Digital Marketing

Is Inbound Marketing Actually Profitable or Just a Slogan

Is Inbound Marketing Actually Profitable or Just a Sloganbadge-researchYesterday, HubSpot, the creator of the term “Inbound Marketing,” filed for an IPO.

When a company files for an IPO, they submit what is called an “S-1,” which provides financial information for prospective investors. It was our first detailed look into the financial health of HubSpot, and after reading it pretty carefully, I am left with a provocative question.

Maybe you will be, too.

Hubspot has been around since 2006, and their S-1 details financial information from 2009 through the first two quarters of 2014. Still a startup, yes – but after 8 years and several rounds of funding, a fairly mature startup. I was mildly surprised to see that they are still losing significant amounts of money – last year, they lost 34 million on revenues of 77 million.

Now, there are a wide variety of reasons for a startup to be in the red, even after eight years. You can look at Amazon’s profits (go ahead – I’ll wait) and see that. Within what might be loosely considered Hubspot’s competitor and peer group, the results are also mixed: ExactTarget in 2012 lost somewhere around 21 million on revenues of some 292 million (and was purchased by; Marketo lost 46 million on revenues of 94 million in 2013.

But HubSpot is based upon a principle: The efficacy of Inbound Marketing. So what can their S-1 tell us about the efficacy of the approach they championed?

What can Hubspot’s financials tell us about the efficacy of inbound marketing?

I took a look at their gross profits (revenues from their services, minus the hard costs of providing those services) against their sales and marketing expenses. Here is what I found:


While it seemed as if the line was trending in the right direction in 2012, 2013 saw sales and marketing expenses increase again, and that trend is holding for the first six months of 2014.

Now, before I ask you to walk down this path with me, I issue the following disclaimers:

  1. I am not an equities analyst. I do have an MBA, and am an investor.
  2. I have had exactly one startup. It didn’t do so well.
  3. I have friends at HubSpot, and the question I am about to raise is not an indictment against them. They are good people.

That said, follow my logic here:

  • HubSpot is based on the principle of Inbound Marketing.
  • HubSpot is arguably the world’s greatest practitioner of Inbound Marketing. The quality and velocity of their content marketing is formidable, and almost without peer.
  • HubSpot is also supplementing their inbound marketing with tons of display, video and other advertising.
  • Inbound marketing is supposed to drive acquisition costs down. Yet, even with (or perhaps because of) the addition of outbound marketing, HubSpot’s own sales and marketing costs continue to outstrip their gross profits.

Now, before I ask my provocative question, let me point out that the S-1 does not break down sales and marketing separately, so we cannot definitively say that their marketing costs are rising – merely that the costs for acquiring and retaining customers are rising. And let me also stipulate that HubSpot can still be considered a startup, and the fact that customer acquisition and retention costs are causing losses is par for the course, not an outlier. Further, a ramp up in sales and marketing expenses immediately prior to an IPO is not unusual, per se.

But at some point, we should expect that to change. And if you are a with a company that is also focusing on Inbound Marketing, HubSpot’s performance might suggest that a rapid path to profitability is surely not in the bag.

Finally, we also do not know the differential ROI between Inbound and Outbound efforts for HubSpot, though the necessity for the latter surely speaks to the limits of the former.

All that said, my provocative question:

At what point do we consider HubSpot’s financial performance a referendum on the efficacy of Inbound Marketing?

This question, of course, assumes that HubSpot has a product that people want to buy, and are willing to pay money for – after all, Inbound Marketing can’t put lipstick on a pig.

If it’s not a pig – and given their consistent increases in customer counts, it would appear to be a non-swine – what conclusions can we draw? What do you make of this data, given that Hubspot’s own State of Inbound Marketing report (2013 edition) found that proving ROI is the top marketing challenge for inbound marketers, cited by 25% of their survey respondents?

As I leave the comments to you, I hope you will take this in the spirit in which I offer it: My intent is not to criticize HubSpot, or even to cast aspersions on Inbound Marketing. I hope you read this post, and think I’m smart enough that you hire me. That’s inbound marketing. (and content marketing, to boot)

But what I do hope to do is to start a dialog about challenging the received wisdom of inbound marketing – making it “hype-free,” as my good friend Jay Baer would say, and really holding its feet to the fire to measure exactly what it does, and make it better.

(disclosures: Hubspot is featured in Jay Baer’s book Youtility, and the company provided promotional materials for the book. ExactTarget is a Convince & Convert sponsor. Jay Baer has spoken at two Marketo events. Jay Baer is a shareholder of Amazon)

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  1. says

    I don’t think it’s an indictment of Inbound Marketing. Does it raise some questions in my mind about Hubspot that I didn’t have before? You bet. But namely because my perception was that they were further along in the startup cycle than they apparently are. Startups in aggressively competitive spaces raise money for a lot of reasons, often it’s narrowed down to two things. Expedite product development, and to quite literally *buy* customers. Notice I didn’t say, ‘earn’, or ‘acquire’, or any number of other words I could have used. You’re trying to reach a specific saturation point on the hockey stick that you predict will payoff through later monetization and greater traction than your competitors. Nothing new there. And unless you’re a funded startup thinking that Hubspot will lower your customer acquisition costs, there’s not a lot to be gleaned from whether Inbound is effective or not. But when I read the S-1 the two things that jumped out at me were

    a) Holy crap they are post-post D round and still having to spend that much to buy customers at a loss at this point in time? There’s only $7 million in the bank and no talk in the S-1 about their churn rates decreasing? That is walking a mighty perilous ledge, and $100M isn’t exactly a breakout number to target. While I understand the desire to minimize dilution, it’s worrisome when I see no trendlines anywhere that indicate a way to profitability before burning most of that cash. We can talk about expansion and R&D costs all we like but if the customer acquisition costs can’t be brought in line none of it matters. And THAT I think is the point that makes me view an Inbound Marketing company differently than I would another. Shouldn’t they be able to do that more effectively than a company less versed in automation capabilities? If so, WHEN exactly do they expect to start doing that because $100M would dictate it better happen soon.

