HubSpot Case Analysis

Case Overview: HubSpot

HubSpot was founded to disrupt traditional marketing practices thru’ use of Technology.

HubSpot evangelized Inbound Marketing with consumer-friendly tools and marketing

strategy tutorials packaged through new Web2.0 Channels – blog, video, social

(Twitter/Facebook), live streams, and podcasts. The focus of the company is to become

the market leader of the inbound marketing space in combination with software and

consulting firms. This blend would allow businesses to attract prospective customers

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through web content, qualify their potential, and convert them into paying customers.

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Overall, HubSpot would help create and manage a customer funnel. The company’s goal

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is to dominate the beginning two stages of said customer funnel, which include lead
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generation, plus the analysis and qualification stages.
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HubSpot’s Current Position

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• Leader in Web2.0 and Inbound Marketing

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• Unique Product
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• At inflection point: 1000 Customers

• Goal: Accelerate growth rate and increase profitability

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• Key strategic areas to be addressed

o Strategic customer segmentation

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o Price Model re-engineering

o Re-define marketing strategy by leveraging Outbound Marketing

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 HubSpot Case Analysis

Go for both Marketer and Owner segments w/ focus on B2B and CMS

• CLV Analysis for various segments (Owner Ollies and Marketer Marys, B2B and

B2C) was completed with key assumptions. Gross margin of 80% was assumed

based on the industry performance. Salesforce has approx. 81% gross margin

(Source: WikiPedia).

• Marketer Marys segment is clearly high CLV segment w/ $8.0k CLV vs Owner

Ollies w/ $4.2k CLV. This is mainly due to lower churn on this type of customers.

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However, Owners’ segment has larger customer base and hence higher TAM of

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$6.68B vs $4.76B for Marketers’ segment.

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Customer Price / Gross
Churn CAC CLV CLROI TAM ($)
Segment Mo Margin
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Owner Ollies 4.30% $ 1,000 $ 250 80% $ 4,151 4.15 $6.68B

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Marketer Marys 3.20% $ 5,000 $ 500 80% $ 8,000 1.60 $4.76B

B2B 3.30% $ 1,000 $ 250 80% $ 5,561 5.56

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B2C 6.00% $ 1,000 $ 250 80% $ 2,833 2.83

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CMS 2.10% $ 1,000 $ 250 80% $ 9,024 9.02

Non-CMS 5.50% $ 1,000 $ 250 80% $ 3,136 3.14

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• Since the cost of acquiring an Owner Ollie is 1/5th of that of a Marketer Mary,
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HubSpot could afford to charge a lesser monthly fee to Owner Ollies ($250 per

month as compared to $500 per month charged to Marketer Mary). Also, since

Owner Ollies as consumers were more in number than Marketer Marys, the

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 HubSpot Case Analysis

reduction in the monthly price charges was made up for by economies of scale.

Therefore, HubSpot has identified its customer segments and serves it according

to the returns expected from them.

• The customers using the CMS have an overall churn of just 2.1%. Given the size

of the company as well as their sophistication in Web 2.0, Ollies are 6.5x more

likely to use the CMS than Marys (13% for Ollies vs 2% for Marys). Usage of the

CMS also drives an additional $500 sign-up fee which would offset the CAC by half.

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Ollies with CMS have a 2.1% churn have CLV of $9.0k for the $250/Mo price – an

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increase of 117% just by selling through the CMS.

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• The B2B customers had meager experience with Web 2.0 technology and required
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the consultancy services that HubSpot provided along with the effective

ingratiation of the software in their business models. B2B companies generally

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provided complex products that made it necessary for their consumers to have a
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thorough understanding of their product before investing in it. This made HubSpot

the perfect product to fulfill the needs of B2B customers.

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• HubSpot received 2 rounds of funding and hence is not constrained on resources.

They also have the whole software infrastructure well set-up.

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Based on the analysis HubSpot should continue with both the segment with focus
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on B2B customers and CMS enablement.

