Why Inbound Marketing Will Cost More

Joyful SimplicitiesInbound marketing leads, according to Hubspot, cost 62% less than leads from outbound marketing. But don’t expect that cost advantage to last.

One of two things is happening:

  1. Inbound isn’t really more cost effective. Maybe Hubspot’s sample is biased or methodology is bad, but for whatever reason, the 62% isn’t true.
  2. Inbound really is more cost effective today and early adopters are reaping the benefit.

If reports of inbound marketing’s cost effectiveness are wrong, then inbound today may be far more expensive than Hubspot’s research indicates. If not, it will be soon.

The Cost of Inbound Marketing: An Economics Primer

Remember the old supply and demand curves from Economics 101? Here is the Cliff Notes version you need for today:

  • Price will eventually be set where the supply and demand curves meet in a competitive market. Supply increases as cost increases, while demand decreases.
  • Inbound and outbound marketing can be substitutes for each other.
  • The utility (value) of perfect substitute products will eventually be equal as demand shifts from one product (outbound) to another product (inbound) in order to equalize value. This shifts the demand curve for inbound out, increasing the cost to marketers, until the value of outbound and inbound are in equilibrium.

How Inbound Marketing Costs Will Increase

If inbound is more cost effective, investment will shift from outbound marketing to inbound marketing. As investment shifts, we will see at least three changes that drive up the cost of inbound marketing:

  1. More Content. When more content competes for attention, marketers need to produce more content, produce higher quality content or invest more in promoting their content in order to get the same attention.
  2. Better content. As marketing content competes for attention and at least some marketers increase quality, the overall standard for content quality will increase. Good enough content will no longer be good enough!
  3. Shorter Forms. Forms are a barrier to attention. As competition for attention increases, companies will drop or shorten forms, making it more difficult to capture leads.

What Happens When Inbound Costs More?

If inbound marketing and outbound marketing have the nearly the same return, smaller marketers may choose to focus on inbound or outbound marketing.

Larger marketers will almost certainly view it as part of the full marketing portfolio, with inbound and outbound marketing working together.

In short, inbound will become one more valuable tactic in the B2B marketer’s blended portfolio rather than an opportunity for a whole new level of ROI.

Your Turn

Will the return on inbound marketing be in line with outbound marketing over time or will inbound always have a cost advantage. Share your view in the comments below or with me on Twitter (@wittlake).

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  • MS2PROGRESS.ORG

    Great article, I love it. I am translating it to post it for my Latin American community. Only one mistake maybe: Supply DOESN´T increases as COST increases, Supply increases as PRICE increases. Because if cost increasses, then supply will decrease.

    • http://b2bdigital.net/ Eric Wittlake

      Thanks. Yes, you are right, I was caught here in my buyer language mindset. Thanks for the kind words!

      • MS2PROGRESS.ORG

        ThankYou for answering, could you please also explain ths sentense: “this shifts the demand curve for inbound curve for inbound out” I´m confused, thanks.

        • http://b2bdigital.net/ Eric Wittlake

          Clarified in the post, thanks for the proof-reading help.

          • MS2PROGRESS.ORG

            ;)

  • Guest

    Great whats the point of commenting, if my comment will be erased??

    • http://b2bdigital.net/ Eric Wittlake

      You can email me, link under my profile in the sidebar. No comments have been deleted and I’m not seeing a comment in spam or moderation on this post.

  • http://www.shortcutblogging.com/ Dave Young

    More Content and Quality Content are already leading the way. The long-tail of crappy content (ineffective content) needs to start climbing the curve.

    • http://b2bdigital.net/ Eric Wittlake

      Yes, but competing for attention with more and higher quality content, when everyone else takes a similar approach, will become more and more expensive. The attention that content is competing for is finite.

      Definitely agree about the long-tail you referenced. As more people compete in this space, I believe quality will increase here as well (and thus costs). I certainly hope so, I don’t need to see any more churned out content mill stuff…

      Thanks for the comment!

      • MS2PROGRESS.ORG

        I´ve been for days observing the content behavior, didn´t understand what was happening but I knew sth was going on, and then you post this and I am amazed, it explains everything!! It is becoming more and more difficult to post quality content, as marketers share the same articles over and over. As an economist I must say this is an amazing article. Thanks a lot.