    b) While a much smaller blip than software revenue, the professional services gross margins are out of control. There’s a lot of reasons that could be, very few of them good. I think I draw a lot more implications from that than I do customer acquisition costs actually

    • says

      Thank you, Matt–I can always count on you for a smart, considered response. The SAAS business does seem to be a tough business, from the outside. And really, I am raising a few larger questions, I suppose: Should we expect ANY company that sells a defined methodology (sales, marketing, operations, whatever) to display excellence in using that methodology? What does excellence mean? And what are the limits of Inbound Marketing? I think anyone who has done inbound has their own definitions for that one.

      I’m pleased that this has started some great comments. People have been asking some form of this question ALL OVER my social streams (and sometimes not so kindly), and I am grateful to Jay for letting me give voice to it in what I hope was a balanced and respectful way.

    • says

      As I re-read your points, Matt, I think the question you ask at the end of point A is *exactly* the question I am asking. And given their push into *outbound* marketing, what did they learn, and when did they learn it? I really thought long and hard before I wrote this post, and raised this question. But you know, I don’t think it was a stupid question.

    • says

      Excellent post, Tom, and terrific comment, Matt. HubSpot reports that their customer acquisition costs have almost double over the past three years. Not good. And one other figure that jumped out at me is HubSpot’s revenue per employee, which is quite low for a SaaS company at only about $140,000. Marketo is somewhat better at around $185,000. Salesforce is over $300,000. (Amazingly, with revenue climbing from $2B to over $4B, Salesforce lost money each of the last three years, too.)

      • MB says

        So, I think that’s particularly fascinating. Is anyone familiar with the rate of employee turnover at hubspot? I’ve heard rumors that it’s high but haven’t seen stats to validate them. I’d wonder if that would have an impact overall though that has more to do with internal politics and whatnot than the business model.

        I guess what I’m saying is that there are an awful lot of factors here to consider beyond simply the effectiveness of the method they are using for marketing.

  2. says

    You raise some very interesting questions. And Matt below really does as well. So – I’ll make the same disclosures as you did:

    1. I work with a lot of equities analysts, though I myself am not one.
    2. I’m an English Lit Grad which makes me perfect to pontificate on financial matters
    3. I am an investor.
    4. I’ve been a part of a few tech startups – my last one is still doing okay (though I’m not there)
    5. I also have a lot of friends at Hubspot…

    With that said – I’m not sure I’d agree that this is an indictment of inbound marketing. Execution of a startup is completely separate from the practice it may be preaching. That said, if I had to put a finger on why those two lines crossed, it’s because of Hubspot’s pivot in 2012 to target Enterprise customers. I’m not sure they ever “explicitly” said this – but it’s pretty well documented that they are making a big effort to move into enterprise implementations (and developing enterprise-class feature sets). Coming from experience, I can tell you that means more expensive sales folk, a much higher cost of sale (generally higher GS&A costs) and (to Matt’s point in his comment) a bigger pressure on your professional services margins.

    I’ve been on the record for some time as saying I think this is ultimately a mistake for them, and that I think they’ll be better off by dominating the SMB market – and going after InfusionSoft customers. But.. well… anyway….

    Matt makes a very important point about cash on hand – and the target number… But remember Marketo targeted a $75m IPO and ended up raising $100m… So it’s not inconceivable that Hubspot could ultimately raise $150m or so…. Also it’s not inconceivable – with that little cash in the bank – that this is them telling the world that “we’re for sale” and we’ve staged the house – come on by….. That would be a big coup for them to get snatched up….

    All in all I think this the right (perhaps only) avenue they have left to scale this thing….

    But I don’t think it says anything about inbound marketing as a concept…



    • Bobby Ray Burns says

      Thank you for that, Robert. My intuition was to think along the same lines: a practice preached is not quite the same as a business model being implemented. I am not an analyst, I don’t have an MBA, my start-up is having problems getting started, and I don’t have friends at Hubspot – but I would sure like to!

      I truly hope they do well and begin to see real profitability, not only for their sake, but for ours.

      • says

        I do, too. And I hope, when they emerge from this, that we see a “lessons learned” post from them about what they learned about the strengths and weaknesses of inbound from what will soon be nearly a decade of the term. Thank you, Bobby!

    • says

      Thank you for that, Robert–and I’m not indicting inbound marketing, really. Not exactly, anyway–it’s a tool we both use, no? We also do a fair amount of outbound, though. I think I would only refer back to my original question: *at what point* do we consider the financial performance of *any* (really) of the leading practitioners of inbound marketing a referendum on its efficacy? Surely the answer isn’t never, is it?

      Thank you for your thoughtful comment.

      • says

        Tom… exactly….. But I actually think the answer IS “never”. I think in order to make a judgement call about the efficacy of a practice, you’d have to look at much broader trends (as opposed to any one company) of the practice itself. As Vignette demonstrated in such spectacular fashion – just because you’re the initial leader/evangelist of a practice – doesn’t necessarily mean you’re representative of the practice’s success. They went from a huge IPO in 1999 to selling the company for $300m nine years later. But that doesn’t mean that Web content management is a flawed practice. It just means that Vignette didn’t pivot well enough.

        From a marketing perspective – I think you’d have to look at broader trends across many companies (see Newspaper Advertising as an example here) to make a value judgement on the efficacy of the practice.

