KPIs (Key Performance Indicators) are measurable values that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs to evaluate their success at reaching targets. KPIs are the actionable scorecard that keeps business strategy on track.
Here’s a brief, video explanation on KPIs from Erica Olsen at On Strategy.
According to Peter Drucker, marketing and innovation are the two chief functions of any business. Marketing is the distinguishing, unique function of the business. The aim of marketing is to know the customer so well the product or service fits him and sells itself.
What are the right KPIs to evaluate marketing effectiveness. Here are 10 marketing KPIs every business needs to know.
1. REVENUE OR PROFITS: In most cases, KPIs are designed to follow the money. If your a sales driven company, booked revenue is the monetary metric that determines the business’ vitality and health. Profit is perhaps the most important monetary metric. Profit is revenue after all the expenses related to the manufacture, production and selling of products. Profits go to owners, shareholder or are reinvested in the company. Marketing KPIs have to ladder up to either revenue or profits to show their impact on the business and its ability to grow.
2. CUSTOMER VALUE:Understanding customer value is by far the most important thing you can do to identify ways to grow your business. If you understand the value of your customers you can: 1) Determine which customers to invest in, 2) Identify new customers and markets to target, 3) Agree which product and service lines should be offered and 3) Change pricing and promote to extract more value. Customer Lifetime Value (CLV) is the metric that defines customer value. It can be an intimidating calculation to some. It has a defined formula and is a marketing KPI that is definitely worth knowing.
3. COST PER ACQUISITION (CPA): With the knowledge of the value of a customer, the next marketing KPIs is how much does it cost to acquire a customer. Cost Per Acquisition or Cost Per Action is a primary metric for any marketing initiative. It is the cost for a visitor, prospect or lead to take a desired action or conversion. It is one of the key drivers in determining the impact of marketing.
4. NEW AND RETURNING VISITORS: If you’ve never compared the data for your new and returning website visitors, I suggest taking a stab at it. Reviewing the statistics about the different types of visitors to your site can help you answer questions like: 1) Are my visitors engaged? 2) Do my visitors keep coming back to me (my website) for more information? The primary place where new vs. returning visitors can be found is the Google Analytics of your website. Knowing the numbers and the ratio give you the primary information you need to know about growth possibilities for your business and where they are most likely to come from.
5. TRAFFIC SOURCES: In Web analytics, including Google Analytics, traffic sources is a report that provides an overview of the different kinds of sources that send traffic to your web site. They include:
6. MARKETING QUALIFIED LEADS (MQL); A marketing qualified lead (MQL) is a prospect already in your lead-tracking system, who has expressed interest in buying your product and passes a set of lead qualifications in order to progress further down the funnel. Marketing qualified lead definitions are typically used by B2B companies to identify a stage in the buyer’s journey. For example, in order to become a marketing qualified lead a prospective customer may have to have a certain number of employees in their company, be in a certain vertical or industry, or have a certain revenue.
7. CONVERSION RATE: The conversion rate is the percentage of users who take a desired action. The archetypical example of conversion rate is the percentage of website visitors who buy something on the site. Conversion rate optimization is important because it allows you to lower your customer acquisition costs by getting more value from the visitors and users you already have. By optimizing your conversion rate you can increase revenue per visitor, acquire more customers, and grow your business.
8. RESPONSE TIME: The length of time it takes for a person in the system to react to a given stimulus or event. In any service business, response time plays a significant role in retaining customers.
9. AVERAGE ORDER VALUE: Average Order Value (AOV) is an ecommerce metric that measures the average total of every order placed with a merchant over a defined period of time. AOV is one of the most important metrics for online stores to be aware of, driving key business decisions such as advertising spend, store layout, and product pricing. Even though average order value is primarily used in ecommerce, it is a KPI worth knowing for any business.
RETURN ON MARKETING INVESTMENT (ROMI): Marketing ROI is one of the terms most commonly used to describe marketing success, sometimes referred to as the holy grail of marketing KPIs. The definition of the ROI calculation must be consistent with the financial definition to maintain credibility with finance. The formula in its simplest form is below.
Does your business measure these Marketing KPIs? Does your business need help figuring them out?