  • http://twitter.com/BeInLikeFlynn Sean Flynn

    Fantastic post Eric! I was just speaking about this internally with our team members. When Inbound Marketing was first coming about the idea was that it would level the playing field. Marketing was no longer about budget, but who created the most content, optimized it and socialized it. Early adopters reaped the benefits of improved SEO results and traffic but as Inbound has become a staple of most organizations marketing mix, Inbound Marketers now have a lot more competition. Due to the sheer amount of content being created, getting to the top spot in SERP’s, or being recognized through Social media has become much more difficult.

    To date many organizations have spent signficant time and resources ($$$) for their outbound campaigns by hiring analyts or professional writers for whitepapers, webinars, case studies etc. whereas blogs were written by anyone that had the time. As a result, many blogs have content that don’t carry much substance. Organizations now must consider a more robust content creation strategy for Inbound efforts. Looking at professional writers or industry experts should be considered for blog post and other Inbound Content which will undoubtedly increase cost.

    With outbound marketing evolving from things like very intrusive radio/tv or spammy email blasts to included things like aligning with expert publishers content or behavioral based email promotions, quality leads can be delivered from multiple channels . No matter which methods you choose QUALITY content is king. If your content is crap, do not expect to stand out from the masses and do not expect an engaged prospect!

    Keep the great posts coming!

    • http://b2bdigital.net/ Eric Wittlake

      Thanks Sean! Definitely agree, quality is key. The real challenge for marketers is that both quality and quantity are increasing now, as more marketers improve quality in order to compete.

      Better writers, more experts, also I would add more original research and higher production quality (UPS sketch-style video, JESS3 infograhpics, etc) all drive up costs in the name of increased quality.

  • http://www.diannahuff.com/ Dianna Huff

    Yep! I have nothing insightful to add, except I’m already seeing this with my own content generation. A person like me can’t compete with the Hubspots of the world, which is why I work hard to create high value content — albeit on a limited basis (i.e. when time permits).

    • http://b2bdigital.net/ Eric Wittlake

      Great point. Smaller producers have to find their focus, yours is quality and, I would add, first hand perspectives.

  • http://ryanskinner.tumblr.com Ryan Skinner

    A priori your economics truths are….true. However, I wonder if there aren’t some inelasticities involved, and public goods that change the picture.

    For example, inbound marketing benefits by having a lower distribution cost – basically made possible by the network effects of the Internet and social media. There are no incremental costs from pulling 100 people to your site vs. 1000. I’m not sure outbound marketing benefits from this public good as much.

    Also, there are significant barriers to what you described as shifts in demand from inbound to outbound and vice-versa. It isn’t just a question of turning one thing on and another off. I know you’re talking on a macro scale, not micro, but even there this barrier will warp the economics.

    Also, the idea shared by some commenters that inbound marketing costs will increase as part of an arms race to top SERPs doesn’t quite work for me. Google’s results are a question not of cost, but quality. There’s no direct correlation between the two. Nor is attention a finite good, even if leads are.

    All this to say that I’m not sure the economics will play out as you suggest. I believe that inbound will remain a more economical route, but with a slightly higher level of risk.

    I wouldn’t be surprised to see inbound marketing lose a bit of its shine, even if it isn’t the result of an economic balancing with outbound marketing. It’s more likely the result of a massive influx of new inbound marketers adapting to it poorly, or not really at all.

    Your conclusions are pretty axiomatic – some will do inbound, some outbound, some both. (And has inbound as a thing ever been “on its own”?)

    • http://twitter.com/BeInLikeFlynn Sean Flynn

      Ryan, excellent point about no incremental cost to pull in additional visitors through inbound marketing. This is one of the many reasons I think inbound should be a major piece of any organizations marketing mix!

      To your point about increased cost to move up in SERPs ( I assume you were referring to my comment). You are 100% correct, results are about quality, or more specifically the relevance of your content and credibility of it. It does not necessarily cost money to move up in SERPs if you know how to create quality content. My point was that in my experience, many organizations that practice inbound know how to create lots of content but they are not great at creating quality content that will improve their rankings in SERPs. These organizations may want to consider leveraging professional writers or industry experts to create quality content for them which more often than not does not come free of charge. Organizations that go this route are likely to see an increase in the cost to practice Inbound.