        And, certainly the practice itself will evolve (just as marketing always does)… The key for any one company is to evolve with it….

  3. envirotech says

    I am a HubSpot Customer and regard them highly. Having said that, I’ve operated a small business for 20+ years, making my way in competition in a tough industry in the valley of the giants. #1, never, ever give up, Evaluate, create, modify, improve and more and repeat with ever greater knowledge. Most of the companies at all levels I deal with nationally never heard of HubSpot and I know of a lot of them who could seriously use the expertise offered by HubSpot. Appears to me they’re perfecting their offerings and have broader nd larger markets yet to be conquered.

    Monetizing a business model is not always a slam dunk. 8 years old with incredible room to grow, yes I’ll stick with them, perhaps the best is yet to be.

    • says

      This has little to do with regard, I think the folks at the top of Hubspot are some pretty amazing people who’ve done something pretty incredible. My point would be that I’ve seen tons of FANTASTIC companies in the venture space miss their timing mark. There is very little room for a mistake at this point, and that’s the concern. There’s really only one offramp left on the freeway, if you miss it….

      It’s the same with all orgs that are funding their operations with capital outside of revenue. Take as little money as you have to to accomplish the goal you’ve set within the timeframe you’ve set. That means you’re always on the edge. It’s the nature of the business until profitability, it’s stressful, and it sucks. But when you’re a business that is completely dependent upon outside forces to provide the services you do, it must be even more so. If they lose one single data pipe, their value plummets, through no fault of their own.

      It’s not about being a great business, or even the business model, it’s about finding that perfect storm of timing and appetite with the right amount of money to get you to the end of your ramp. I’ve watched great businesses go away overnight, they didn’t do anything wrong, the world shifted in an unpredictable manner.

      The surprise to me was simply that they were still at the point they are financially. I assumed (wrongly) they were further along than that and expected (I still think with good reason) that you’d see declining cost of customer acquisitions by this point. That said, what do I know? I’ve watched people on the outside question my choices at companies before and like me now they had no clue why I was doing the things I was doing because they could only look into the past whereas I could see into the future.

  4. Trey Muhlhauser says

    Good article and good question to ask, and ask on an ongoing basis. But, in this particular case, this: “Further, a ramp up in sales and marketing expenses immediately prior to an IPO is not unusual, per se.” Build up momentum, and wait for your new shareholders to demand you cut costs in 3, 2, 1…

  5. says

    Here is an example of the type of learning I’d love to see emerging from a question like this (and again, I’ve merely asked a very specific question): What is the point of diminishing returns for, say, content marketing? If you are doing 10x more than your competitor, could 7x more be *almost* as good? I think it is safe to say that HubSpot is a formidable content marketing machine–do they need to produce that much content? I REALLY do not know the answer to that–but I do think it is a super interesting question.

    • says

      My understanding is that Hubspot have a moderately sized content production team and they are smart at sweating their assets via repurposing. I see them focus much more on lighter weight, curated content on their blog than they used. In the past their effort was on producing and distributing guides that needed more expensive layout and design. I’m sure 90% of their posts are not from staff, not unlike CMI

      • says

        So if this is true, then the lighter weight content is flowing into an increasingly crowded, distracted marketplace that also has metric tons of lightweight, curated content. After a while I think many people just protect themselves from fluff overload.

  6. Bob Warfield says

    First, I think it is entirely appropriate to ask for one of two things from a company that touts a better way of marketing–either their cost per $ of revenue should be lower than others or their growth rate for similar cost/revenue should be higher. I don’t know how you could argue otherwise, particularly not after a company has reached the level of scale this one has. If it won’t work at $70M+ annual revenue, then it’s not very useful except to the very largest companies. And, if its impact can’t be measured in the financials, again, it makes people skeptical.

    My first reaction on seeing this was to compare Hubspot’s S-1 numbers to those of Marketo (more marketing software), and to do so by expressing the numbers as % of subscription revenue. Forget prof svcs, it should be diminus for a SaaS company unless their software is crappy or has to be integrated with a whole bunch of other systems that are hard to talk to.

    So, I did that comparison and it is interesting. Here are the key metrics for 2012 Market vs 2013 Hubspot:

    – Cost of Subscription: 28.6% Hubspot vs 30.7% Marketo. Delivering the software in the cloud is more efficient for Hubspot.

    – R&D: 21.2% Hubspot vs 35.6% Marketo. Hubspot spends a lot less on R&D. Perhaps that’s because Phil Fernandez is an R&D guy and CEO of Marketo.

    – Sales & Marketing: 75.1% Hubspot vs 71.6% Marketo. This is the money number–Marketo earns a dollar of revenue by spending less on sales and marketing. Not hugely less, but the mere fact it is less at all is pretty damning.

    – G&A: 20.7% Hubspot vs 21.6% Marketo. Hubspot has slightly less overhead, but not clear this difference is material.

    What does it mean? Well, at some level it is an indictment of Inbound Marketing, but there are many potentially mitigating factors. Hubspot’s growth had been slowing down steadily for all the years the S-1 quotes. That indicates a headwind of some kind–bad churn, product not attractive, market is saturated, etc.. It may be that even the magic of Inbound couldn’t overcome some other major factor like that. From the degree of slowdown, they pretty much needed to go public now or retrench and figure out why they couldn’t maintain high growth rates. As it stands, the market will be merciless about punishing them if the growth continues to fall.

    One thing about SaaS, is growth should be high unless you’ve got churn problems–it’s compound interest selling subscriptions. So things are probably worse than their growth indicates. See this post for more:

    • says

      I think your first paragraph is very compelling. Really, it comes down to this: is 8 years a long time? A short time? What is the model for success with Inbound Marketing? And what is the investment horizon for a company that focuses on Inbound? In no way do I want to foster HubSpot bashing. I kinda want to answer those questions, though.

