What’s the ROI of Inbound Marketing and How to Calculate It?
- 1 Understanding Inbound Marketing
- 2 Key Aspects of Inbound Marketing
- 3 Measuring the ROI of Inbound Marketing
- 4 Tools and Metrics for Measuring the ROI of Inbound Marketing
- 5 Challenges in Measuring ROI
- 6 Making of the Return on Investment of Inbound Marketing
- 7 Final Thoughts
Marketing ROI can sometimes be hard to conceptualize whether you’re looking for clients, investors, or simply trying to please your boss. Essentially, the goal of inbound marketing is to make more than you spend.
Once you’ve figured that out, you can increase your spending in the high profit areas to scale up your income.
That’s the simple part.
But, how do you explain ROI as it pertains to brand awareness or topical authority? These two important aspects of trust don’t exactly have a quantifiable ROI.
Regardless, it’s important to understand how to determine your inbound marketing ROI and how you can increase your return on investment over time. This guide will help walk you through it.
Understanding Inbound Marketing
If you’re new to the digital marketing world, you might not know what inbound marketing is. It’s a marketing tactic that focuses on attracting and engaging customers by providing them with valuable information.
You’ve likely heard of outbound marketing which is the opposite of this. Outbound marketing focuses on reaching for customers using tactics like cold calls, advertisements, and outside sales.
When you use inbound marketing, your goal is to draw potential customers naturally and develop relationships. You then become a source of information to them and a trusted resource and that’s how you sell to them.
Key Aspects of Inbound Marketing
Since successful inbound marketing relies on naturally drawing your customers in, organic traffic is the foundation of customer acquisition. Keep in mind, this doesn’t only have to come from SEO and content.
Content lies at the heart of inbound marketing. It encompasses blog posts, articles, videos, infographics, podcasts, and more. The content you create should be informative, relevant, and valuable to your target audience. By addressing their pain points, answering their questions, and providing solutions, you can attract and retain their attention.
Search Engine Optimization (SEO)
The key to getting people to see your content is SEO. This involves optimizing your website with relevant keywords to help it rank higher in the search engines. As your content ranks higher, more people will see it.
If the content you’re creating is as valuable as you think it is, people will engage with it and hopefully do business with you. This is where the ROI comes from.
As I said, organic doesn’t only mean search. Organic visitors can find you on social media platforms when you create valuable content, engage with your audience, and build a community around your brand. Effective social media marketing is interesting, engaging, and interactive. I recommend staying on the cutting edge and using platforms like TikTok to create short, punchy, and scroll-stopping content.
Email is another powerful inbound marketing tool that can help you build a tribe of leads that you continue to market to throughout their entire journey through your funnel.
The reason why email marketing is so useful for inbound traffic is because it allows you to take someone who found you naturally and nurture them over time with marketing material, valuable content, and gentle nudges.
Measuring the ROI of Inbound Marketing
Let’s assume you’re doing all or some of these things, great, now how do you conceptualize these efforts in a way that explains how much money you’ll make in return for the things you do everyday.
In this case, ROI represents the ratio of the gains or benefits obtained from your inbound marketing efforts to the costs incurred during the same period. It essentially answers the question: “Is the time, money, and resources invested in inbound marketing producing a positive return or financial value for your business”?
This is where it gets tricky.
Calculating the ROI of inbound marketing isn’t always about dollars and cents. There are non-monetary benefits such as customer loyalty, trust, awareness, and thought leadership. Increased rankings in the search engines due to SEO doesn’t typically yield a quick gain either so you need to be able to look at the long-term benefits of the short-term efforts.
Tools and Metrics for Measuring the ROI of Inbound Marketing
Now let’s get more specific. If you’re trying to measure these non-monetary benefits, you’ll need to understand what metrics are most important to assessing financial and non-financial gains. There are three main metrics you’ll want to look at:
- Customer Acquisition Cost (CAC) vs. Customer Lifetime Value (CLTV)
Let’s take a look.
Let’s just assume you’re trying to pitch SEO services to a client and you’re trying to explain what the benefits and ROI is of SEO and content marketing. You’ll need to understand how to read Google Search Console, Google Analytics, and you’ll likely want to use a popular SEO data tool like Ahrefs.
This example here shows the growth of an ecommerce website year over year. Their traffic quadrupled during this time and there is sales data to back that up.
But even without the sales data, a site owner can visualize how four times more traffic will impact their business if they understand what each customer is worth.
Being able to explain the power of traffic to your potential clients is a great way for them to understand the ROI of inbound marketing.
Next is conversions which measures the number of people that land on your website and actually do something such as make a purchase, sign up for something, or whatever. You can have all the traffic in the world but it doesn’t matter if they land on your website and then click away without performing an action.
There are two main metrics here:
Conversion Rate: This metric measures the percentage of website visitors who take a desired action, such as signing up for a newsletter or making a purchase. It’s a direct indicator of how well your website and content engage and persuade visitors.
Bounce Rate: Bounce rate indicates the percentage of visitors who navigate away from your site after viewing only one page. A high bounce rate might suggest that your content or landing pages need improvement.
Using Google Analytics, you can set up conversion goals to track certain actions on your website. A conversion rate of 1% is considered average.
CAC vs CLTV
Determining how much money you’re spending vs how much money you’re making is essentially what an ROI is. So, if you can figure out how much it costs to acquire a customer and compare that to their lifetime value, you can better conceptualize the ROI of retaining customers.
Comparing CAC to CLTV allows you to determine whether your inbound marketing efforts are generating customers at a cost that aligns with their long-term value to your business. A positive ROI is achieved when the CAC is lower than the CLTV, indicating that your marketing efforts are contributing to sustainable growth.
Challenges in Measuring ROI
Measuring the ROI of inbound marketing requires you to navigate complicated data that doesn’t always have a direct ROI. Here are some of the issues with this:
Timeframe for Results
One of the primary challenges in measuring ROI in inbound marketing is the timeframe for results. Inbound marketing strategies often focus on building organic traffic, cultivating relationships, and nurturing leads over time.
Consequently, the impact of inbound efforts may not yield immediate results. This can make it challenging to attribute specific outcomes to individual campaigns or actions.
Attribution refers to the channel or touchpoint that resulted in the conversion. With inbound marketing, this isn’t always easy to figure out; especially if you have multiple marketing channels.
The challenge then lies in scaling. If you don’t know where the money is coming from, how do you know where to spend it?
You need to carefully analyze your customer’s journey and use all the metrics I’ve talked about so far to find out where your customers are converting at the highest rate.
Making of the Return on Investment of Inbound Marketing
Let’s put all of this together now. We understand that there is an ROI and it’s not always monetary. So what is it?
Increased Traffic: The main purpose of inbound marketing is to draw people in by creating unique and valuable content that ranks well in the search engines.
More Leads: A lead is valuable and effective inbound strategies that target your ideal customer can help you capture the interest of potential customers.
More Conversions: Using the right content will draw in the right people who are interested in working with you. This creates more conversions and an easier to determine ROI.
Brand Awareness: Inbound marketing efforts enhance brand visibility and recognition, leading to a more significant market presence.
While it’s not easy, figuring out the ROI of inbound marketing is essential whether it’s for your own gains or those of your clients. At this point, I shouldn’t have to help you understand the fact that inbound marketing is the way to go.
As your sales increase, you can scale your inbound marketing efforts as well by spending more on marketing.
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