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 HubSpot Case Analysis

Product and Pricing Strategy

• For HubSpot, B2B customers account for 68% of total customers while B2C account

for 32%. Coupled with the low churn rate for the B2B customers of ~2.1% to

~5.5% of churn for B2C customers, Hubspot should focus its feature set

development and sales towards B2B customers.

• HubSpot Management is debating if they should explore a longer-term contract (ex:

12 months) in order to stop the higher churn of Ollies after a few months and the

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SEO improvements have kicked in. While this would stem the early churn, it would

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have a negative impact for Owner Ollies. Small businesses are very budget

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conscious and forcing them to lock into a 12-month contract, especially for a new
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tool in a category (Web 2.0 marketing) they may have never used before is not
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advised. But pushing for annual contracts for Marketer Marys makes perfect sense.
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• Instead HubSpot should go for a reengineered product focused Pricing Strategy as

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o Owner Ollies Package

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§ Incentivize use of CMS to improve customer retention

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§ Offer CMS as an included perk and increase the pricing to $300 p

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month. $50 increase in monthly subscription fees will increase CLV on

Profit by 22% to $5.1k

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§ If the customers don’t want to use CMS increase the price to $325 p

month. This is only intended to make customers stick to hosting the site

with HubSpot.

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 HubSpot Case Analysis

o Marketer Marys Package

§ Promote annual contract by keeping $500 p month fees if signed up for

a year but increase the price to $1,000 p month if customer wants to go

on monthly contract. This will improve the retention even further thus

increasing the total profit.

§ Focus more on Analytics and less on websites. Investing in further

development of Analytics and technological developments will help

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attract and retain customers.

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HubSpot should adopt new Product and Pricing Strategy to focus more B2B

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Customers and increase retention thru’ CMS and enhanced Analytics.
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Stay true to Core Value: Inbound Marketing only
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• Hubspot evangelized the concept of Inbound Marketing. It sold the marketing

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strategies which it itself devised. Hubspot faces a dilemma of principles here. If it

uses Outbound Marketing, how will it justify selling Inbound Marketing solutions
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to its clients? It becomes a marketing paradox which may prove harmful to the
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company’s stellar image.

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• Outbound Marketing would involve infusing more financial resources into

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marketing. In this case the cost per lead generated is much more than Inbound

marketing.
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• One key issue that hampers current marketing strategy of Hubspot is that since

they pull customers to them, it becomes very difficult to determine the correct

strategy to implement before they know what segment of customers are finally

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 HubSpot Case Analysis

getting attracted towards them. It creates a Catch-22 situation where knowing the

strategy to implement depends on knowing what particular customer segment the

strategy should be implemented on and the latter cannot be determined until the

former is implemented.

• In this, Outbound marketing has a huge advantage over Inbound marketing since,

strategies are formulated and implemented after deciding the target audience. This

kind of marketing also tends to attract a larger and more diverse set of customers.

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Hubspot current marketing strategies filters out customers who have a greater

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potential to buy and narrows their focus to target them. This eliminates almost

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50% of the customers from the top of the customer funnel.
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Hubspot is not being stubborn in using Inbound Marketing. Rather, it is an

ingenious method of marketing which generates measurable results and makes

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optimum use of financial resources.

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Long Term Vision: Salesforce Emulation

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HubSpot has potential to become the next SaleForce for Marketing and dominate the lead-
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generation and analysis / qualification stages of the customer funnel. They’ll need to focus
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on developing a long-term vision and make sure execution is the key to achieve that.
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Following elements need to be incorporated into the strategic planning process.

• To retain and engage Owner Ollies, HubSpot must create professional and easy to
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use CMS content templates, website grader, and social grader tools.

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 HubSpot Case Analysis

• HubSpot must offer personalized consultation and training. By providing an on-

demand marketing platform without a need to hire IT and marketing to Owner

Ollies, Hubspot can build long-term mutual relationships.

• Revisit the customer journeys for both Owners and Marketers segments and

identify opportunities to reduce friction to setup CMS website, Blog, Social

Tracking, Lead Tracking/Scoring, and overall Inbound marketing suite by

incorporating latest technological advancements.

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