  7. says

    Is it wrong to say that marketing (inbound or otherwise) is merely a multiplier to the consumers probability to purchase? In other words you could be the greatest inbound marketing organization of all time, but if your product is weak, sales will still be zero. Any referendum on Inbound Marketing would have to span multiple organizations and products.

    We’re living through the shift in enterprise software where buyers have gone from zero power to 90% control of the buying process (now buyers find you on their terms) and I doubt anyone who has done both inbound and outbound would argue against inbound having the highest return.

    The irony is that Hubspot is in the best possible position to answer the question of inbound/outbound mix, yet I doubt they ever would. It’s contrary to the story that “Inbound rules over all others and outbound call centers are for last decade’s organizations”, and would concede some of the marketing budget they are chasing.

    • says

      What a smart comment, John. I hope they do answer those questions. What I do know is this: Inbound can’t do it all. And they know this, now. I’d love to know what they know.

  8. says

    One other point on Hubspot’s future – until there is a simple subscription service for small and medium businesses to host a website, set up and feed a blog, monitor social media and run email campaigns, all without getting an IT person involved, there’s an opportunity here. The question is how many years is it still out and how much cash will it take to get there.

    • says

      A great point !
      The question linked to this, is how much would a non-tech, non-marketing company pay, or can afford to pay to trial this system and run with it until it starts to show results ?
      After all, this will be on top of their existing marketing budget (which lets face it for a SME may well be almost nonexistent)?

      • says

        It’s just a function of the lifetime value of a customer, and the acquisition rate versus the cost of it. Unfortunately there’s no way to measure it without doing it. Success would also depend on how many competitors are doing it.

        • says

          So for a small business that spends less than $1000 a month on all its marketing, Hubspot isn’t even a viable option then, as you can get instant return from PPC, whereas this is a slow burning option ?
          Having worked for several smaller organisation with budgets in that region, justifying a Hubspot style service that ‘should’ pay back in the long run, but may take 3-6 months to even get a single response is going to be a hard sell.
          So this must come full circle to the idea of balancing all of the elements of marketing, rather than throwing all your eggs in one basket (which is what Hubspot suggested to us when we spoke to them). That Hubspot system would replace our PPC spend.

          • says

            Good point, no, I would not suggest going that route. It would be better to test blogging, email and social media and then if you have a positive ROI on those Hubspot would reduce expenses by rolling it all up. If you are getting decent results with PPC there’s no incentive to risk your budget and job on a marketing automation system roll out.

          • says

            AH! Now you’ve hit the real seditious point! That’s how this stuff is sold and the number 1 reason this market is not on fire is that a large percentage of marketing automation buyers only use a fraction of the functionality. You can automate all you want but awesome blog posts won’t write themselves. After you’ve looked behind the curtain you learn that 52 weeks of awesome blog posts on a free hosted blog will beat the hell out of a five figure marketing automation system that ends the year with a dozen lame “Top 5 List” self pimping posts. This is another area like inbound/outbound ratio where Hubspot knows what these long term adoption and effectiveness numbers are for their customers and that’s has real value.

          • says

            Darn it, you mean that ‘automation’ software doesn’t even write the content for you ? 😉
            That was the killer for me, although I can see the value in the product, if you havent got the capacity as an organisation to produce regular and compelling content, then automating what little that you put out, is never going to be of benefit.
            Putting the horse before the cart somewhat. Unless people have already bought into the content creation idea, then selling the automation for it is like pouring water uphill. 😀

  9. says

    This strikes me as an important point: marketing to marketers is different, so the degree of a company’s success in using a particular marketing strategy to reach marketers doesn’t necessarily imply the strategy’s usefulness in reaching other groups.

      • says

        It means we need test cases outside the marketing industry. How is inbound working for companies that sell widgets and gadgets? Segment by products and services, B2B and B2C, for-profit and non-profit, regional and national markets, normal/inferior/luxury goods… We’re running the experiments now, right?

        • Bob Warfield says

          Benchmarks are hugely valuable for almost every industry. How does what I’m doing compare to what others do? Perhaps this already exists for the marketing world, but being able to compile numbers about the budget split for various categories of marketing together with the target market would enable aggregated benchmarks that would be very valuable.

          We know, for example, that different Social Networks have different values to different niches. One niche may be best on Facebook while another does far better with LinkedIn. Being able to access a benchmark report that shows these aggregates for a large number of data points that are aggregated by target market and perhaps company size would be extremely helpful.

  10. says

    Just because HubSpot chooses to prioritize hyper growth (focused on IPO) over profitability right now doesn’t mean that inbound marketing is not profitable. That’s quite a leap to suggest that.

    • says

      Well, I asked a question, and I don’t think it was a stupid question. But yes, there is a fair amount of inductive reasoning going on in my post, which is not my usual modus operandi. But ask yourself this: if you do need to focus on hyper growth to “bulk up” for an IPO, how do you do that? How do you suppose HubSpot did that? Do you try to out-inbound your previous inbound efforts? Do you do something else? And if you do something else, why? Again, I think these are pretty interesting questions.

      • says

        Fair enough, but I think I have a problem with the broad sweeping assumption made in the headline in this post. To point to one specific company (albeit the “inventor” of Inbound Marketing) and declare that the entire practice is not profitable is pretty unscientific.

        Additionally, what if HubSpot’s goals are more long-term than these numbers show (I suspect it is)? What if they made a conscious decision to lose money for a while in order to lay a foundation for a future goal?

        I’ve seen companies that are fine going 2 years without a profit because they are laying a foundation for year 3. I think this is a perfectly valid way to use inbound marketing. I’ve also seen companies use the techniques to be profitable much sooner.

