Do Inbound Leads Really Cost Less?

Advocates of inbound marketing frequently assert that inbound sales leads cost less to acquire than outbound leads. The research usually cited to support this claim is the annual inbound marketing survey conducted by HubSpot. For example, The 2012 State of Inbound Marketing study reported that companies who spend more than 50% of their lead generation budget on inbound marketing programs experience a 61% lower cost per lead than companies who rely primarily on outbound marketing. This finding has remained very consistent from year to year in the HubSpot research.

Measuring the costs of acquiring leads through inbound and outbound marketing channels is important, but that information alone won't tell you whether inbound marketing or outbound marketing is more valuable for your business.

To get an accurate picture of how well any lead source is performing, you also need to know what quality of leads the source 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 converstion 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 acquisition costs of inbound vs. outbound leads at various stages of the lead-to-revenue cycle.

In this example, I'm using the lead stages defined by SiriusDecisions.

• Inquiries
• Marketing qualified leads (MQLs)
• Sales accepted leads (SALs)
• Sales qualified leads (SQLs)
• New customers

The cost-per-inquiry values used in the table are based on recent research by SiriusDecisions. The conversion rates in the table for inbound leads are the overall conversion rates 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 actually cost about 3% less than inbound leads.

I am not suggesting that outbound marketing is "better" than inbound marketing. The lead conversion rates used in my example are for illustration purposes only. In fact, research by SiriusDecisions indicates that inbound leads cost less and have higher conversion rates, on average, than outbound leads. The point here is that you can't evaluate the performance of inbound vs. outbound marketing until you measure lead acquisition costs at the customer level.