Table of contents:
In our previous post, we discussed three ways to estimate ROI from your CRM and Marketing Automation investment.
This time, we’re going to delve deep into the numbers and actually calculate the return you can get from your Marketing Automation investment.
After reading this article, you’ll know whether the costs are worth it or not, and which tactics you can use to get the biggest return.
At which steps can a Marketing Automation solution help you increase your revenue?
A basic sales process consists of three steps:
Here’s how it looks:
However, not all leads will be sales leads. And Customers can provide more value than just additional revenue. Do you know what we’re talking about?
In fact, you’ll have three types of leads, and they should not all be sold to:
With all of these stages in place, we can look at metrics. Here’s the ROI metrics a Marketing Automation solution can help you improve in each step:
|Stage||Metric to improve|
|Universe to Lead (market size)||No. of leads|
|Promoter Lead to Early Lead (70% of leads)||% referral rate|
|Early Lead to Qualified Lead (20% of leads)||% qualification rate|
|Qualified Lead to Customer (10% of leads)||% close rate|
|More Customer (customers)||% referral rate$ revenue per client-% churn rate|
Here’s how our model looks after adding these substeps and KPIs:
So how do we improve these metrics? Let’s look at one step at a time.
To maximize the return of your Marketing Automation investment, you need to improve the key metrics we defined at each stage. Below, we’ll go through how.
First, a couple of general pointers:
A) Focus on the point of most significant impact: For example, if you have a conversion bottleneck in lead to sale, then getting more leads will not yield big results. On the other hand, improving conversion rates is useless if you’re not getting many leads. So you need to focus on where you can make the biggest impact.
B) Subordinate stage-specific metrics to the end goal: The stages are interrelated, so optimizing one stage might hurt another, and ultimately hurt your end goal. For example, if you increase the number of leads by targeting the wrong market segment, you may get a lot of leads, but your lead to customer rate will suffer. If you increase the close rate by overpromising, your clients will be dissatisfied and hurt all the previous steps (from negative brand reputation). Therefore, always remember and incentivise for the big picture. If you’re a business leader, tie each role’s incentives to the big picture, not just their isolated metric.
With that, let’s look at each step in our model and how to improve your ROI:
Getting more leads is probably the most talked-about aspect of Inbound Marketing. But that misses half the picture!
Consider all the revenue you’ve made in the last year. How many of those came from Inbound Marketing? Probably very little.
In a typical B2B business, most leads come from non-inbound sources, such as referrals, relationships, partners, outbound, events, and a host of other means.
To get more leads, don’t just focus on Inbound. Rather, focus on all lead generation methods, both inbound and outbound.
Example Inbound tactics:
Example Outbound tactics:
Events, trade shows, etc. Create an automated events process that invites, reminds, and follows up attendance with inspiring and qualifying material.
You may have more leads than you realize: If you don’t have a well structured CRM, most of these leads are likely residing in salespeople’s heads or in their Outlooks. Those leads are invisible to you and therefore you cannot improve their conversion rates! In addition to using the tactics above to get more leads, we also need to simply log more leads into the system, so the system can help you take care of them. Surprisingly for many, simply logging more leads into the system will improve your referral and conversion rates.
Whether inbound or outbound tactics will work best for you depends on two things: The size and the structure of your potential market.
If your market is large, producing and spreading content will yield a large ROI. If it is small, you may instead find that a personal approach (such as relationships and partners) may be a more effective way to generate leads.
If your market is structured (i.e. you can easily create lists of the people you need to reach), an outbound approach such as targeted ads or outreach can yield great results.
Here’s how our Marketing Automation ROI model looks after adding lead generation tactics:
Many marketers get annoyed at all the “unqualified” leads. Typically, around 70% of your leads will fall into this category (based on our own B2B clients’ experience).
Marketers often feel that these “clutter” the system. Such leads also annoy salespeople, who stop trusting leads marketing generates.
Don’t fall into the trap of deleting these leads! In fact, these are what we call “Promoters” and you can use these to promote your brand and get referrals with little effort.
A small fraction of these leads may be competitors and other types of leads that you truly do not want to communicate with. But the vast majority of them are interested in your brand and message for a positive reason. Many of them will be non-decision maker employees (peripheral influencers or future referrers), industry experts or enthusiasts (PR), people searching for jobs in the area you talk about (future clients) and such. But they all have one thing in common: For some reason or another, they’re interested in your company, your information, or your services! They’re also plentiful. As such, this is potential high leverage that should not be wasted!