        I don’t think it necessarily a stupid question, I just think there is an obvious bias in it that makes a pretty big leap.

        Kudos for sparking a great conversation, though :)

        • Bob Warfield says

          I see how you operate an outbound model unprofitably in order to stimulate growth. While I suppose it is possible to do the same with Inbound, it seems to me it is much harder. What are you going to do, produce a bunch of bad content that nobody is interested in? One of the joys of Inbound is the incremental cost to produce more content is relatively constrained versus outbound where you can choose to bid on hotly contested keywords and such.

          If a decision to grow is Hubspot’s problem, the it seems to me it almost has to be a decision to spend heavily on outbound, and some have pointed that out here. The other thing is, if you do an analysis of similar companies with similar growth pressures like I did with Marketo, it sure doesn’t look complimentary to Hubspot.

          So again, I think the question is entirely legit. We can argue about what to compare it to, but there should be some comparison we can make where they show an advantage.

  11. Brian Clark says

    I don’t think this is an indictment of content or “inbound” marketing. If anything, it shows the perils of the VC-fueled “hypergrowth at all costs” model, which works according to the playbook less often than people think because we tend to focus only on the success stories.

    At Copyblogger Media, we took a more purist content marketing approach. No VC or outside investment, no advertising, all audience-driven plus solid marketing and sales fundamentals. We’ve been profitable since day one and we’ll do about $10 million in revenue this year.

    Not as big as HubSpot, certainly. But a strong company that I’m proud of, and we also market to marketers which is a tough crowd. Content or “inbound” marketing works, but it can’t magically erase the inherent risks that come with trying to become a billion-dollar company as opposed to simply building a successful business.

    I think HubSpot has done a fantastic job overall. They have money masters to please though, which means you play the game rather than create a fundamentally sound business — and that’s why I’ve chosen not to dance with that particular devil.

      • Brian Clark says

        You hit on the important detail Matt — cost of customer acquisition for HubSpot is really, really high. Isn’t that largely the cost of the outbound sales team and advertising? Which just means that outbound marketing is incredibly expensive in the context of this service — which might have to do with pricing or a host of other things that have nothing to do with inbound marketing at all.

        • says

          You are correct, Brian–but inbound isn’t really off the hook here, is it? They felt the need to do a pantload of incredibly expensive outbound for a reason. I’m loving that my thinking is evolving as a result of the rich comment thread on this post. I’m not posing an existential question about inbound. I’m attempting to establish its boundaries. There are some particularly zealous practitioners who don’t believe those boundaries exist.

          • Brian Clark says

            You’re right, but they “felt the need” because they’re trying to become a billion-dollar company … why? Investors, right? So where’s the real problem here, the marketing or the expectations of the money?

          • says

            The “problem,” as you state it, is exactly right–expectations of money, and the current VC model with these platforms.

            There’s no problem with inbound marketing. There are limits to inbound marketing. Operate within them, as you clearly have, and enjoy a nice retirement 😉

          • Brian Clark says

            Ha! Well, I think Dharmesh and Brian are ultimately looking for the same thing on a different path. Sometimes the conventional path bites you. I think things will work out for them just fine.

          • says

            And maybe what I am saying here, Brian (and I do appreciate your wonderfully thoughtful comments) is that inbound marketing as HubSpot has championed is a wonderful way to build your business, unless you are a business like HubSpot.

          • Brian Clark says

            Sure, but HubSpot markets to small to mid-sized companies that would kill for the success that a company like mine has had. So ultimately this is an academic discussion that unfortunately breeds fear in the minds of those who could benefit from this type of marketing.

          • says

            It IS an academic discussion. Inbound NEEDS an academic discussion. I’ll not apologize for that, or take responsibility for how other people feel. This isn’t FUD; it’s an honest inquiry into a practice that hasn’t been held to the kind of light that other methodologies have. Once those discussions happen, inbound/content doesn’t die. It finds its home, and it gets stronger.

          • Brian Clark says

            Sorry, wasn’t meaning to demean the conversation. Just expressing a legitimate fear about the effect on those who won’t read beyond the headline. That’s the world we live in, unfortunately.

            As for practices that *have* been held to the light, let’s talk advertising. Gallup polls. Nielsen boxes. Banner ads. Telemarketing (which HubSpot does). Magazine circulation?

            Proven to be expensive and/or ineffective bullshit. So what else do you suggest works when people route around whatever they don’t want? I really want to know.

            Let me answer that for myself only. People want what they want. As long as they find out about it some way, then they’ll buy it.

            The problem with “marketing” is that too many people are trying desperately to sell people what they don’t want, and then blaming a certain methodology when it doesn’t work out. The truth is, content or inbound will work magnificently if you’re selling something that satisfies a real desire or solves a real problem.

            Marketing consultants hate to hear this. But it’s always a problem that can be solved, and yet the real answer is maybe your client is selling the wrong thing.

          • says

            Two things. First, I’ll again clarify that I personally wrote the headline, not Tom. So I take all credit or blame for its accuracy or lack thereof. Second, I completely concur that marketing gets too much credit when applied on behalf of great products, and too much blame when applied on behalf of mediocre products. It’s essentially the NFL quarterback of business.

          • says

            This nails it IMO… “The problem with “marketing” is that too many people are trying desperately to sell people what they don’t want, and then blaming a certain methodology when it doesn’t work out.”

            I ask clients, upon observing poor inbound engagement, to do some soul searching about products/services/audience targets – to shed their assumptions. Honest customer/prospect feedback, combined with observation of their behavior tells a story that must not be ignored. The trouble is that these lessons often tell you that your current offer is not viable or competitive – sour medicine. A bigger rope won’t help if all you do is push on it.

