The ROI of Content Marketing VS Cost of Inaction (COI) – Cost of your Content
The ROI of Content Marketing VS Cost of Inaction (COI) – Cost of your Content
When dealing with content marketing strategy, you most certainly calculate the ROI of your project to justify and back up your new project. You might even think of certain ways that the strategy will maximize the ROI taking into account the full potential of your offers.
Even though you may have come up with a breakthrough strategy, there is a big chance that you will still decide against it and say “no”. This decision is usually based on 3 reasons:
1. Not enough trust in the ROI calculations.
2. Unwillingness to take the RISK involved with the new project or change.
3. It’s much safer and less stressful choosing to INACT, sticking with the “know devil” rather than venturing into the unknown.
When you think about these reasons, ROI doesn’t even come close to resolving the problem, it becomes irrelevant until those questions remain unanswered. This is why when coming up with a new strategy or changes, the Cost of Inaction (COI) should always come first and only then followed by the project’s ROI, in order for you to understand if it’s really worth the fuss.
Why Even Bother with Content Marketing Strategy?
Everybody speaks about how they need to start working on their content, especially how they need a content marketing strategy. The logical question arises – why is it so important and why bother with it?
Traditional marketing is all about communication with the target group and potential customers mainly through banner adds, commercials, product features (shape, size, design) and packaging.
Inbound methodology is based on the concept of buyer personas and the buyer’s journey. Everything else revolves around those 2 and is constructed/created to fit to the needs, challenges and pain points of the buyer personas in the different stages of the buyer’s journey. Since inbound takes place online, content becomes the key of any effective strategy for any business that hopes to acquire leads and customers online. But just generating content at random, even if its valuable, is not going to deliver desired results. You need a strategy in order to make your content work, and actually speak to your buyer personas.
Content marketing strategy has to be executed for all the stages of the buyer’s journey. Your potential leads need guidance to actually reach the goal of making a purchase. If they become engaged with your content, but can’t really find/understand how to continue, they will most likely get confused and leave your website.
How to Create a Great Content Marketing Strategy
Just knowing that you need to have a content strategy doesn’t help all that much if you can’t execute it properly. To create your strategy correctly, you need to focus on 2 key points: your buyer personas and their buyer’s journey.
Buyer personas make the core of any good marketing strategy, especially content, since all of the content you generate is for them. Now, creating content that will appeal to your buyer personas is good, but it still might not be enough to get them to make a purchase.
In order to create content that’s not just good, but simply great, you need to speak about the PAIN POINTS of your buyer personas and help them resolve their problems. Pain points make the greatest drivers of purchase, and this is true for pretty much every industry. If you can create content that will not only talk about the problem they have, but also SHOW them the WAY to solve that problem, you are guaranteed success.
Different buyer personas have different pain points in the different stages of the buyer’s journey. This is why it’s important to focus on ALL the stages of the buyer’s journey and not be picky. If you create content that resonates with the buyer personas, say in the awareness and consideration stages, but becomes too general in the decision stage, you will just lose everything that had achieved so far. Same thing will happen if you focus only on decision stage: you might have the best decision stage content, but it won’t matter because your potential customers will not even reach that content.
Focus on the pain points of your buyer personas in every stage of the buyer’s journey, and you will be able to come up with the best content marketing strategy you need and increase website traffic, leads and sales.
There are multiple metrics to measure ROI and they involve different calculations based on the industry and particular project. However, there are 3 metrics that are present in any kind of calculations when measuring ROI and should be calculated to understand whether the new project or change is worth it: Customer Acquisition Cost (CAC), Ratio of Customer Lifetime Value to CAC and Time to Payback CAC.
Customer Acquisition Cost
The CAC is the average cost your company has to spend in order to acquire 1 new customer. The less the average CAC is, the better your marketing/sales departments perform.
How to calculate it: Take the marketing and sales costs for any given time period and divide by the number of new customers acquired for that same period.
