One of the biggest challenges for marketers today is measuring the success and profitability of their marketing initiatives. In an increasingly data-driven industry, marketing strategies need to prove their worth and this only happens when you can attribute their success to the key metrics and KPIs that matter.
Marketing KPIs (Key Performance Indicators) are specific, numerical marketing metrics that organizations track in order to measure their progress towards a defined goal within your marketing channels.
The first thing you need to know about any marketing campaign is how much you’re making and how much you’re spending. This is all that matters and everything else simply helps you improve these numbers.
Your profit represents the amount of money you make on top of all expenses.
I.e. Total Revenue – Total Cost = Profit
If the result is negative, then you have made a loss of that amount!
- Profit Margin
Profit margin is the percentage of total revenue that is profit. So, if 48% of your total revenue was spent on marketing, your profit margin would be 52%.
- Return on investment
Return on investment (ROI) is a measure of your profit over costs. It’s also measured in a percentage but – unlike profit margin – ROI can be more than 100%. Your return on investment is calculated like this:
ROI = (Revenue – cost) / cost
So, if you spend £1 and make £1 back, your ROI is 0%. If you spend £1 and make £2, then your ROI is 100% and £3 revenue would make your ROI 200%.
ROI is a good way to quickly gauge and compare the profitability of marketing campaigns. Just keep time frames vs investment amounts in mind, as these can obscure results.
- Cost per acquisition
Cost per acquisition calculates how much you pay to convert each customer. Essentially, it’s your total marketing spend divided by the number of customers you campaign generates. This is an important metric for setting budgets and refining your marketing spend over time.
- Revenue growth
This tells you how much your marketing strategies have increased revenue. In other words, this proves how much value your efforts have added to the business.
Knowing the overall profitability of your marketing strategies tells you how effectively they’re working but they don’t really give you any clues about how to improve performance.
BUSINESS PERFORMANCE KPIs
- Customer retention rate
Customer retention rate is simply the percentage of customers who continue to buy from you after the first purchase. However, the way you measure customer retention rate depends on the nature of your products and what you’re selling.
For example, a SaaS firm based on monthly subscriptions will need to measure their retention rate on an ongoing monthly basis for each customer. While a bike repair shop will probably want to measure retention rate on an annual basis.
- Customer churn rate
At the opposite end of the spectrum we have customer churn rate, which is the number of customers you lose over a certain time frame. Again, this is a vital metric for SaaS or subscription-based service (e.g.: Sky TV) but every business should be tracking customer churn rate on an annual basis to make sure customer numbers are moving in the right direction.
- Lifetime value per customer
When customers keep coming back for more, it’s important you’re able to attribute a calculated lifetime value to each of them. This gives you a better idea of how valuable each closed lead will be for your business and also helps you set budgets for your customer retention efforts (e.g.: customer service, coupons, etc.).
Calculating a lifetime value per customer isn’t exactly straightforward but many analytics tools will be able to calculate an average figure for you over time.
- Cost per lead
Cost per lead is often associated with paid advertising (or cost per click) but it’s important to understand the cost of leads from all of your marketing strategies. This is more difficult with strategies like SEO and content marketing but it’s vital you know how much you’re spending on these strategies if you want to prove their worth.
Once you have a figure for the cost of leads from each of your marketing strategies, you next need to calculate an ROI for each of them. This will highlight their effectiveness and pinpoint areas for improvement.
- Lead to customer ratio
Your lead to customer ratio tells you how many leads you need to generate to meet your customer and revenue targets. It also gives you an idea of how effective your marketing strategies are at generating quality leads and how well your sales team is doing at turning them into deals.
A low lead to customer ratio suggests you need to improve the quality of your leads and/or the sale process that follows them.
- Conversion rate
Conversion rate should be a familiar term by now. Strictly speaking, your conversion rate will be the percentage of users who convert after landing on any page with a conversion goal.
This is a favorite metric with marketers.
As with all metrics, though, conversion rate can be problematic if you focus on it too heavily. For example, it can’t differentiate between a user who sees your call to action (CTA) and one that doesn’t. Which means using conversion rate at a page level to gauge the effectiveness of your CTA can be misleading.
Start with the right KPIs and metrics
These days, most marketers are swimming in more data than they can handle. The problem is data without context means nothing and prioritizing the right KPIs and metrics is a vital start to measuring your marketing efforts with accuracy.
First, define your goals and then assign the right KPIs that enable you to measure success. Next, identify the metrics that provide the data your KPIs need and filter out anything else. Don’t get bogged down in data that’s irrelevant to the core goals of your campaigns. Everything but the essential data is a distraction.
Adapted from ventureharbour.com