    • says

      Super comment, Brian–and I’ll repeat a reply I made to another commenter on this thread–when the need for “hypergrowth” arises, how does inbound marketing play in to that? How do you “turn up” Inbound marketing, and does that even work past a certain point? When the need for hypergrowth became imminent, how did the inbound vs. outbound spend change, and why?

      And you’ve created an admirable company.

      • says

        Tom, great post. I don’t think inbound marketing can generate “hypergrowth” quickly. Inbound marketing, unlike paid advertising, takes time to earn the results it aims for. However, the quality results inbound earns is long-lasting and consistent. Additionally, I believe in paying for the promotion of content that performs well from the inbound model. That can help fuel growth to. It just depends on the business its needs.

        • says

          That was my takeaway here. Growth is the bottom line question as, at some point you hit the threshold of your inbound contribution — and need time you may not have to further scale it. Thus media “fuel” comes into play to reach that acceleration choice.

    • Marcus Sheridan says

      Extremely well thought out and said Brian….and very nice job on building such a sound business man.

    • says

      I would like to point out one critical difference in your marketing Brian… You take a very holistic view of the buyer, and you don’t just focus on inbound (but the entire journey, especially loyalty and retention). That means you don’t have to keep spending to always find new people. Just my 2 cents.

      Oh Tom…love the article. And great headline Jay.

  12. says

    I’d put the losses squarely on the transition from the CMS to the COS (HubSpot’s newer platform). Existing customers are migrated free of charge (that’s an improved, responsive site with considerable tracking/reporting) and receive a monumental upgrade in the process. I see it as a short term loss (investment?) in their client base.

    The one thing I personally dislike about IPOs is that profitability tends to erode service.

    Disclosure: I’m a HubSpot customer, and a Certified Partner Agency. And, I’m not changing that.

    • Marcus Sheridan says

      The COS is a cost indeed Randy, but even I, as a Partner, don’t see that costing more than a few million over the last year. Essentially, their P & L before the COS switch has remained similar. That being said, I’d love to hear what HS has to say in terms of the cost of the COS.

  13. says

    There are a number of problems with judging the efficacy of inbound marketing based on the performance of Hubspot.

    1) Hubspot is one company. More companies need to be analyzed before any conclusive results can be drawn.

    2) Hubspot is a startup (like you said). Who knows why their marketing cost is going up. They could be blowing money on adwords to squash the sales model of some venture backed inbound marketing startup that has just raised a round. Maybe they’re valuing their users higher now because they have figured out a way to increase the lifetime value of each user? Maybe they’ve found some new way to market their product, and it increases their word of mouth coefficient so it’s worth the extra burn in the long-run. We don’t know.

    At least going public will bring a little more transparency to the question. Would be cool to check out their 10-K.

    • says

      Heh–there are many more than 2 problems with judging the efficacy of inbound marketing based upon the performance of HubSpot. So stipulated :)

      But, in your point #2, they did in fact dramatically increase their outbound marketing for a while. There was one stretch of time where you almost couldn’t watch a YouTube video without a HubSpot preroll. And my Facebook feed is filled with sponsored posts. So, yeah–they spent a lot on outbound marketing. And that’s fine–but it’s still worth asking the question: what is Inbound good at, and what isn’t it good at? And I’m fine asking that question even with a sample of one–I’m not fine drawing a conclusion.

      I’d LOVE to read their 10K.

      • says

        Tom – inbound is excellent anywhere there’s a complex or lengthy sales cycle.

        Transactional businesses may want to keep to outbound. All said, it’s important to never put all of our eggs into one basket.

        For the record, my firm has spend a grand total of $20 on Adwords (the only outbound we’ve ever purchased outside of $200 on a FB promoted post). That $20 earned us $12k, which was reinvested in inbound to earn us $300k+ in a very short time. It was the seed money that launched our company.

        So, is inbound worth it? I’d certainly say so.

  14. MattBertuzzi says

    Good points made here all around. To my mind, it comes down to:

    Can you get 11K customers at ~$8K (average subscription revenue per customer) with a lower CAC than $11.8K? If yes, than ‘entirely inbound’ isn’t the best option. If no, then it is best of the rest.

  15. Marcus Sheridan says

    Tom, really enjoyed this post and I’m glad Jay ran with it.

    HubSpot aside for a second, I think the bigger issue at hand here, or maybe even the more important question is:

    “Are marketing automation platforms a viable business model?”

    Based on the numbers of all the big boys—HS, Marketo, Pardot, Eloqua, Etc—one could quickly make the argument of “NO”

    I also wonder if this is because the industry (awareness) has yet to reach critical mass, and therefore we’re just too early in the game which means everyone is getting their teeth kicked in….for now.

    Either way, I’ll be buying stock when the time comes. Heck, Halligan should just throw a few shares the Lion’s way, that would be even better. 😉

    • says

      I was chatting with someone else today about that very thing, Marcus –Marketing Automation platforms really don’t have a great track record as standalone SAAS companies, do they? I do think there is also a “velocity” aspect to inbound marketing. Think about how you grew your business–inbound and content marketing were obviously just the ticket, and you (like Brian Clark) were able to enjoy organic growth without spending bucks on significant outbound marketing. But imagine you took some investment and you had a short horizon to return that investment. Your actions would change, just as HubSpot’s actions changed when they bought craptons of ads and sponsored placements.

      So, again, I’m not indicting inbound or content marketing–I’m inquiring as to its boundaries. It’s like working with a personal trainer and eating clean–it works well, over time. But sometimes you feel like you gotta take steroids to make the team 😉

      Thanks for your comment, as always.

