So, you’ve been working on your inbound marketing techniques, and you can tell that things have been going pretty well – you’re making more sales, you’re generating new leads, and you’re generating more followers on social media. Even though the strategies that you’ve put in place may be working to the naked eye, you are going to want some to see some solid statistics on whether you’re actually getting your ROI (Return on Investment). This will be especially true if you’re reporting to a manager, or someone who wants to see proof that your inbound digital marketing campaigns is successfully. After all, you want to know that your company is investing their time and money wisely. Read on for exactly how to calculate your ROI for inbound marketing, and why it needs to be done.
What is inbound marketing?
Just to make sure we’re on the same page, we should first establish what inbound marketing actually is. Inbound marketing is not just the act of paying for a quick ad for your business, and calculating the return on the investment you made for said ad. Inbound marketing is so much more, and usually combines a variety of methods and sources, including the following:
- Social media
- Email campaigns
- SEO optimization
- Influencer outreach
- Content creation
- Word of mouth
- Supporting and sponsoring events
These are only a few examples, and they have all have proven effective in the long term. Inbound marketing is not a quick fix, and it requires ongoing attention and support. The ultimate goal is to both grow your client base, and develop a long term following that lasts.
How much time does it take to calculate an accurate ROI?
Due to the fact that inbound marketing is not a quick fix, you cannot calculate it over a short period of time. As we’ve stated, it is not a campaign, and needs time in order to obtain an accurate result. Having said that, how much time is safe for calculating an accurate ROI? While this can depend on what inbound marketing techniques you have decided to take on, generally, you should not be trying to calculate your ROI until at least seven months into your campaign. HubSpot has crunched the numbers in regards to traffic and inbound marketing within seven months of beginning a campaign, and the results are in. Their study indicates that 85% of companies that use inbound marketing increase their traffic within seven months, with the most change occurring around the two to four-month mark. In the same study, it showed that 83.9% increased leads within the first seven months, and 49.7% increased sales within the first seven months.
Key performance indicators (KPIs) and conversion rates
After establishing when it’s safe to calculate an accurate ROI, you’re going to want to look at your key performance indicators (KPIs). These clearly depend on your goals, but there are definitely going to be some common KPIs no matter what. When it comes to your ROI, you are not just thinking about how many social media followers you were able to gain – you are thinking about what sort of profit was generated as a result of this, which brings you to your conversion rate. Here are some top key performance indicators that you should be tracking:
- Organic searches
- Marketing qualified leads
- Social media reach and engagement
- Sales qualified leads
- Email subscribers
- New user registrations
- Content conversion rates
- New customers
Calculating ROI for inbound marketing
Clearly, you are going to need to be keeping track of your analytics to be able to calculate your ROI (and if you’re not, you really have no business even knowing your ROI). There are plenty of ways to calculate your analytics for each KPI online, as the importance of digital marketing consistently grows, including Google Analytics. The best way to successfully calculate your ROI is with a simple equation, but you’re going to need to know what numbers to plug into this equation. You are going to want to look at the following:
- The cost of customer acquisition – How much money did your company spend during this specific period of time that you’re calculating? This includes both the money spent on marketing and expenses, as well as your employees’ (if you have any) salaries.
- Customer lifetime value – To calculate the customer lifetime value, you need to know how much annually your customers are spending on your business. You then need to take this number, and multiply it over the average life of your customer (and by this, we mean how long they generally stay your customer for, not how long they will live).
One you have these numbers in the bag, you are ready to calculate your ROI. The equation is simple: your customer lifetime value minus your customer acquisition costs, then divide by your customer lifetime value. If you wish to calculate your payback period value, you just need to divide your customer acquisition costs by your annual value, and done!
Why is knowing your ROI important?
Unless your business is absolutely made of money, you are going to want to know if you’re getting the most out of the money you’re spending on your inbound marketing, plain and simple. This comes down to how you’re allocating your inbound marketing budget, if you’re spending enough, and if you can afford to spend more. When you think about it, the entire reason you created a marketing budget in the first place is to get a return on investment. If this isn’t going according to plan, you need to take a good hard look at how you can make the necessary changes to make a reasonable profit.
We hope that this has given you a not only an understanding about what you need to know to calculate your company’s return on investment, but also why it’s important. The last thing you want to do is invest your business’s hard-earned cash blindly – and without knowing your ROI, that is essentially what you’re doing. Calculate your company’s ROI to find out what’s working, what isn’t, and what you could do differently.