A) Avoid sending these to your sales team. That way, you avoid lowering the perceived value of all leads.
B) Inspire these leads with newsletters and simple drip sequences. That way, you fulfil their desire to be educated and inspired, while staying top of mind and maximizing the chances of being referred.
Example Promoter tactics:
Let’s add Promoter Leads to our model:
Here’s where the brunt of your automation engine will do its magic.
These are potential buyers, and therefore high value – they just happen to not be ready to buy right now. As such, they’re not ripe for sales just yet.Your job is to use your entire Marketing Automation toolbox to nurture them and inspire them. Then, implement a rule set to detect buying signals and send them to sales along with valuable sales intelligence.
Example Early Lead tactics:
With the above info added, our model now looks like this:
Case: How simple marketing drips provides as much value as having a full-time inside sales person
San Sac, a company producing environmentally friendly waste management products, implemented a content portal and a content strategy with our partner Crescando. This has resulted in on average 48 new leads per month at the time of writing this.
After analysis, we concluded that roughly 10 of those per month are keyword based leads that were not familiar with this company before becoming leads.
These leads are nurtured by one of several nurturing sequences consisting of 6 personalized emails. Emails have over 20% click rate.
While this company has a different CRM which prevents us from measuring ROI directly (yet another reason to have an all-in-one sales and marketing system), we calculated ROI in two ways:
A) Estimating close rates: We assume that at least 5% of these leads close (a reasonable assumption in this industry), and average deal size is $5,000. Thus, these leads generate 5% x $5,000 x 10 leads per month = $2,500 per month in additional sales. (Note that this is only from keywords-based search and nurturing, not all the ways sales are increased.)
B) Alternative cost avoided: To generate 10 interested new companies per month, San Sac would need to employ at least a full-time junior sales person, which would cost roughly $6,000 per month.
One big and common mistake marketers and sales do is this: They see qualified leads as “handed over” to sales, and then decouple the sales process from marketing.
Please don’t do that!
In fact, one of the biggest returns you may get from your Marketing Automation investment is in assisting sales to close deals. This is why an all-in-one marketing and sales system can be so impactful.
Marketing does this by providing intelligence, tools and assistance to sales, which makes sales more efficient and more effective: They work on the right deals, in a more time-efficient way and with increased quality.
Example Qualified Lead tactics:
It is intuitively easy to understand the ROI a tool like this can provide, especially the larger your sales force is. Consider this: A tool like this costs around 10% of a salesperson (check out our pricing page). If you were to pay a person the same amount, you’d get someone working half a day per week. Would you rather have a tool like this that assists all your salespeople improve the quality and follow up of their work, or hire an additional salesperson half a day per week? For a deeper comparison of the two, check out the first chapter of this blog post where we do a side-by-side comparison.
With this, our model now looks like this:
Case: How one client increased their total sales by $42,000 per year
One client estimates an average deal value of $15,000 per deal. They were getting 5 leads per week (260 per year). Of these, they were estimating that they closed 14 deals per year (i.e. 5.38% total close rate).
By increasing the number of leads by just 10% (i.e. 286 leads per year instead of 260) and close rate by another 10% (i.e. closing 5.92% instead of 5.38%), they close 16.8 clients per year instead of 14 (i.e. 2.8 more deals per year).
2.8 more deals per year might seem like a small number, but it equates to $42,000 more in sales per year. There’s a clear ROI compared to the marketing automation cost, which is $7,800/year ($650/m). (Again, this doesn’t include improved brand value, more satisfied clients, and all the other ROI-improving factors we didn’t include.)
The problem of marketing and sales splitting up work and each doing their own thing usually continues at the Customer stage. In fact, here, we’ll usually also have the delivery team, who also does their own thing separately.
This is highly ineffective and doesn’t utilize the full capability of an integrated marketing and sales solution.
What if you could get all of your different teams to work together?
Leveraging the tracking, personalization and targeting features of a Marketing Automation software, along with CRM integration, you can maximize a win-win relationship with your customers:
Example Customer tactics:
With this, we now have our full model:
We’ll start by making some general conversion rate assumptions which we believe apply to most B2B companies. We base this on the many clients that we’ve worked with.
In the end, we’ll provide an ROI calculator so you can try with your own figures/numbers.