Sales and Marketing Cost for June – $10.000
New Customers acquired in June – 100
CAC=10.000/100=$100 spent per customer
The Customer Lifetime Value to CAC
This metric allows you to estimate how much profit you are making per acquired customer, in comparison to what you spent to acquire him.
How to calculate it: To calculate this metric, you will need to find the Customer Lifetime Value (CLV), the CAC and find the ratio between those two. CLV= (Revenue you get from the customer in a given period-gross margin) divided by Estimated churn rate of that customer. Churn rate is the measure of the customers you lost during a given period, divided by the number of customers you had at the beginning of that period.
Customer Lifetime Value=$45.356
Customer Acquisition Cost=$10.000
LTV: CAC = 4.53 to 1
The higher this ratio is, the more profit your sales and marketing team delivers to your company. Be careful not to make this number too big, because it will mean that you spend more resources to delight your existing consumers than reaching out to new ones. Acquiring more customers will help speed up the growth of your company and drive more profits, whereas having them delighted will slow that process down a bit, but boost brand recognition.
Time to Payback CAC
Time to payback CAC shows the amount of time needed for your company to get back the costs spent to acquire a customer(s) per month.
How to calculate it: Take your CAC and divide by margin-adjusted revenue per month for an average new consumer.
Time to payback CAC=10.000/1500=6.66 months
If your consumer pays on a monthly or annual basis, you generally want your payback period to be under 12 months. The faster you get your payback, the sooner you can start working on acquiring new customers. Always try to minimize this period, but be careful not to cut important things in the customer delight stage, just in order to achieve minimal payback periods.
Good Marketers Calculate ROI, Great Marketers Calculate COI
Knowing your ROI is an excellent way to measure exactly how great your project is going to be. Or is it? There are numerous other factors that can affect the final outcome of your project like economic situation, political instability, competitors, information leakage, unexpected consumer reaction and many more. Moreover, unexpected problems may arise during the execution phase of the project. You never know what may happen and if the project involves huge investments, is it even worth the risk and extra work and recourses? Things seem to be going fine the way they are now, why even bother?
This is where Cost of Inaction (COI) comes into play. It’s not enough to calculate ROI for your new project to start it. As you can see from the above mentioned examples, however important ROI may be, it simply cannot overshadow all of the other objections connected with any new project or venture or change.
You need to understand what will happen if you actually DO NOT start the project or change. What harm will that cause your company? How much costs will you suffer in this case? What’s the risk of leaving everything just as it is now? Will your company be able to survive for another year? These questions are a lot more important to answer and will actually have more impact on the decision of whether starting a new project or not.
So what exactly is cost of inaction and why is it important, in fact more important than ROI?
What is Cost of Inaction?
Cost of Inaction is the combination of the risks, costs and consequences that will undoubtedly happen if you stick with “status quo” for a long time. Our business environment changes constantly and rapidly, and you must at least keep up with its pace, if you plan to stay in your business and be half a step ahead if you truly want to prosper.
You know from your own experience that any new strategy or change carries unknown risks and costs that cannot be calculated at the planning phase, but can’t be neglected later on either, since you have already invested your time and money into the new venture and can’t afford to just quit. This is the main reason more and more people say “no” even to the most brilliant projects, because they think it’s not worth to take the risk and better stick with what they have now. Unless you feel and understand that not making the change is going to destroy you in the long run, it will be very hard to say “yes”.
When considering a new project or a change in strategy or anything else for that matter, the first step absolutely has to be calculating the COI. You have to understand the risks, costs and consequences of preserving the “status quo” and sticking to the strategy you have now, and they have to be considerably larger than the project or change that you consider in order to understand the true value of a new venture. This is why ROI comes second, even though it’s an important factor of success.
COI varies greatly from industry to industry, business to business. COI basically equals to the sum of all the costs you have now, the costs and risks that arise in the future if you continue to stick with no changes and the costs, risks and consequences of actually not moving forward, while your competitors do.
