Building a business case for inbound marketing involves several considerations including the overall expected return on investment, the contribution of inbound to the overall sales goal, market competition, and expected effort. In this blog, we cover each of these considerations and provide an example of how to calculate a reasonable cost.
Building a Business Case
What is the expected return?
Like all marketing, inbound marketing is a revenue creation activity. Any marketing plan worth its salt, offline or online, has a revenue plan, and inbound marketing is no different.
Imagine you run a $20M manufacturing company and you plan to increase revenue $4M in the next 12 months (20 percent growth). On average, a customer is worth $80,000 a year and usually remains a customer for three to four years. Conservatively, this means a customer is worth $240,000 (3 years * $80,000).
How much do you expect inbound marketing to contribute to the overall sales plan?
When you know the total revenue target, the value of a customer, and the typical sales close rate, you can work backwards into the number of customers and sales leads needed from inbound marketing.
Let’s assume you’ve already had some online marketing success. You determine inbound marketing can likely create half of the new customers. The other 50 percent can be created from other marketing and sales activities. Now you have a measuring stick for both inbound and offline sales and marketing approaches.
Using the previous example, this yields a $2M target for inbound marketing activities. Since each customer is worth $80,000 a year and your plan is for 12 months, you’ll need 25 new customers from inbound marketing – or two to three customers a month.
What portion of this revenue could you, or would you, be willing to spend to acquire these new customers?
How competitive is your industry?
In highly competitive industries, a higher inbound marketing budget is required. It would be unreasonable to create a blanket budget amount without considering the individual company’s competitive landscape, but you can generally get a good idea of how competitive an industry is by reviewing online competition and the cost of pay-per-click ads. Highly competitive industries benefit from budgeting for pay-per-click and/or display advertising because more is needed to attract attention in a crowded marketplace.
What is the expected effort?
Much like the overall marketing budget, your online marketing budget needs to align with the growth stage the business is in. Different stages require different marketing mixes. For instance, a start-up generally requires more marketing spend as a percent of gross revenue than a long-established business.
Determining a Reasonable Budget and Timeline
Affordability is an important consideration, and aligning expectations with budget is also needed. Here are a few considerations that make this planning process easier:
- Marketing to an existing market
- Have a set revenue goal
- Know the value of a customer
- Know what percent of website visitors typically turn into qualified leads
- Have some idea of what is reasonable to expect based on previous sales efforts
And here is an example to illustrate this process:
1. Find out how many customers are needed.
Following the example above, let’s assume a customer spends an average of $10,000 per year. To obtain a $400,000 lift in revenue in the next 12 months, the plan calls for 40 new customers: 40 x $10,000 = $400,000.
2. Determine the rate at which an online lead becomes a customer.
Let’s assume the typical close rate of sales on qualified leads that have received proposals is 50 percent. You calculate the number of sales qualified leads as Customers needed / Close rate = Sales qualified leads needed. In this case, this calculation is 40 / .5 = 80.
Since you’ve already decided that half of sales qualified leads need to come from online marketing, we know 40 sales qualified leads are needed from inbound marketing. Over 12 months, this breaks down to three to four sales qualified leads from inbound marketing per month.
3. Determine the total volume of leads needed
How many raw online leads turn into sales qualified leads? If you’re using an inbound marketing tool like Hubspot, you can pull this number from your dashboard. Otherwise, you’ll need to approximate it.
4. Build the business case and the marketing plan
At last, you can definitely say "I plan to spend X on marketing to Y new customers with an average value of Z. This is how we’ll reach our goal of ABC new revenue." You’ll also know which customers will help you more easily reach that goal based on historical sales data.
William McKee is a founding partner of Knowmad. As a Web architect & Internet business consultant, he is passionate about applying business knowledge & technical expertise to deliver solutions that advance business online. With over 15 years of Web experience, his current work involves designing strategies and creating processes to help business attract, engage and convert website visitors into customers.