Before we start, please keep two things in mind:
A) We’re only looking at smaller companies: If you’re a larger company, you’ll likely to get much more leads than in our example, have larger deal values, many more repeat customers, and more salespeople than in our examples. All of this will make ROI a no-brainer for most large companies. The reason we decided to look at small companies only is that they’re the ones struggling most with whether they should invest in Marketing Automation.
B) We’re only looking at new client acquisition: To make our model simpler, we’ll exclude the Maximizing Customers stage from our model. There’s a lot more ROI to reap there which is not covered in our model.
Universe to Lead: This one is the most variable of our assumptions. You can increase the number of leads by a lot – especially if you haven’t focused on this before. But for our baseline, we’ll assume that most B2B companies can increase their number of leads by 10%.
Promoter to Early: Our model will assume that 5% of your Promoter leads today are referring other Early leads. By following the tactics above (mainly simple nurturing), you’ll be top of mind and provide great content and increase your brand strength and can boost that rate to 7%.
Early to Qualified: Our model will assume that 15% of your early leads today are converting to Qualified. Using the tactics above (mainly advanced nurturing with personalizations and retargeting), you can increase this to 18%.
Lead to sale: 20% is a common close rate of qualified B2B leads. By helping sales focus on the right leads at the right time, automating tedious tasks, reminding them to follow up, creating a better process and assisting them with marketing, you can boost this to 22%.
If you’re a startup, it’s likely that your main problem will be to get leads.
In our case, we’ll assume a startup which sells products to the enterprise segment, with an average deal size of $15,000.
In this case, ROI will be impacted most by increasing the number of leads, so what’s what you’ll focus on.
If we assume that you double the number of leads while improving the other numbers based on the general assumptions, this is the ROI you’ll get:
If you’re getting many small deals frequently, the biggest impact will typically come from automating Promoter and early-stage lead steps, while allowing sales to focus on later-stage deals. So that’s what we’re going to focus on here, for a company with an average deal value of $5K, and roughly a lead per day.
So our calculations will assume that your referral rate goes from 5% to 8%, and your qualification rate from 15% to 19.5%. The other numbers increase based on the general baseline assumptions.
Here’s the ROI you can expect:
If you have a long sales cycle and sell high-value deals, most of your costs will be in the latter stages of the sales process. In this case, we’ll see how much ROI can be impacted by even modest improvements in your close rate.
As our example, we’ll use a company getting 2 leads per week and average deal value of $20K. We’ll assume that your close rate goes from 20% to 23%, and standard improvements for the other stages. Here’s the ROI you can expect:
You might have noticed that the improvements in conversion rates are pretty small. Can’t anyone improve their conversion rates by 2-3 percentage points in each step?
In our experience, yes – most marketing automation systems can help you realize results like this with standard processes. You might need a partner helping you implement the technology, that’s all.
Yet, even small improvements like that compound and result in significant returns on your marketing automation investment.
For a small B2B company, a few extra deals per year makes a big impact. And for a B2C company, small conversion improvements can carry big results because they have so many leads.
How much is your total lead to sale conversion? To calculate this, we can’t use the simplified formula most people promote, i.e. number of leads x % of each conversion step. Instead, we have to keep in mind that not all leads will go through all stages, since most of your leads will be promoters, some early and few qualified.
With that in mind, plugging our general B2B assumptions from above in our our ROI calculator, we get that a typical company closes 2.7% of all their leads. With the assumed improvement rates, this would go up to 3.2%.With these total conversion rates, a small B2B company generating one lead per day would go from 10 new clients per year to 12. If a client is worth $15,000, those two additional clients are worth $30,000.
How many leads are you getting today, and what are your conversion rates?
If you’re not getting many leads today, and your potential market size is too large to handle manually, simply focusing on generating more leads via inbound and outbound marketing can have a huge bottom-line impact.
If you are already getting many leads, improving your conversion rates by structuring your sales and marketing process is very high leverage.
Either case, any company with a large potential market (in terms of the number of people to influence) can get high-impact ROI with Marketing Automation.
Yusuf helps companies use Marketing Automation to grow B2B sales. In his career, he has generated $20M inbound pipeline and built a sales team and sales process that closed $2M in revenue. As a certified consultant in Hubspot and Pardot, Yusuf saw the need for better services at a lower cost. Today, he offers just that to Swedish companies, using SharpSpring's revolutionary Marketing Automation-system.
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