Organizations use key performance indicators, or KPIs, as a tool to get employees to better align their efforts by prioritizing which metrics to improve. A KPI is a measurable value to benchmark progress towards an objective. It is always advisable that what is tracked is SMART – that is specific, measurable, attainable, relevant and time bound. A natural question is what are the best KPI to know and track? The answer varies by organization, function, company situation and environment. For our purposes, we are going to examine some digital marketing metrics, concentrating on: 

  • Average order 
  • Gross Margin 
  • The number of leads needed to close 1 customer 
  • Number of leads 
  • Lead generation costs 
  • Subsequent sales or referrals  

CALCULATING MARKETING RETURN ON INVESTMENT – one example 

The better we can identify and track these metrics, the more we replace hope with math when it comes to setting sales targets and establishing marketing budgets.  

Here is a high-level example using metrics to help guide planning: Suppose a business owner generating $150,000 per month in sales has a 10% objective of revenue growth from new online business. This incremental $15,000 per month in sales requires how many customers? If the average order were $500, then: 

$15,000 in new orders goal / $500 average order = 30 customers  

Were the gross margin of each order to average 50%, then $250 of gross profit is being generated per order. Suppose this business observed that out of every 100 site visits, two resulted in a sale. In other words, the site conversion rate was 2%.  

30 customers goal / 2% close rate = 1,500 leads or site visitors needed  

After doing some keyword research, it is discovered that a basket of relevant keywords commands a cost-per-click (CPC) rate of $3.50.  

$3.50 CPC * 1,500 clicks needed = $5,250 CPC campaign investment  

While $5,250 per month may be an amount in excess of what this company typically invests, the return on investment is as follows:  

  • $15,000 in revenue at a 50% gross margin yields $7,500 in profit contribution.  
  • $7,500 in contribution minus $5,250 in marketing equals $2,250 in net contribution.  
  • $2,250 net contribution divided by $5,250 budget = 43% return on marketing investment.  

So, nice return but is there a possibility of diving further into this example to further improve business performance?  

THE VALUE OF TESTING 

Having profitably achieved its sales target, this company can test two other strategic goals:  

  • Are there other sources of traffic that might convert at a higher rate than paid traffic? 
  • Can a better communication system increase leads converting or customers becoming raving fans? 

In this example, we can pursue these two questions by investing $1,000 per month in search engine optimization (SEO) and another $1,000 in marketing automation CRM (customer relationship management) software. With these two campaigns underway, the content on the site and content available to nurture the sales funnel and the post sales purchase is improved with the objective of (a) drawing more organic traffic and (b) improving communication with prospects and customers alike.  

With tracking tools like Google Analytics, this company should set up Goal Tracking to gauge whether conversions from organic traffic is higher than conversion from paid traffic. Our experience has been that organic traffic converts at a rate double to quintuple that of paid traffic. At the high end of that range, a 2% paid traffic conversion rate would be closer to 10% for organic traffic. In other words, if we needed 1,500 site visitors for a paid campaign to generate 30 sales, we would only need 300 organic visitors to yield the same number of customers. What happens if our organic program matched or exceeded the traffic of the paid campaign? For the same 1,500 site visitors, 150 orders would be generated instead of 30. 

There are several studies that indicate that at least half and as many as 95% of buyers are not ready to buy when they begin to engage in finding solutions to their problems. One post from a few years ago separated buyers at the top 10% of the funnel from the bottom 90%. Within each class, there were further classifications ranging from “mind is made up” to “could be influenced to change” to “have a need, but not enough to act” to “prefer other options” (be it other vendors or substitute products, including do without or DIY).  

We know that there are those who may be receptive to your message, but maybe not now. Perhaps the timing is wrong, the budget is not there, or they do not know you well enough to trust your capabilities. With well-timed and useful engagements – such as email, a white paper, case studies, or webinar invitation – your firm can further present itself as competent, plausible and trustworthy. To possibly have your time frame coincide with that of the prospect, it may make sense to lengthen the time and ways in which you interact with prospects in your sales funnel. 

Could such an engagement persuade one out of ten customers to re-purchase your product or strongly recommend your services to an acquaintance? Could such communication convert one more prospects per campaign, albeit not in the month of initial exposure? If so, the average sale increases from $500 to $550 when one is looking at CLV (customer lifetime value) or the initial campaign yields 31 customers (30 in month one and another a few months later). Additionally, the CAC (customer acquisition costs) diminishes when one action produces multiple benefits (say, the beneficial branding from having good and clear content, that could be further propagated on social media). 

KPIs as LEADING INDICATORS, OUTCOME AS LAGGING MEASURES 

Key Performance Indicators provide a focus for improvement – be it strategic and operational – while being grounded in reality. In the example of above, we considered the conversion rate today.  Then we imagined how improving the conversion rate in the long term might impact specific business tactics. For example, the quality of traffic might be influenced by its source (organic versus paid) or the conversion rate might improve by having additional touch points before (lead to customer stage) or post purchase (customer to raving fan). Whether we consider inputs (how many leads generated), process (how often do we communicate beyond the first web visit), or output (does a new customer buy again or recommend your service to a friend), the outcome of tracking metrics often produces improvement in efficiency, effectiveness, branding, customer service, or business results such as, say, higher sales or more net margin contribution.  

In his book Atomic Habits, James Clear states: 

“Your outcomes are a lagging measure of your habits. Your net worth is a lagging measure of your financial habits. Your weight is a lagging measure of your eating habits. Your knowledge is a lagging measure of your learning habits. Your clutter is a lagging measure of your cleaning habits. You get what you repeat.” 

KPIs that are measured should repeatedly prompt the question: “how can we improve here?”  Observing which actions are useful is more likely to lead to informed decision making and improved performance compared to hoping, which is random, at best. Spend some time with your employees or trusted advisors developing clear objectives as to the goals you want to achieve and identifying which actions you want to encourage. While it may be desirable to have more Twitter followers, Facebook likes, YouTube subscribers or site traffic – what do you want from those metrics? How can you track your progress in terms of brand awareness, customer retention, customer satisfaction, market research or lead generation? Our suggestion is start with a few KPIs – perhaps 3 to 8; make sure that the metrics are relevant, easy-to-track, the reporting is trusted, and improvement is possible. If you need help in setting up Analytics, Goals, a KPI dashboard or want to discuss big picture marketing strategy or specific programs, call us at (914) 348-9464 to book an appointment.