Jaime Sol
HubSpot Case Analysis Questions
What are the major and minor issues facing the company featured in the case? Analyse
and explain the root causes of these issues.
HubSpot is a software company that provides inbound marketing and sales software to
businesses. In 2009, HubSpot faced three significant challenges that needed to be solved in
order to reach the company's long-term goals.
Firstly, HubSpot was doing and inadequate customer onboarding. They were trying to expand
as fast as they could and as big as they could. In other words, they were not segmenting their
customers clearly. This was generating an ineffective targeting because they were wasting
resources in groups of customers which could be less profitable. They had identified two
different customers. On the one hand, the Owner Ollies, which were business owners (1–25
employees) who run various departments of their company. Although they were interested
in Web 2.0 and inbound marketing, they desired quick and easy lead generation strategies.
On the other hand, Marketer Marys, which were marketing professionals for companies with
26 to 100 employees and were supported by the marketing team. They knew more about
Web 2.0 than Owner Ollies and needed more sophisticated tools to design and measure their
inbound marketing program. Moreover, it was expensive to acquire both type of customers.
HubSpot needed to spend around 1000$ per Owner Ollie and 5000$ per Marketer Mary.
Secondly, HubSpot needed to analyse their pricing model so they could attract new
customers. By analysing your pricing model, it is possible to understand how your customer
perceive the value of your service. In that way, HubSpot would have been able to identify
areas where they could have adjusted prices to increase sales. Therefore, HubSpot extreme
obsession with expansion may have resulted in neglecting some areas of the company, like
the pricing model system.
Finally, the major issue was to figure out if they needed to add outbound programs to their
inbound marketing efforts or if they could scale enough with inbound marketing. It was a test
for the business philosophy. HubSpot could not convince its customers of the effectiveness of
inbound market if it couldn’t scale its own business using it.
Jaime Sol
What external and/or internal factors have caused these problems?
On the one hand, two external factor could have caused these problems. First of all, as we
know, back in 2009, the United States experienced the Great Recession due to the 2007-2008
financial crisis. The economy experienced a deep recession characterized by high
unemployment, falling GDP, and a crash in the housing market. HubSpot in 2009, could have
experienced issues in the acquisition of new customers because of the consequences of the
Great Recession. Moreover, small businesses, which were the main customers of HubSpot,
were experiencing at that time tough economic moments. Many of them were forced to close
their businesses. Secondly, HubSpot faced significant competition from other companies in
the inbound marketing space, such as Marketo, Eloqua, Core Metrics and Marketing Sherpa.
However, HubSpot was one of the pioneers in the field and had developed a strong reputation
for its innovative approach to inbound marketing.
On the other hand, internal factors that could have caused these problems are the lack of
experience and communications challenges. HubSpot could have faced problems in recruiting
and retaining top talent with specialized skills. Moreover, there were issues between
marketing and sales departments due to a change in the traditional operation mode.
What quantitative analysis (“marketing math”) should be done to gain deeper
understanding of the situation? How does the quantitative analysis affect the options
for the company to move forward? Show your calculations and explain any assumptions
you have made.
HubSpot is spending a huge amount of money to acquire customers. Therefore, is crucial to
know the CLV and churn rate to calculate the expected customer lifetime. We can obtain the
average churn rate of both principal customers of HubSpot from a table of the text. The churn
rate of the Owner Ollies is 4,3% and the churn rate of the Marketers Marys is 3,2%.
𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑂𝑤𝑛𝑒𝑟 𝑂𝑙𝑙𝑖𝑒𝑠 𝐿𝑖𝑓𝑒𝑡𝑖𝑚𝑒 =
1
= 23.26 𝑚𝑜𝑛𝑡ℎ𝑠
0,043
𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑀𝑎𝑟𝑘𝑒𝑡𝑒𝑟 𝑀𝑎𝑟𝑦𝑠 𝐿𝑖𝑓𝑒𝑡𝑖𝑚𝑒 =
1
= 31.25 𝑚𝑜𝑛𝑡ℎ𝑠
0,032
Jaime Sol
By calculating the expected lifetime value of each customer, we can determine their customer
lifetime value. As the initial fee is different from the ongoing fees, we need to subtract one
month from the calculation of the CLV of Owner Ollies.
𝐶𝐿𝑉($) 𝑜𝑓 𝑂𝑤𝑛𝑒𝑟 𝑂𝑙𝑙𝑖𝑒𝑠 = 500 + 250 ∗ 22,26 − 1000 = 5,065$
𝐶𝐿𝑉($) 𝑜𝑓 𝑀𝑎𝑟𝑘𝑒𝑡𝑒𝑟 𝑀𝑎𝑟𝑦𝑠 = 500 ∗ 31,25 − 5000 = 10,625$
Marketer Marys generates more than the double value of what Owner Ollies generates to the
company. Therefore, Marketer Marys are more profitable for HubSpot. Nonetheless,
Marketer Marys just represent 27% of HubSpot’s client portfolio. There are just 255 Marketer
Marys facing 694 Owner Ollies. So, it is possible to calculate the contribution to the revenue
account of each customer.