      Great discussion guys!

      • http://b2bdigital.net/ Eric Wittlake

        Sean, thanks.

        I’ll reply here to the incremental cost issue from you and Ryan Skinner . There isn’t a significant additional hosting cost, but none of us can intentionally, with no additional cost or effort, increase the results of our inbound marketing by 10x overnight. If Integrate (or Velocity Partners) could to that, you would.

        It takes more content, better content, more promotion, more seeding, more design, more time, more to consistently increase inbound marketing results.

        If we see an increase in the quantity of quality content (yeah, that is a mouthful), competing for these key search positions will become more difficult as well. It becomes a game of increasingly expensive one-upmanship.

    • http://b2bdigital.net/ Eric Wittlake

      Hi Ryan, good points. I want to respond or add to a couple here:

      There are definitely switching costs and there are also different roles inbound and outbound can play in marketing, so they are not perfect substitutes. That said, some substitution definitely can occur over time.

      Elasticity, yep. It is about how elastic, I don’t believe supply or demand here has zero or infinite elasticity (we aren’t working with any straight vertical or horizontal “curves”).

      An interesting point on risk, I think your conclusion fits within the economic model as well. If inbound is higher risk, as risk averse participants we will expect a higher return on inbound. Definitely an interesting thought.

      Thanks for the comment, good stuff!

  • PeterJ42

    Two key points missed.

    B2B buying decisions involve multiple people. While outbound is infuencing one, inbound is influencing anyone interested enough to want to find out. It also works virally with information shared around the organisation – even to those the outbound knows nothing about.

    A lot happens outside of a formal buying process. By the time this comes round, key decisions on solutions and trusted vendors have already been made. Yet outside a formal buying cycle outbound marketing is ineffective – calls aren’t taken, emails aren’t read. Less direct content marketing can build trust and awareness.

    • http://b2bdigital.net/ Eric Wittlake

      Peter, good points. Inbound and outbound are definitely imperfect substitutes, however some substitution is possible and is occurring.

      I won’t go so far as to say outbound is ineffective outside of a formal buying process, many marketers and sales people are able to spark interest outside of a formal process. One key is to keep a broad view of outbound marketing here. Big blast emails or outside appointment-setting telemarketers don’t create a good experience and often don’t help the recipient. Both inbound and outbound can start with the objective of buying useful to the audience. When they are, I believe both are able to connect with and influence the audience.

      Thanks for taking the time to comment, I appreciate it!

  • http://www.mccarthyandking.com/ Bob McCarthy

    Inbound looks great because there are no (or very little) media costs. But content development is a significant time grab, and I’m afraid many marketers don’t calculate how much of their time is needed to produce quality content on a consistent basis.

    But content aside, inbound is notorious for producing a lot of low quality leads because you can’t control who visits your website and downloads your content.

    You get mountains of leads that will never convert past the top of the funnel.

    With outbound marketing, like direct mail, you know who’s getting your message – and with good list research, you know that almost everyone who responds actually buys what you sell.

    Bottom line: stop measuring cost-per-lead and start measuring cost-per-qualified-lead, or cost-per-order.

    • http://b2bdigital.net/ Eric Wittlake

      Bob, good point. There isn’t nearly as much data available about ROI between inbound and outbound. The anecdotes I have seen point to this:

      1) Inbound’s ROI advantage is greatest when a company can address a significant portion of a category or topical audience. Someone selling servers for everything from home businesses to the largest enterprise data centers would be in this category.
      2) Outbound’s ROI advantage is the biggest when a company only addresses a small slice of a category. For instance, a company offering IT outsourcing services but only for billion dollar+ outsourcing assignments benefits from the increased focus some outbound tactics have.

  • http://twitter.com/rtrube Robert Trube

    Eric,

    Great topic, and excellent insight.

