In the world of digital marketing, KPI (key performance indicators) have their proper place. In fact, they are extremely important when it comes to measuring the performance of any given digital marketing strategy. Unfortunately, the only downside is that there are A LOT of options to choose from. Therefore it can be difficult when you have to choose the right KPIs to track. Sometimes it can be even harder to know where to start or figure out when it's time to start tracking something new. Today we'll discuss what KPIs are, how to choose them and how to track them.
A Crash Course On How To Choose & Track KPIs
What is a KPI?
A KPI is a specific metric that you use as a baseline to measure performance. It can be used in both a digital and non-digital environment. They are typically numbers that refer to ANY area of business; productivity, consumer behavior, even financial. The right KPI will give you a great deal of information in terms of creating a future strategy. Therefore it's best to figure out which KPI works best for your niche or business. Naturally, you need to figure out which target goal is most important and then choose effective indicators that work well with your strategy.
You can start by taking your current measures, then take a look at your goals to determine how to fill in the gaps.
- Stay action-oriented. Sure, there are a ton of metrics out there. Many of which you can genuinely focus on. But the thing to remember is the most important ones are the ones that are linked to a specific action.
- Simplicity is key. Anyone in your organization needs to be able to understand exactly what you're doing. The math shouldn't be complicated either. The more basic it is, the easier it will be to share with everyone what you're doing.
- Keep things clear. You have to make sure that you choose objectives that are clearly defined. This is the main thing about metrics. It's important to use objective (not subjective) numbers that you can set goals for and forecast future numbers.
Don't forget that timing really is everything. You need to focus on strict reporting and review schedules. They're one of the most effective ways to help you establish long-term and sustainable targets.
The Difference Between a KPI and a Metric
Ready to learn a little bit more about KPIs and metrics? Here's the thing: KPIs are different from metrics and they are NOT interchangeable. Okay, so yes, all KPIs are metrics (in one form or another) but not all metrics are KPIs. The bottom line: KPIs are a type of metric. But metrics are not a KPI.
Metrics can mean a whole litany of things, like numbers and ratios that may or may not give you any useful information. KPIs are specific indicators that measure the performance and pursuit of a well-defined goal. However, you need to keep in mind that KPIs differ from metrics in one very important aspect... KPIs directly impact your bottom line.
To better understand this, let’s take a look at the following example...
So let's say you have an ad that promotes your website. Because of this ad, you get a certain amount of daily and weekly impressions. This number is technically a metric. But if your main objective is to get traffic to your site, then knowing how many people saw your ad means diddly squat. This particular metric (impressions) becomes pretty much useless when you use it as a KPI to measure how well your ad is doing. You need to be able to choose the right metric or KPI for the job. Otherwise, you won't really know if what you're doing is actually working.
On the other hand, a metric like 'CPA or Cost Per Acquisition' will give the average cost of gaining a new customer for your business. If the CPA is too high when you compare it to the profit margin, chances are the campaign isn't sustainable in the long run. This is where monitoring comes into play. Drawing conclusions with this specific metric will give you the knowledge you need to know. It will also help determine whether or not you need to lower your 'cost per acquisition'.
You should always remember that as you change your strategies to fill in your gaps, you can always check how well your strategies are working by monitoring for changes in the CPA. This transforms that CPA into a Key Performance Indicator for your business. One that will provide, like all other KPIs, a specific way to measure and evaluate your progress towards a specific goal.
Okay, now that the difference between a ‘metric’ and a ‘key performance indicator’ is clear, let’s dive a bit deeper.
How To Choose the Right KPIs
Are you ready for this? Not every single KPI matters. There, I said it! Page views and visitor rates are definitely something you should keep an eye on, but they don't always give you the information that matters most. Like what's actually going on behind the scenes. Don't get me wrong. Taking a look at your site's traffic states on a day that you have a marketing event is incredibly beneficial. Especially when you compare them in relation to conversions versus non-marketing days. You can even apply these numbers to inform your strategy for the next campaign.
But what if you're new? Is tracking ALL the KPIs the way to go? No! You're better off starting off with just a few metrics. Ones that you know will become strong indicators of your brand's overall health. Downt he road you can decide on whether or not you should use an analytics tool to manage the other metrics. P.S. You can always calculate them yourself. Just make sure to focus on customers and business. Not just your website's traffic.
What's the deal with vanity metrics?