  16. says

    I’ve only read Tom’s piece and it’s the first piece I’ve read about the IPO, (thanks Tom, it’s a good ‘un and I am sure it took some refining to get it just right), but I’m curious to know answers to some questions; forgive me if they’ve been raised in other people’s comments, and I’ll get round to reading those on my iPad later, but I wanted to give a spontaneous reaction:
    – Hubspot is an inbound marketer, and exemplary, but are they not also aggressive, and I mean more aggressive than their competitors?
    – is marketing ready globally for their product
    – have shareholders fully grasped the time it takes to drive change on the scale they are eager to see return their investment
    – is introducing a product like Hubspot into an enterprise that is not ready for it, bound to backfire, and have hubpost not had to be aggressive with their mid and bottom funnel conversions?
    – is sufficient emphasis put on all the other components of inbound marketing, notably quality and consistency of content
    – is automotion not just dumping yet more content on the content landfill? (the crap that Doug K alludes to)
    – would a company that’s really good at content marketing like Velocity Partners need (and perhaps they do) a service like Hubspot ? – ie is it really more important to adopt a lazy man’s tool that promises to take the pain out of inbound marketing, than it is to focus on developing the truly essential skills required of content marketing (relevance, targeting, ideation, governance, drafting, editing, design, influencer outreach, genuine one-on-one marketing?)
    – what number of abandons are there for every new acquisitions, and does successful marketing not rely on keeping customers because retention, not acquisition is the path the successful ROI?
    – do other vendors like Act-On, who not only softer spoken, not offer more affordable less onerous pricing solutions?
    – fundamentally, has the market not sniffed the scent of greed and impatience to turn a buck in place of empathy and genuine customer care?

    Just questions, but personally I’ve always been fearful of the companies impatience to sell, even when the product is not ideally suited, and I fear that is its downfall, but that’s just a perception

    But I can’t fault its commitment to educating marketers with great content

    I will go off and read the comments of others and perhaps discover the insights I’m looking for

  17. says

    @bob_warfield:disqus my experience of inbound marketing is remarkably similar, and I’m not going on a mad spending spree to acquire new customers, just sensible use of affordable and effective tools like WordPress (+Yoast), Scribe for a while, but abandoned, Noble Samurai, YouTube, Hoostuite and Mailchimp – it all works effectively but that is B2C. On the B2B front, I’m more inclined to invest in visitor tracking and lead gen

  18. says

    Great post Tom. Great title Jay.

    My perspective is from working in the website / marketing space in Boston, providing services to move websites from HubSpot to WordPress (talking with business owners who are leaving HubSpot), and having many friends that are current or former HubSpotters.

    I have heard story after story of HubSpot cold calling business owners, discussing marketing automation, offering demos, trying to book meetings and so forth. So, anyone that thinks that HubSpot’s practice of marketing never involves an outbound call is dead wrong. They have beaten the bushes from day 1 with “outbound” marketing. Maybe they would not have gotten where they are without it.

  19. says

    Product, price, target market, and product. Nothing to do with inbound marketing conceptually. The product just isn’t worth the money they charge and the way they price it.

    • says

      Oh and the smaller companies that buy it don’t know what they are doing and don’t have the talent to implement what they need to be successful with inbound marketing. So, I guess that is product too.

  20. Marc Gayle says

    Very thought provoking post Tom. It caused me to dive into the S-1 myself, and I think the one thing no one here has mentioned (or rather, that I haven’t seen — if someone did mention it and I missed it I apologize in advance :)) is what has been happening to Avg. Subscription Revenue per customer and Subscription Dollar Retention rate.

    Both have been increasing the past 3 years.

    In other words, there are two things I see here:

    1. It doesn’t seem like we (or Hubspot) knows the full lifetime value of their customers – because the revenue per customer increases (it seems to increase with time). So as the company gets older, they will likely discover where the ‘final lifetime’ of the average customer is – and I think that number will begin to reflect that (in either just holding steady, or beginning to decline over time).

    2. Their subscription dollar retention rate seems to indicate that they are reducing churn growth rate. It is hard to know for sure, because they don’t spell out churn (that I can find). They define Subscription Dollar Retention Rate like this: “We believe that our ability to retain and expand a customer relationship is an indicator of the stability of our revenue base and the long-term value of our customers. We assess our performance in this area using a metric we refer to as our Subscription Dollar Retention Rate. We compare the aggregate Contractual Monthly Subscription Revenue of our customer base as of the beginning of each month, which we refer to as Retention Base Revenue, to the aggregate Contractual Monthly Subscription Revenue of the same group of customers at the end of that month, which we refer to as Retained Subscription Revenue. ” which leads me to believe that not only are they reducing churn but also finding ways to increase revenue from each of the subscriptions.

    So, it could very well be that they haven’t hit the limit on their total lifetime value per customer. If that is the case, then the current CAC doesn’t matter – so long as they don’t exceed it.

    If they have indeed exceeded their lifetime value, and their CAC does always stay larger than their LTV…then that is a problem.

    If we assume that Dharmesh is indeed as competent as he seems, and as the ‘digerati’ seems to think of him, then I think it would be safe to assume that Hubspot is actually quite early on their growth curve. If that is the case, keeping CAC growing while they discover the tail end of the LTV actually does sound prudent….particularly given that valuable marketing software is almost winner take all (or most).

    Also….remember that as much as we know content & inbound marketing, it is still very brand new. So I can see how Hubspot, as one of the market leaders, would have to invest in other paid acquisition channels and brand building to educate the rest of the marketing market of the value of this little niche has carved out. In other words, you could look at the increasing CAC as the cost of expanding the market – which is not far fetched to see in this particular case.

