the industry, and use what you learn to estimate a reasonable 1-year target.
Next, you’ll apply reasonable conversion rates from top to bottom: sessions to leads, leads to MQLs, MQLs to SQLs, SQLs to opportunities, and finally, opportunities to new customers.
Now, turn it upside down. Start with a clean slate and consider the end result you’re looking for: how many new customers per month you need to be adding at the end of one year of inbound marketing. Start with that number and work the funnel backward with the same conversion rates you used in the first exercise. How does this funnel compare with the first? If they’re dramatically different (with more ambitious targets in the second) that usually means you’ll need to consider getting more aggressive in your program. Higher publishing frequency, more assertive advanced content, maybe more aggressive use of PPC or paid social media.
3. Create a Payback Spreadsheet
As one of our favorite philosophers Yogi Berra once said, “If you don’t know where you’re going, you’ll end up someplace else.” A payback spreadsheet helps you lay out month-by-month your expectations on new customers and their value, alongside the monthly marketing spend number that is responsible for generating new customers. What it generally helps businesses see is, in the front end of a program, the outlay is greater than the benefit.
In the beginning it might actually be 6-8 months where each month you’re spending more than you’re getting, because SEO improvement isn’t an instant easy-button exercise. It’s a gradual build over time. So the spreadsheet reflects that it takes time for your content and other website assets to reach the critical mass needed to achieve payback.
But then at some point outside of 6 months the curve inverts, and the benefit exceeds the cost each month. Now you’re in the great stretch called “Payback time!”
And the beautiful thing about inbound marketing is once your efforts have gotten you into that positive zone, you continue to realize the greatest benefit from content you created 6, 12, or 18 months earlier, while you continue to create ever-more-effective content on an ongoing basis. It’s more effective than the first stuff you created because you’ve learned in the interim what works best, and you’ve improved your skill at optimizing for SEO purposes.
So now you’re sitting on non-perishable assets, you’re benefiting from a well-oiled lead-generation machine, and you’re smarter at building the latest generation of attraction assets.
Ready to Get Serious?
If you think inbound marketing may be right for your business and you want to understand when you could achieve payback working with an inbound partner like Weidert Group, I encourage you to talk to us today. We can help demonstrate to your leadership team that the time to sit on the sidelines is over, and the time to invest in an inbound growth strategy is now. Simply click the button below to start a conversation.