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑓 𝑂𝑤𝑛𝑒𝑟 𝑂𝑙𝑙𝑖𝑒𝑠 = 3,515,110$
𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑓 𝑀𝑎𝑟𝑘𝑒𝑡𝑒𝑟 𝑀𝑎𝑟𝑦𝑠 = 2,709,375$
It is evident that Owner Ollies has made a greater contribution to the revenue account. To
gain a deeper understanding, margin per customer should be calculated.
𝑀𝑎𝑟𝑔𝑖𝑛(%) 𝑝𝑒𝑟 𝑂𝑤𝑛𝑒𝑟 𝑂𝑙𝑙𝑖𝑒 =
6,065 − 1,000
= 0.83
6,065
𝑀𝑎𝑟𝑔𝑖𝑛(%) 𝑝𝑒𝑟 𝑀𝑎𝑟𝑘𝑒𝑡𝑒𝑟 𝑀𝑎𝑟𝑦 =
15,625 − 5,000
= 0.68
15,625
Moreover, Owner Ollies have a larger margin than Marketer Marys. Therefore, if HubSpot
would have invested all the money expended to acquiree Marketer Marys, it could have
reached a greater number of Owner Ollies.
𝑀𝑎𝑥𝑖𝑚𝑢𝑛 𝑂𝑤𝑛𝑒𝑟 𝑂𝑙𝑙𝑖𝑒𝑠 𝑖𝑡 𝑐𝑜𝑢𝑙𝑑 ℎ𝑎𝑣𝑒 𝑟𝑒𝑎𝑐ℎ𝑒𝑑 =
255 ∗ 5000
= 1275 𝑂𝑤𝑛𝑒𝑟 𝑂𝑙𝑙𝑖𝑒𝑠
1000
Assuming that HubSpot would only be able to transform into customer just 50% of the 1275
potential Owner Ollies we can determine the impact of this situation on revenues.
𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 𝑤𝑖𝑡ℎ 𝑗𝑢𝑠𝑡 𝑂𝑤𝑛𝑒𝑟 𝑂𝑙𝑙𝑖𝑒𝑠 = 638 ∗ 5,065 + 694 ∗ 5,065 = 6,746,580$
𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 𝑤𝑖𝑡ℎ 𝑏𝑜𝑡ℎ 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 = 3,515,110 + 2,709,375 = 6,224,485$
Jaime Sol
As we can observe, HubSpot should just focus their efforts on Owner Ollies because are much
more profitable than Marketer Marys. HubSpot should adapt their marketing programs to
Owner Ollies and try to reduce the acquisitions costs.
What are all the possible solutions to the issue facing the company? Which solution
would you recommend? Why?
There are several possible solutions for HubSpot. It would need to modify the pricing
structure. The company's pricing strategy, the monthly pricing model, could be enhanced to
better reflect the value of its services. Therefore, it could capture the maximum value from
customers. HubSpot should improve the targeting approach by focusing on Owner Ollies,
which seems to be more profitable for the company. To improve efficiency, the company
should abandon its efforts to acquire all types of customers. Moreover, it should also try, as
mentioned before, to reduce as much as possible their acquisitions costs.
Moreover, if the company wants to make sure that its overall marketing strategy is in line
with its business goals and objectives, it should revaluate their marketing strategy. A SWOT
analysis could be part of this. Outbound marketing programs should not be an option.
HubSpot core value is unbound marketing so it should focus on this area to be more efficient,
technical and competitive.
To diversify its revenue streams and reduce risks, the business might think about creating new
services lines for Owner Ollies such as sales CMR software or customer service software. If
HubSpot identifies in the future new potential profitable customers, it should consider
conducting market research to explore expansion into new markets. As a last resource, it
could ask outside expertise to Management Consulting Firms such BCG or McKinsey &
Company. They could assist in identifying and addressing its pricing, targeting, and strategic
issues.
In conclusion, a comprehensive strategy which includes enhancing the targeting strategy,
improving the pricing model, and revaluating the overall marketing strategy is likely to result
in the most effective and lifelong results. With the recommendations mentioned above, the
company would be able to better understand its customers, optimize its pricing, and align its
marketing initiatives with its business objectives. Additionally, outside sources may be
beneficial in supplying a fresh viewpoint and expertise in handling these problems.