Sunday, December 14, 2014

Do Inbound Leads Cost Less? Maybe.

Advocates of inbound marketing frequently assert that leads acquired through inbound tactics cost less than leads obtained through outbound marketing techniques. The research usually cited to support this claim is the annual inbound marketing survey conducted by Hubspot. In the State of Inbound 2014 study, Hubspot found that in B2B companies having 51 to 200 employees, the average cost of an inbound lead was $70, while the average cost of an outbound lead was $220. Hubspot went on to say, "We did find that leads sourced through inbound practices are consistently less expensive than outbound leads, regardless of company size."

Hubspot has been conducting annual surveys for five years, and all have consistently shown that inbound leads are less expensive (on a cost-per-lead basis) than outbound leads.

Measuring the relative costs of acquiring leads through inbound and outbound marketing techniques can be useful and valuable, but marketers must keep two important points in mind. First, it's obviously critical to have an accurate picture of the costs. In many companies, inbound marketing work is done by internal employees, many of whom have other job responsibilities. Therefore, unless a company tracks labor costs on a activity basis, the costs associated with inbound marketing will often be understated.

It's also critical to remember that understanding the relative costs of acquiring leads through inbound and outbound marketing programs will not, in itself, tell you whether inbound marketing or outbound marketing is more valuable for your business.

To accurately measure the value of any lead generation tactic, you also need to know what quality of leads the tactic is producing. In this context, lead quality refers to the likelihood that a lead will actually make a purchase and become a customer. To incorporate lead quality into your evaluation, you need to use lead conversion rates to "translate" lead acquisition costs to the customer level.

I can illustrate how lead conversion rates impact lead costs with a simple example. The table below compares the costs of inbound vs. outbound leads at various stages of the lead-to-revenue cycle.

In this example, I'm using the following lead stages:

  • Inquiries
  • Marketing qualified leads (MQLs)
  • Sales accepted leads (SALs)
  • Sales qualified leads (SQLs)
  • New customers
The cost-per-inquiry values used in the above table are based on research by SiriusDecisions, and the conversion rates in the table for inbound leads are the conversion rates that SiriusDecisions says are achieved by the average B2B company. For illustration purposes in this example, I'm assuming that outbound leads convert at slightly higher rates than inbound leads - 2 percentage points at each lead stage.
As the table shows, the cost-per-inquiry for inbound leads is significantly lower than for outbound leads. At $25.00 per inquiry vs. $41.50 per inquiry, inbound leads are about 40% cheaper than outbound leads. However, when measured on a "per new customer" basis (which is the most important number), outbound leads in this example actually cost about 3% less than inbound leads.
Please understand, I'm not arguing that outbound marketing is "better" than inbound marketing. The conversion rates for outbound leads used in my example are for illustration purposes only. Your conversion rates for both inbound and outbound leads will almost certainly differ from those used in my table. In addition, research by SiriusDecisions has indicated that inbound leads cost less and have higher conversion rates, on average, than outbound leads.
The important point here is that you can't evaluate the value of inbound vs. outbound marketing for your business until you measure your lead acquisition costs at the customer level.

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