  21. says

    I don’t think it is a fair judgement to tie inbound marketing’s success with Hubspot’s success with inbound marketing. In fact I think you could even make the argument that Hubspot is still successful despite this news. Hubspot is after all just one single company and they come with a very distinct and unique set of circumstances (compared to many companies at least) that may be guiding their sales and marketing strategy.

    For one, they happen to be in a growing and extremely competitive market. If you make the assumption that marketing automation is here to stay (a fair judgement in my mind) then I would be much more interested in market share than revenue at this point. I would be doubling down on anything that could give me market share. Meaning I would basically spend whatever I could get my hands on to carve out my percentage of what I would hope would be fast and growing pie. Pay now to reap bigger benefits later. This isn’t a stretch either to assume they are just fighting for their share. Hubspot is the middle child right now, look at their competition. They are flanked on one side by powerhouses like Marketo, Pardot, Eloqua (who target larger companies)…while on the other side strong companies like Infusionsoft (not to mention countless other less well-known brands who target smaller companies). Once everything starts to shake out as this market matures, some of these players will fade away at worst and at best the strong few are gonna grab lots of market share.

    Two, when I think “inbound marketing” Hubspot is most certainly top of mind and they are very hard to NOT run into online if you are looking for material even just somewhat related to inbound marketing let alone if you are actually searching for it. Yes, I understand marketing can’t be a money sink, it’s supposed to be just the opposite, but their marketing is working in terms of spreading the word and maybe once the automation market slows a bit they will dial their spend back and reap the benefits of their upfront efforts and money…no one ever said inbound was cheap, but they did say it was supposed to be a long term strategy. If the assumption above holds true and the market for automation software will continue to grow then being on the top of the rest of the potential market’s minds when they do decide to toss their dollars into this game is a BIG advantage, even if it has yet to pay off.

    Third, and the most obvious argument against this…Hubspot is just one company. Tying the success or failure of anything to one instance is not very statistically sound.

    Lastly, this very article is a form of inbound marketing…and based on the number of comments, quality of comments and quality of commentors I would have to say it is working quite well 😉

    Very provocative article by the way, thanks.

    • says

      Why isn’t it fair to judge Hubspot this way? They are the poster child for inbound. They live it, breathe it and pontificate about it. There is no company on earth that should be held more accountable for making it work and having the numbers to prove it than Hubspot. Yes, it is a competitive marketplace. Inbound doesn’t work in a competitive marketplace? It better. : )

      • says

        First of all I am not going to say I am correct, only playing devil’s advocate bringing another hypothesis to the table. I am making a huge assumption when I say Hubspot is doubling down on inbound to gain market share, I have no idea if that is their strategy or not. I guess the point I was trying to make is that inbound marketing may very well be successful in a competitive market place, but the success would not be measured in ROI (yet), but in market share rather.

      • says

        Point taken, and I was being a bit facetious with that last point touching on the fact that you are yourself creating inbound marketing material with this blog post…irony and such.

        But again I see inbound as a long haul approach to marketing. In my particular instance this is my first recollection of reading your material. However, I did find this article quite interesting and do believe I will be much more likely to read any other content of yours I may come across now. You have moved from awareness stage to a presence stage (you could call this trust or credibility, but the idea is that you have my permission to have my attention now) in my mind and you did it in one step.

        Am I a lead? Nope. Will I be, highly doubtful. But I’m just one person seeing this post. Evaluating the efficacy of this post by one single reader (held in a vacuum) becoming a lead in my mind is not a great indicator.

        I understand the point of the article and I do also understand that Hubspot could be considered a bellwether for inbound marketing success, but I don’t think you can pick one company out, make a conclusion about their success and then translate that onto every other company’s use of the strategy. Taken with a grain of salt this is valuable information, I just don’t think it is the whole story.

  22. Mary Kay Lofurno says

    I am jumping into the comment stream late and maybe others have said this..given the premise of your article, one company to compare them to is MOZ. They too are supreme inbound marketers, so I think they might be interesting to look at together.

    Thanks, Mary Kay

  23. Matt Howard says

    Any SaaS company, in any industry, would have to spend aggressively on SG&A in order to reach IPO escape velocity. No one should be surprised that HubSpot is still burning cash. Also, anyone who practices inbound marketing two things: (1) Inbound marketing isn’t free (2) Both inbound and outbound are critical to driving top line growth. That said, I agree with you 100% the one data point that would be super interesting to know is the differential ROI between inbound and outbound efforts.

  24. boblondon says

    Excluding all those people with a vested interest (investors, resellers, other partners, friends of the founders, etc.) are people really unequivocally raving about HubSpot software (usability, power, efficiency, results)? I agree with posters who are saying that it’s all about the product which will drive positive independent ratings and generate word of mouth–moreso than any campaign ever could.

    • says

      I agree a good product will push itself, but from my experience inbound marketing knowledge is not yet prevalent enough to just assume customers are going to jump on the product. I think there is still a real big need for educating the customer base to see the potential of marketing software.

  25. stefankrafft says

    Great post and amazingly many thoughtful comments, thanks everyone. My reflection might be a misfit, but I throw it out anyway. Let´s take another view on reality. Companies who has a website has all the reasons there is to grow their businesses by using it to its maximum. With that said, everyone needs to have an “inbound-approach” to make the most out of it as it is. I see so many companies struggling with how to reach out to different target groups with new marketing messages all the time, stressed out just to do another campaign. Their websites looks almost the same. Product, product, solution and nothing more. No content what so ever that are aimed for growing their customers business, nothing. Of course there are industries more suitable for a consistent Inbound Strategy, but I am sure that every business, no matter size or industry should look closer upon how they actually can add value to their customers just by doing one little thing – look upon themselves trough the eyes of their potential buyers.

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