What is a KPI in marketing?
A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving its objectives. The use of “key” is not accidental here. It highlights the focus on not measuring all possible indicators, but the ones that are most important.
When choosing them, think about how you can use the collected data and whether it can be applied to the benefit of your company. If in doubt, it is a sign that these are not key values and it is not worth analyzing them further.
How to choose KPIs in marketing
Marketing operates across multiple channels. Remember that every campaign and channel should have its own KPIs that connect to the main ones created for the larger marketing strategy. Therefore, before you plan your next campaign or start working in a new communication channel, you need to verify that you are able to set specific goals and check if you have achieved them.
We have identified a few common and important categories of indicators below, along with tips on how to measure them and apply the information they supply.
Examples of KPIs in marketing
1. Customer Behavior Analysis
You should already be using a system to measure traffic from a website, like Google Analytics. If not, go and get that started right now and come back when you’re done. Once you’re ready to dive into the data, which parts are worth collecting?
- Unique Pageviews. Don’t focus on total visits, but unique pageviews—this will allow you to see how many different visitors your site really attracted.
- Time spent per visit. Analyze page visitors in terms of how much time they spend there. You’ll learn if they are carefully reading content or scanning for information.
- New vs. returning customer ratio. Analyze the number of new and returning customers and the ratio of one to the other. If the number of new ones is higher, it means that interest in the brand among new people is increasing. If it’s the other way around, it means that you have a large number of loyal customers.
- Traffic sources. Check the origin of traffic to your site, especially in relation to “loyal”, returning customers or those who buy the most (since they are the most profitable for you). This way you can check which channel brings you the most conversions.
- Lead-to-customer ratio. Monitor the ratio of leads to clients. This will allow you to identify the purchasing stage where the greatest outflow of customers occurs. This may draw your attention to the elements to be improved, such as optimizing the order form or the checkout process.
How to analyze the data
Does the time spent on your site or the number of subpages visited translate into profits? Often yes, but not always. High traffic alone with a small number of conversions is not the definition of success, just like a large number of new but not very loyal customers is not what you want. Remember that all KPIs should be analyzed in a specific context and you can’t be distracted by what looks like success (lots of page visits) but really isn’t (very low time spent on page, low conversions).
Take a closer look at the customer loyalty rate and take a look at it from many perspectives, including where the most quality customers come from, how much time they spend on the site before making a purchase, etc.
2. Lead Management
It’s also worth analyzing the leads themselves. A few common marketing indicators are useful here:
RFM (Recency, Frequency, Monetary Value) consists of three components:
Recency – How recently did the customer purchase?
Frequency – How often do they purchase?
Monetary Value – How much do they spend?
You can assign a score for each dimension on a scale (e.g. from 1 to 10). The maximum score represents the preferred behavior and a formula can be used to calculate the three scores for each customer.
The best solution is combining variable sets and a comparison of sectors. This allows you to prepare very specific target groups and use a different strategy for each, for example with an additional offer or educational materials. Extract some of the main groups you want to focus on. For example, loyal customers buying most often, new customers, VIP clients, etc.
Analyze the size of these groups over time, whether the amount they spend is growing, whether their frequency of purchases increases, etc. This information will show you the effectiveness of your business and which direction it is heading and observe sales trends.
CPL and CAC
CAC (Customer Acquisition Cost) is the cost of convincing a potential customer to buy a product or service. Cost per lead (CPL) allows you to measure the cost-effectiveness of your marketing campaigns at generating new sales leads. They specify the amount for each potential customer generated by a campaign. This is particularly effective when analyzing the effectiveness of online advertising, such as AdWords or social media campaigns.
When focusing too much on acquiring new customers, it’s easy to forget that regular customers are twice as likely to make purchases. The cost of acquiring a client includes the costs of each step that is necessary to convince the potential customer to complete the sale.
In addition to the cost of the product itself, the cost of customer acquisition includes expenses related to less visible internal activities, such as research and marketing. Comparison of acquisition costs is a good way to arrange the priorities given to different products.
Long-term customer value (LTV, LCV, CLV, CLTV)
Customer lifetime value is the total worth a customer represents overall future purchases. It can have different specific definitions, but most often is calculated like this: (average monthly income from client x margin) ÷ monthly rate of loss. This is an important metric since it clearly tells you how much can be spent on the acquisition of new customers while still being profitable.
Remember to measure CLV for each customer individually or in segments rather than as an average for all customers. This will allow you to get much more reliable data.
Focus on the future value of customers, not past purchases.
For reliable data, separate costs from sales value, including product cost and delivery, admin, staff, etc.
3. Retention rate, Churn
Churn is the portion of customers who leave you in a given time frame. It’s a measure of how effective your company is at retaining customers over the long term. Engaging new customers costs more than engaging current ones, so focus on this key performance indicator to improve the company’s image and customer service process. When measuring churn, take these factors into consideration:
- Look beyond the raw numbers for insights into parts of the conversion path that are most problematic. Maybe your order form is too long or shipping costs too high?
- What does the purchasing process look like for those who only completed it once? Maybe it was longer than that of other customers, or was it often associated with a product complaint?
Return on investment, or ROI, allows you to measure how much revenue is being generated by a specific marketing campaign, as compared to the costs of running the campaign. ROI is a valuable and significant KPI for marketing, but it creates some difficulties; it is not always possible to specify a direct return in some situations, such as when a potential customer sees an ad without clicking and then visits your site at a later time.
Remember that you don’t have to measure everything and create dozens of KPIs. Identify the most important ones for your business and focus on their implementation. Platforms that collect all relevant metrics in one place and update them in real time can be helpful in monitoring KPIs and give you access to the most up-to-date data and progress towards your goals.