Here's the thing, not ALL KPIs truly matter and the ones that don't have been coined "vanity metrics". Granted, you might want to change these "vanity" numbers, but they don't really tell you much about specific actions and they won't necessarily help you meet your objectives. Therefore it's best to stick with metrics that are action-oriented. The ones that tell a story about your customer experience. The best way to choose your metrics is to start out with some key business objectives.
For example, Google Analytics offers metrics like "page views" and "impressions". But these could also be seen as vanity metrics. Sure we all want "more" of them, but they don't really give you enough information on how to take action. Now "sales conversion", on the other hand, is one metric that will really give you something to act on. If they're dismal you need to find out why and fast. Maybe the checkout feature on your site isn't working correctly or there's something down on your site, etc.
Conversion Rates Hold the Key
Conversion rates hold the key to framing the sales strategy for your future lead generation. It's also important to use them as a part of other metrics, like leads and sales ratios. There are even more specific conversion rates that you can also track. Such as keyword conversion rates and other metrics that point to different parts of the lead generation and sales funnel process. If you're just starting out, tools like Alexa or SERanking can be used to check the conversion rates of your competitors. That way you can come up with an internal benchmark based on what you find.
It should come as no surprise that revenue indicators are extremely important. But you need to know what the details behind your revenue actually are. If you don't, these revenue indicators won't be useful at all. You need to have an idea of things like average order value, lifetime value, subscription length, cost of customer acquisition, customer retention rates, etc. These will give you a better idea of what grows your revenue and what doesn't.
Track Your Customers
Go ahead and take a moment to determine if most of your traffic is paid or organic. Then take a look at the social media platforms that have the greatest impact on your lead generation. For example, at which point in the sales funnel do you notice numbers changing? It's imperative to take a look at what customers are doing (or not doing). Then take some time to investigate the gaps and figure out how to improve their experience.
Setting KPI Targets
There are a few questions that you need to consider in order to figure out what measures to use:
- What are you actually measuring?
- How frequently does this metric need to be reported?
- Are there any other factors that this measure might relate to?
- Who will be in charge of running the campaign AND reporting it?
- Is the metric related to a specific business goal? If so, you need to make sure that you have one measure for each goal.
Those are some pretty good questions to consider when it comes to setting the targets of your KPIs. Essentially all you are doing is measuring your short and long-term performance. However, the value of these numbers is important mainly because it lets others know where you're at and where you want to go. Trust me, your targets say a lot about your overall business goals and strategy.
Take the Time To Understand How KPIs Relate To Your Goals
With digital marketing, you need to remember that you're taking these performance indicators and trying to understand how your company can benefit from them. Which is why it's also a good idea to look at the indicators that specifically relate to the customer's experience. Such as repeat purchase rates and YouTube subscriptions. When you set these targets with a human focus, you'll get a better overview of what direction to take.
Digital Transformation KPIs
Whenever a company experiences a digital transformation, there are steps that affect the way it sees and uses its metrics. Key performance indicators need to be reevaluated in the digital landscape. It isn't useful to use the old, pre-digital KPIs because metrics will now have different values.
Unfortunately, regular marketing KPIs don't transfer effortlessly into the digital ones. Why? Mainly because businesses are less compartmentalized in the digital world. When you use integrated marketing campaigns (that involve Instagram, YouTube videos, live events, etc) it becomes difficult to measure the success of the campaign in terms of basic revenue.
Therefore digital metrics must be continuously monitored and applied. This is one of the best ways to get useful information that will help you determine what needs to change. Don't forget that these numbers and tactics are different in each business and niche. However, in most cases, client/customer relationships should be numero uno.
Becoming A KPI Pro
In order to become a KPI pro, you need to focus on long-term KPIs, such as customer retention. When you focus on the value of your customers this will protect you against losing them. So what's best for business? Metrics that actually tell a story. It's SO important to focus on KPIs that help you create a sustainable, actionable strategy. One that will not just boost your ROI (return on investment) but actually improve your customers' experience.
The most important thing to remember is that you should always ask yourself whether or not a given set of numbers directly relates to an objective. Does it help you make specific decisions about that objective? If it doesn't, it's time to move onto a better KPI. One that works for you, not against you.
Don't worry if this all seems a little too overwhelming, there will be a bit of trial and error. Becoming a KPI pro means that you have to consistently fine-tune the numbers and try different angles through A/B testing. It's almost unheard of someone getting it exactly right the first time. So don't be scared to dive in and experiment. It's all about adjusting and trying out a few different things before you start to see some success.