Whenever I’m talking with a prospective client about inbound marketing, after seeing a number of success stories, one of the very first questions they ask me is, “Will inbound marketing work for my company?”
The short answer is “it depends”.
The truth is that I don’t think inbound marketing is actually a good fit for every company and so it’s critical that, prior to making a significant investment in inbound for your organization, you first take the time to gain an understanding of what types of companies inbound is best for.
Some Criteria For Success With Inbound
There are all sorts of criteria that you could use as rules of thumb, however, in my experience, the type of company that inbound marketing will most benefit are companies that have the following two criteria:
Sell a product or service that is somewhat complex
The lifetime value of your customer is at least $500
Complex Products and Services
Inbound works the best when the buyer’s journey begins with online research, so the more complex your product or service, the more questions potential customers are going to have.
For example, a friend of mine owns a company called River Pools and back in 2008 when the economy tanked, Marcus’ pool business also tanked. Back then, his primary source of lead generation was a $200,000 annual spend on advertising. After the economy collapsed, he couldn’t afford to keep spending that much, so Marcus decided to give inbound a try.
His plan was incredibly simple – and incredibly effective.
Marcus has been in the pool business for years, and over that time, he’s made thousands of sales calls. During each and every one of those sales calls Marcus’ prospective customers asked plenty of questions, so, in a stroke of genius, Marcus decided to write a blog post to answer every pre-sales question he could think of.
A few hundred articles later, Marcus’ website now receives tens of thousands of visitors a month and produces a steady flow of highly qualified leads.
Today, River Pools is doing better than ever, and thanks to not having to spend $200,000 a year on advertising, profits are up as well.
Lifetime Value is Greater Than $500
Like every other rule in life, there are going to be exceptions to this rule, so take my advice on lifetime customer value with a grain of salt.
In the case of River Pools, their lifetime customer value was well over $500. The cost of a pool is measured in the thousands, and that is one of the reasons why the inbound marketing approach was so profitable for them.
The reason that I suggest you use a $500 LTV as your rule of thumb comes down to this: in order for any type of marketing to generate a positive ROI, the cost to acquire a customer must be less than the lifetime value of a customer.
For example, if you are spending $60,000 a year on inbound, which is the low end of what it could cost you, and the math you used in your forecast told you that it might be reasonable to expect to land 100 customers and your customer LTV was $500, inbound might not be a worthwhile investment.
However, if your customer LTV was $1000 and none of our other assumptions changed, then the ROI in your investment in inbound would be 67%.
As you might guess, the example I’m giving you here is extremely simple and as such, to determine if inbound will have an ROI for you, you are going to need to do some calculations.
How to Calculate Direct ROI for Inbound
The formula for calculating inbound marketing ROI is pretty straight forward and goes like this:
Website traffic x conversion rate = leads produced. (1-3% of total website traffic is a good assumption for conversion rate)
Leads produced x conversion rate = new customers. (you should use the conversion rate for your offline leads as a place to start)
New customers x revenue per customer = total revenue for inbound. (you should already have good data for average revenue per customer)
Revenue per new customer x expected lifetime of customer = customer lifetime value. (you should already have good data for average expected lifetime value of a customer)
The easiest way to do this is with a spreadsheet like the one below:
In the spreadsheet above, be sure to take note of the following key data points:
In this example, the budget for 12 months of content production was $60,000, and the total revenue produced was $96,229. It is important to remember that customer LTV is likely much greater than the initial revenue per sale of $12,000, so if that is the case in your business, the total ROI would be much higher than what is shown above.
As time goes by, the cost to acquire a new customer decreases from $13,333 to $4,673 because as the volume of published content increases, so does traffic, however, the cost to produce new content has remained fixed at $5,000/month.
In this example, the revenue per sale assumption used was $12,000. So, if your customer LTV is higher, the ROI for you would also be a lot more.
How to Calculate Indirect ROI for Inbound
As you can see, calculating direct revenue is pretty easy to do, and it will be as accurate as the assumptions you make about traffic and conversion rates.
Calculating indirect revenue from inbound is a bit more tricky, however, as the assumptions aren’t so black and white.
For example, what if the content you publish doesn’t drive any traffic to your site? Receiving zero traffic is virtually impossible, however IF that was the case, was your investment in inbound marketing a waste?
If you don’t rely on a direct sales force to sell, then yes, your investment might well have been a waste. However, as I mentioned above, the chances you are going to receive zero new traffic are virtually nil.
If, on the other hand, you do rely on people to also generate leads by networking and prospecting, then your investment in creating content could still add a great deal of value.
Suppose you have a team of sales reps, and those reps are tasked with prospecting a list of target accounts. Would your content prove valuable to them? Absolutely!
Consider the sales rep who prospects via email. Instead of constantly sending prospects emails that talk about your company’s products and services (which will be of little interest to prospects at the top of the funnel), your team will now have a complete library of relevant, high-quality content to send to their prospects instead.
And the best part is this: if you have done a good job of defining your buyer personas and created content that is relevant to them, they will actually be interested in reading it!
For example, we regularly use email to contact our list of target accounts, and when we do, we rarely talk about our company’s services. Instead, we focus on sending them articles and eBooks that we have written, which, based upon our research, we believe will be of interest (helpful & useful) to them.
When you take the ‘helping’ approach, instead of the much more common approach of ‘sell, sell, sell’, people will actually give you a much warmer reception!
In the screenshot below is the actual reply from one of my prospects. This was the reply to the fourth email that I’d sent him.
As you can see, prospecting, supported by relevant, high-quality content, can actually work extremely well with respect to lead generation. If you’d like to learn more about how to do this, just watch the video below. It is a recording of a webinar that we did a while back to teach people exactly how to do this.
When you watch the webinar recording above, you are going to learn:
The right way to get started with inbound marketing
How to create content that people actually want to consume (and share)
How to combine content and prospecting
How to easily build a targeted list of prospects using free tools
How to get the email address for each of these prospects with just one mouse click
How to create an effective email prospecting sequence
What to say in your emails
How often to send them
How to completely automate your email prospecting
What Industries Does Inbound Marketing Work In?
So, what if you don’t sell fiberglass pools?
What if your company is in one of the following industries:
Legal Services
Financial Services
Software
Recruiting
Construction
Manufacturing
Consulting
Marketing Services
Healthcare
As long as your prospective clients have a lot of questions to ask before they decide to buy from you, then inbound will work for you (assuming you have a solid strategy in place, of course).
Regardless of your industry, chances are you are going to be able to find a success story you can relate to that will give you confidence that inbound will work for you.
Can We Help?
If you like what you have read and want to schedule a complimentary discovery call, please click here or call us at 208-391-2057.
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Hey, thanks for the info. Now what?
If you need any help with content creation, we have tons of free resources to get you over the hump. Please subscribe to this blog to ensure that you never miss an article.
Have questions or comments? Please use the comment form down below. We read and reply to every comment.
If you really enjoyed this post, please help us to spread the word by clicking one of the social media sharing buttons.
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