Key Performance Indicators (KPIs) can be used across an entire organization. From overall organization KPIs to dialing down to department level KPIs or even individual KPIs. Essentially, wherever there is an established goal in an organization, a KPI can be developed as a clear way of tracking it.
With the fierce competition for most businesses in today’s online market place, spending money on any efforts that don’t produce is simply not optional. Especially when spending resources on marketing activities, where at times it’s challenging to establish the true value and effectiveness of individual campaigns or even the overall picture.
A negative return on marketing investment, short term and even over time, is not optional. But the good news is it’s completely avoidable. Finding a way to track and measure marketing initiatives can be slightly more daunting than the typical metrics of Sales and Production, where it’s easy to see an actual sale made from a qualified lead. But with the proper KPIs in place, the challenge in seeing if ad spend is producing positive results or falling flat, becomes less ambiguous. With the proper KPIs, a small business can establish activities and campaigns that are successful, and where not, place accountability on those tasked with reaching these goals.
But how does one track whether you’re spending more than the return you’re getting? Or what areas of your marketing strategy might need optimization or to be removed entirely, or even boosted altogether? This is where measuring your KPIs becomes the most important part of the overall activity.
What are KPIs?
In the realm of digital marketing, KPIs indicate the effectiveness of your e-commerce activities, the performance of your website. It helps you dial into where the successes are and where the failures are. In helping you to find out what’s working and what’s not you can reformulate a plan, optimize, to allocate resources and efforts in areas of success, repeat them, to drive them successfully even further. The more important element of a solid KPI structure is to reduce spending in areas that aren’t producing the results you need to hit your goals, or that are costing you rather than providing you a profit.
There are many KPIs that can be established and measured and each business will have its own unique combination of what is important for them. It’s one thing to gather information on a company’s social media pages as ‘Likes’ and ‘Followers’…but what does this truly translate to as far as value? It’s impossible to gauge. The true value comes with marketing KPIs that are relevant and measurable.
And, as with any data analysis, you need to see the greater overall picture to analyze and understand the data properly. Understanding that you have 1000s of impressions per month, which might be fantastic in itself, is one thing. Understanding this in relation to the impact on other metrics is what’s going to indicate the success or failure of the overall scope. 1000s of impressions are only of value if they are converting at a high rate. If conversions are low, these impressions, in and of themselves, are of no value.
Similarly to the way each point in the buying cycle affects how you set up a PPC campaign that works, developing and understating your KPI data has several main elements of focus that all work together. These stages (customer acquisition, conversion, and revenue) encompass data from point A, entry to your website, and from where to a completed transaction. And one is of no greater importance than the other when it comes to analyzing the data, they all create a story at each level and rely extensively on information from another level to be fully understood.
However, fully understanding the data from one can only be achieved if the circumstances around how it affects the previous, or remaining stages, is understood. For instance, your website could have tons of traffic which could be seen as a very successful thing (acquisition) but if none of that traffic is converting (conversion), something is not working optimally. So then if you take a closer look into your conversion KPIs only to see that people are not signing up, buying, or taking part in any of your ‘call to action’ elements, this can indicate the possibility that you’re not attracting the right audience through more relevant keywords or even negative keywords, or your landing pages are potentially too confusing, misleading or simply not tight enough to keep the consumer interested.
A similar example of how each stages data needs to be related to the data of the others, a website could have high traffic, possibly even a high number of new leads (Conversions)…but still, none of those leads are producing any sort of revenue. By considering at the data from all categories, the indication could be that you are attracting consumers who are looking to purchase a product like yours, but not purchasing your product because upon digging deeper into your pages they conclude it’s not the precise product they need. Again, possibly a keyword issue, not hitting the right audience. Optimization can help turn this problem around quickly, but only if you’ve measured the data and understand where the problem is occurring.
Here are a few key metrics at each stage that should be considered for any successful KPI analysis.
In the customer acquisition stage, the data can help you determined if your marketing efforts are driving traffic to your website, from where this traffic is coming, and the effectiveness of your advertising on various platforms.
Total Traffic: The number of users who visit your website through a variety of channels i.e. organic, referral links, direct search or paid search. Measuring this can give you insight on what channels work best, and highlight any dips or peeks to find opportunity to increase the quality of visits.
Traffic Sources: It helps to have a greater understanding into which of your channels is working best for you. Not only do you want to dedicate greater efforts to the channels that bring in traffic the most, but lessen your allocation of resources to the ones that don’t.
Click-Through-Rate (CTR): If you have a high CTR it indicates that your ads are being seen, received favorably and are relevant. It can help you gauge which keywords and which ads work best for your business and also is a key element in your Quality Score – which directly can affect your cost per click. Which is highly relevant for a positive return. To calculate, the CTR is the number of clicks your ad receives divided by the number of impressions.
Keywords: Keywords are as important for organic searches as they are for paid searches. Understanding (words or phrases your audience is searching) and constantly evolving your keywords is key to efficiency in many, if not most, areas of your digital marketing efforts. Diving into the data on your specific keywords continually can only improve performance.
In the conversion stage, the data will help determine if there are issues with your content, landing pages or any other area on a page-by-page basis on your website that might be deterring visitors from completing the ‘task at hand’ — Converting!
Conversion Rate: Conversion rate is the number that indicates how good your website is at converting new visits to actual customers. As long as they are completing your ‘call to action’ they are converting. But the data needs to be understood again from all angles. Low traffic but high conversion rate = solid. High traffic but low conversion rate = problem. To calculate, the number of people clicking on ‘calls to action’ divided by the total number of people who came to your page.
Bounce Rate: Is the number of users that exited your website after viewing just one page. If your website is not inviting, detailed, engaging or interesting enough for someone to remain on it upon the first click, something needs to be improved quickly.
Cost Per Lead: Cost per lead is important to understand your return on investment from your advertising efforts. To calculate, it’s the amount spent on a particular campaign divided by the total number of quality leads (people who have converted).
Average Time on Page: You could have 1000s of page visits every day, but if they aren’t staying there, you’re targeting the wrong audience or your website (landing pages) needs attention. The length of time a visitor views your page encompasses the total time spent and the number of pages they searched through. In can indicate where information on your site needs to be reevaluated in order to provide consumers with what they’re looking for.
In the revenue stage, it all comes to light. This is where the monies at, literally. There’s no point in paying out more in marketing costs than an actual conversion will return to your business. ROI is at the very top of the priority list for tracking:
ROI: The ROI on your marketing efforts is quite simply the total amount of revenue from your campaign, minus the total cost of your campaign / total cost of your campaign. The percentage is your ROI. This can be done for each channel, as well as your total efforts in their entirety. Breaking down into individual channels will be more advantageous for understanding what’s working (positive ROI) and what’s not (negative ROI)
Customer Acquisition Cost: CAC can be very complex and all-encompassing or more granular per marketing channel. Calculating CAC is Total Sales Costs plus Total Marketing Costs (for given period) divided by the Number of New Customers (in that period).
For a new business, or a business trying to institute a more analytical approach to maximizing and measuring their Digital Marketing investment, developing the right marketing KPIs will assist in knowing where to allocate greater investment and where to cut back. Getting a more finite control over your digital marketing efforts, in dollars and by other resources, is one of the most advantageous ways to optimize and maximize your ROI.