It’s important to understand that COI is not only about the financial part of the matter. Apart from the costs, there are other matters that will be put under risk sooner than later, if no action is taken.
What will happen to the employees, their morale and customer satisfaction? What if the competition implements the strategy first and takes away your leads and customers if the project proves to be successful?
Cost of Inaction vs ROI
Let’s consider an example:
Company “X” uses traditional marketing ways to promote their products/services and generates “A” amount of traffic and “B” amount of leads. An average website visits equal to 1000-2000 visits per month and the average conversion rate vary from 2-3% depending on the industry. Suppose Company X is in the golden middle of those averages, and generates 1500 visits a month and their conversion rate equals 2.5% or 30 leads. Average lead to customer conversion rate is 30%. Suppose their product/service price is 25$, their total costs + taxes equal 5$. This means that their monthly net profit equals: 30×30%x (25-5) =9×20=180$. Company “X” receives an offer to shift to content marketing strategy and implement the Inbound methodology in its marketing ways. This is a really big change if you are new to inbound and will want to consider it. Let’s take blogging for instance. According to the research done by “Forrester”:
Companies that blog 15+ times a month generate 5x more traffic than companies that do not blog,
Companies that increase their blogging from 3-5x/month to 6-8x/month double their leads,
Let’s calculate the net profit if we use blogging.
Website Traffic – If you blog 15+ times a month, then 1500×5=7500 visits.
Leads – 7500×2.5%=187 leads
If we implement blogging, we will have to increase our costs by some amount. Since we cannot calculate the exact amount of the cost associated with blogging in the given example, let’s just double them.
Net profit – 187×30%x(25-10)=561$
This is the net profit that Company X will receive if they implement blogging and double their costs.
Now let’s take a look at Cost of Inaction. According to “Forrester”:
46% people read blogs more than once a day
80% of the people read 5-10 blogs
40% of US companies use blogging for marketing purposes
92% of the companies who blog multiple times a day acquire customers via their blog
57% of marketers acquire customers with blogging
Suppose Company X decides not to implement blogging and go on with its traditional style. Sooner or later one the competitors will shift to content marketing and start acquiring more visits, leads and customers, making the competition tougher. But it doesn’t end there, if we look at this numbers and do the calculations, about 40% of Company X customers will join the competitor in 1 month and will increase in arithmetic progression going to 50% in 2 months, 60% in 3 months and eventually 100% in 7 months. Company X will not only lose all of its existing customers, but also will have to cut costs which will include marketing expenses, advertising expenses, administrative expenses and eventually human resources. With all of this in mind, in about a year, the company will go bankrupt, simply because it ignored the COI.
This is just a small example concerning the blogging part of the content marketing strategy, but even this much is enough to illustrate the costs, risks and consequences of doing nothing. This is a really serious issue that is often overlooked by many good marketers and one of the reasons why lots of companies fail to grow and be successful.
In the business world, it is always a must to keep up with the fast pace of progress and innovation and sometimes necessary to take risks and make changes, in order to stay compatible. Doing nothing is not an option, however big the costs and risks of change might seem, if they are reasonable, profitable and necessary.
You absolutely need to evaluate all the ups and downs of a new project or venture, but more importantly, consider what will happen to your company, profits, employees, brand, etc. if you decide to do nothing.
Take a look at everything from this perspective and the moment that you understand the costs, risks and consequences of inaction, you will see how much better the strategy looks. It might take a lot of energy and resources, but at the end of the day, you will earn so much more if you construct your strategy correctly and more importantly, won’t suffer the bitterness of the thoughts “I had my chance, why didn’t I take it?”, “Should have done this last year, I would be in much better position now”.
These thoughts are far more stressful and costly compared to the willingness to put the hard work in, take the risks and come out as a winner in the end.
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