    Here is what I have seen happening. The concept of inbound is still foreign to A LOT of marketers. They understand the old school concept of direct marketing, and traditional advertising, but the idea of posting content, and capturing leads for additional content distribution and entrance into their sales funnel is just not real to many, many professionals. So, they try some PPC, they may have a “Lead capture” form on their site (and no – contact us pages do not count…) to point them to, and they get ZERO results. Their immediate response is “online (read – inbound) marketing doesn’t work for my business/market/indusry – whatever…

    Those same people then complain that they are getting fewer and fewer “real” opportunities. That deal sizes are shrinking, and that margins on the deals they do get – are much lower. They complain that the “internet” has killed their business, because their buyers can buy from anywhere…. (uh, hello – you just said it doesn’t work….)

    So, will demand for better and more relevant content drive up the cost of inbound? Maybe, but not for most industries. Sure, it is getting harder and harder to rank and get found for high technology and marketing related keywords, but guess what? That is not the majority of what is searched for…. And, inbound marketing is more than just getting found organically through search queries. Start factoring in social sharing, forums, PPC, and (gasp) direct mail that drives them online – and you can certainly generate qualified leads from inbound at a significantly lower cost than just plain old “brand advertising”.

    I agree that Hubspot’s 66% figure seems a bit high, but the real number to look at is not the cost per lead, but the LTV (life time value) of a new customer, and does that number increase or decrease based on where and how you acquired them?

    I know companies that focused so hard on just decreasing their cost per lead – but never tracked the conversion rates of the leads they were generating at the lower cost, and although they decreased their CPL – their sales numbers declined, and their profits dipped, and they blamed the sales team for not doing their job…(hmmm)

    So, I agree and disagree with you regarding the cost of inbound going up. It is all relative, and I believe it will go up for some, and decline for others that truly utilize the tools available (like HubSpot, Optify, Marketo, etc..).

    Wow, that’s a lot longer of a reply than what I thought I was going to post… sorry.

    • http://b2bdigital.net/ Eric Wittlake

      Robert, I love long replies (although apparently they take longer for me to reply too…).

      I definitely agree, where there isn’t competition yet, where inbound isn’t being adopted yet, costs are not going to go up. However, I think we are seeing it adopted, albeit more slowly, across a wide range of markets now.

      In IT and marketing, we may already be at the point where competition is increasing, other markets may be a couple years behind. I still believe when marketers have more competition for attention, the cost of creating the content, socializing it, etc that earns attention will go up.

      However it turns out, it will definitely be an interesting topic to watch. Thanks for taking the time to comment!

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  • jr3792

    I used to work in online education and the bulk if our sales leads were coming from inbound – internet marketing, but very leads automatically turned into qualified buying prospects or sales. The lead to prospect and sales conversion rate came as a result of an enrollment advisor following up and consulting with the client/company. So kudos to internet marketing for generating more leads! Danger is now you have them, do you have the infrastructure (outbound) to follow-up and turn them into prospects and sales.

    • http://b2bdigital.net/ Eric Wittlake

      Good point. It isn’t just about getting leads, it is about converting leads into customers. If you aren’t doing that, it doesn’t matter how cost effective your lead generation program is.

      Thanks for commenting!

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  • ShellyKramer

    I’ve never thought inbound would–or should–stand on its own. It’s an important component, for both B2B and B2C marketers, of any integrated marketing strategy. Love your thoughts here, and I agree, but did anyone really ever think inbound would stand on its own? That’s what’s interesting to me.

    • http://b2bdigital.net/ Eric Wittlake

      Hi Shelly,

      I’ve seen a number of statements, both around the web and even a few in comments on my blog, stating businesses should eschew all paid media. Wow, if everyone did that, paid media would become really cost effective, following the same idea as outlined here.

      In my opinion, the reality is the balancd between inbound and outbound investments will shift toward inbound as long as there is a real cost advantage to each business, but overall industry figures can’t capture diminishing marginal returns and other factors that drive the equilibrium for a business’s own investment.

      Thanks for taking the time to comment!

  • http://nali.org/ Nick Ali

    I have to agree that I don’t see how it is possible for inbound marketing to stand on its own. Touched on some thoughts at http://nali.org/what-is-b2b-inbound-marketing/.

    • http://b2bdigital.net/ Eric Wittlake

      Nick, I don’t believe it completely stands on its own, but some smaller organizations will definitely choose to be predominantly focused on inbound or outbound, larger companies will use both as part of their mix. As the cost efficiency of each changes, the mix or focus decisions will change as well.

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