The modern marketer has access to resources and tools that previous generations never thought possible. However, you can’t confuse access to resources with proper utilization of resources. The only way to maximize the data and technology you have at your fingertips is to identify key performance indicators (KPIs) and analyze them for relevant insight and action.
What are Key Performance Indicators (KPIs)?
“The amount of data today is staggering — the information produced during two days, in 2014, is equivalent to the amount of data that was created between the dawn of civilization and 2003,” explains datapine, a leader in business intelligence solutions. “In such an environment, it is impossible to look at every single data point in your business.
As a marketer, you must be strategic about which metrics you track. KPIs help organizations define and measure progress towards specific goals. These indicators are quantifiable measurements that are defined prior to analysis and vary from organization to organization, and even from department to department. The most important word in this definition is “quantifiable.”
“If a Key Performance Indicator is going to be of any value, there must be a way to accurately define and measure it,” writes F. John Reh, senior business executive. “‘Generate More Repeat Customers’ is useless as a KPI without some way to distinguish between new and repeat customers. ‘Be The Most Popular Company’ won’t work as a KPI because there is no way to measure the company’s popularity or compare it to others.”
So, to summarize, a key performance indicator is a specific measurement that is quantifiable and appropriate for the specific goal the business is attempting to accomplish.
How to Identify and Create Meaningful Key Performance Indicators
The key to identifying and creating meaningful KPIs that push your marketing efforts forward is to establish a plan. The biggest problem businesses have is developing a long list of KPIs without understanding what they’re doing or what these KPIs are actually saying.
While having a long list of KPIs may feel like you’re being proactive, the fact of the matter is that it’s better to have five very accurate and definitive KPIs than it is to have 50 vague and meaningless ones.
There are many different processes for identifying and shaping KPIs — and feel free to create one that’s tailored to your team’s strengths — but most follow a general pattern similar to this:
1. Set Objectives and Goals
Before you can set Key Performance Indicators, you must consider the objectives and goals you’re attempting to accomplish. In other words, think of the things that need to be done in order for your job to be considered successful. As a marketer, this may be something like, “Increase conversion rate on our three lowest-converting product pages from last year.”
The value of having an objective is that it narrows your focus. As opposed to thinking about a combination of things, you can really hone in on a single, quantifiable goal. You either increase sales on these pages, or you don’t. There are no other possibilities.
2. Identify Measures
An objective is pointless unless you have a way of measuring the outcome. This is where the KPIs come into play. Using our example above, the measures would be things like total page visits and total purchases — i.e., conversion rate.
While this is a very simple example, most KPIs are more complex. When attempting to analyze a certain objective, you’ll likely have to establish multiple Key Performance Indicators. Over time, you may discover that certain KPIs are useless, but it’s better to start with multiple measures and whittle them down over time than it is to start with one and find out that it doesn’t work.
3. Define Specific Thresholds
A KPI doesn’t add any value unless it can be compared to something. You must know what’s considered good and what’s considered bad. Using our above example, let’s say the conversion rate for the lowest performing product page was two percent last year. Anything under two percent this year would be considered bad. If the conversion rate stays at two percent, it would be indifferent. If the conversion rate comes in above two percent, the result would be good. Two percent is the threshold.
Every KPI you establish needs a specific and quantifiable threshold. Furthermore, the threshold needs to be achievable. Having an unreasonable threshold doesn’t do anyone any good. For example, it wouldn’t make any sense to set the conversion threshold in the example at 10 percent. If this were the case, the objective should have been “to increase the product page’s conversion rate to 10 percent.”
4. Create a Dashboard
How are you going to record data and track the results? Thankfully, there are a number of tools currently on the market that make it easy to record data once you’ve established Key Performance Indicators. These are generally referred to as “dashboards.”
Most marketers are familiar with dashboards if they’ve spent any time using Google Analytics or similar platforms. Dashboards are meaningful visual displays that track data and turn the results into reports, charts, and graphs that can be interpreted. Creating a dashboard that clearly tracks your Key Performance Indicators takes continual optimization and tweaking. It’s not something you just set and put on cruise control.
5. Interpret Results
The next step requires you to interpret the results. Ideally, this is as easy as looking at your dashboard and cross-referencing your thresholds. However, it may require more hands on activity if your dashboard isn’t as precise as it should be.
6. Take Strategic Action
Finally, Key Performance Indicators don’t serve any purpose unless you take action based on the measurements you’ve gathered. For example, if the data shows that you’re moving in the wrong direction, you obviously need to change something. If the data shows you’re inching closer and closer to your objectives, then you probably want to continue the approach.
5 of the Most Popular Marketing KPIs
While marketers are encouraged to develop their own company and objective-specific KPIs, some of the most useful key performance indicators are the ones that are commonly used by companies across all industries. In order to give you an idea of what KPIs look like in practice, let’s examine a handful of the most popular ones marketers are currently using to accomplish objectives and scale efforts.
1. Cost of Customer Acquisition
Also known as COCA, the cost of customer acquisition is the cost that’s associated with converting a prospect into a paying customer. For example, if you spend $10,000 per month on marketing and advertising and add 10 new customers over that same time period, your COCA is $1,000. Once you figure out your COCA, you can then establish a budget that allows you to reach a certain level of profitability.
2. Customer Lifetime Value
Also known as CLV or LTV, customer lifetime value refers to the monetary value of each customer. Generally this is calculated by taking revenue and multiplying it by gross margin and average number of repeat purchases. As an example, if your revenue on a product is $100 with a gross margin of 50 percent, this means you’re making $50 every time a customer makes a purchase. If the average customer makes five repeat purchases, their lifetime value is $250.
3. Sales Team Response Time
For B2B marketers in particular, your sales team response time is a very critical KPI. In essence, this KPI tells you how quickly your sales team responds to the leads you’ve gathered. If you want to be successful, your sales response time needs to be much lower than the competition. If you’re unsure of how to measure this and why it’s important to your lead close rate, then check out this article by inbound marketer Chris Getman.
4. Email Marketing Performance
Sometimes KPIs aren’t as cut and dry as LTV or COPA. However, this doesn’t mean they’re irrelevant. Take email marketing performance as an example. While there’s no streamlined equation for this indicator, it’s very important
In order to determine the efficacy of your email marketing efforts, you’ll need to use different measures like delivery rate, open rate, unsubscribe rate, click through rate, forwards and shares, and conversion rate — giving each a specific weight. This is one of those KPIs that takes time to tweak and optimize.
5. Paid vs. Organic Conversions
There’s a big difference between paid leads and organic leads. Ideally, you want your organic leads to convert higher than your paid leads. This means you can reduce your paid budget and rely on natural traffic.
In order to study organic search performance, you’ll want to look at things like the percentage of leads that come from organic search, the percentage of leads that come from branded keywords, the percentage of leads that come from other terms, and the number of customers you obtain from organic search.
Establish Your Key Performance Indicators Today
What few people realize is that KPIs take time and effort to develop. These aren’t things you develop overnight and immediately implement in the morning. If you want to establish KPIs that are meaningful and productive, they must be developed through a carefully outlined strategy.
Using this article, you should be able to create your own process and get an idea of what relevant KPIs look like in terms of Internet marketing. Keep these tips in mind and start the process of establishing KPIs as soon as possible. Moving forward, the success of your marketing efforts may very well depend on it.
KPI Photo via Shutterstock
This article, “Marketer’s Guide to Establishing Key Performance Indicators” was first published on Small Business Trends
Source: Small Business Trends