What Are KPIs (Key Performance Indicators), and How Can They Be Used Effectively to Optimize Marketing Campaigns?
What are KPIs (key performance indicators), and how can they be used effectively to optimize marketing campaigns? Understanding and leveraging KPIs is crucial for driving success and achieving business goals in the fast-paced marketing world.
KPIs are measurable values demonstrating how effectively a company achieves its key business objectives. By setting and tracking the right KPIs, companies can gain valuable insights into their campaigns’ performance, make data-driven decisions, and continuously refine their marketing strategies.
In this blog, we’ll explore the importance of marketing KPIs, how they align with SMART Goals, the difference between KPIs and metrics, and the key metrics every business should track to optimize their campaigns and drive results.
Let’s unlock the power of KPIs and explore how they can be used to optimize marketing campaigns.
Why Are KPIs Such a Big Deal?
Imagine you’re about to go for a hike in the desert. You don’t bring a map or a compass, and this is your first time hiking. Since you’ve never hiked before, you decided to hike a popular desert hike that people raved about on social media.
Not knowing anything about the hike or what you’re doing, you follow a group of hikers who seem to know where they’re going. Four hours into the hike, you realize you have no idea where you are or where you’re going.
That’s when you find out that the group you’ve been following is headed for a 3-day hike into no man’s land. Panik stricken, you decide it’s time to head back. As you get ready to leave, the hikers warn you that the hike back is 5 hours. You have half an empty water bottle but need at least 2 bottles of water, and you only have 3 hours of sunlight left to make it back safely because you don’t have a flashlight.
What do you do?
Don’t worry. No hikers were harmed in the making of this analogy. Our made-up story aims to help you understand the importance of KPIs and how to implement them before you execute marketing campaigns. Failing to do so can leave you like the noobie hiker, alone in the desert, not knowing where you’re going.
Understanding the Difference Between Metrics and KPIs
Now that I’ve terrified you about KPIs and hiking alone in the desert, let’s explore how KPIs differ from metrics.
Metrics and KPIs are the two most misunderstood analytics tools across marketing channels. I have often read articles or opinion pieces using metrics and KPIs interchangeably, which should not be the case.
The biggest confusion between metrics and KPIs is that some metrics are technically KPIs, further confusing people. To avoid any further confusion, let’s define the two.
KPIs, short for key performance indicators, are specific elements within a company’s marketing or business plan. They have a quantitative outcome that measures the success of achieving the company’s marketing or business goal.
Conversely, metrics are elements within a defined KPI that help you track progress toward achieving the desired KPI attached to a business goal.
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How to Create an Effective Marketing KPI
Now that you understand the difference between a KPI and a metric. Let’s explore creating effective marketing KPIs.
Whenever KnewChoice works with a new client, we always discuss their goals and business objectives to understand the bigger picture they are trying to accomplish.
Often, executives and business owners will tell us they need more leads, which means they need more revenue. Our goal is to uncover how much revenue they need so that we can create a goal to achieve that revenue target.
Every business needs more leads, equating to sales, but to be successful, you must understand the who, what, where, when, why, and how.
By deeply understanding the company’s business goal, we can then focus on building campaigns that track specific metrics, leading to an actionable KPI that results in an achievable goal.
Notice how the word goal has popped up several times? That’s because KPIs form part of what is known as a SMART Goal. Remember how we defined a KPI as a specific element within a company’s marketing or business plan with a quantitative outcome? The keyword here is a quantitative outcome.
That means you have to be able to measure the outcome. If you can’t measure the outcome, chances are you’ve narrowed on a metric, not a KPI.
To create actionable KPIs, you need to start with a SMART Goal. KPIs are one element used to track SMART goals and whether or not you will achieve them.
What are SMART Goals? They are very specific goals that align with a larger business objective. SMART goals must be specific, measurable, achievable, relevant, and time-sensitive.
I won’t go into too much detail here because we already wrote an extensive article about these goals and how to outperform competitors with SMART goals. Check out that blog to learn more about creating specific and measurable goals.
Examples of KPIs
The cool thing about KPIs is that virtually every industry has KPIs to track a company’s performance. You also have a lot of flexibility when measuring KPIs weekly, monthly, quarterly, or annually.
I didn’t mention tracking KPIs daily because daily tracking is too granular. Weekly KPIs are also not recommended because daily and weekly KPIs can lead to focusing on the wrong metrics, which can lead to premature campaign changes.
Focus on monthly, quarterly, and yearly KPIs because they allow you to spot trends easily, leading to better decision-making.
Marketers and marketing teams have an advantage over other industries because we can leverage different KPIs, such as traffic, engagement, conversion, and revenue metrics, to help businesses achieve a specific outcome.
Check out some of the different KPIs KnewChoice uses to optimize our clients’ campaigns and the KPIs we use to grow our company. Keep in mind that some will be repeated as you explore specific marketing channels.
1) Sales KPIs
- Monthly Sales Growth
- Average Profit Margin
- Monthly Sales Bookings
- Quote-to-Close Ratio
- Average Sales Cycle Length
- Lead-to-Sale Conversion Rate (%)
- New and Expansion MRR
- Customer Acquisition Costs (CAC)
- Growth Rate
- Lifetime Value of a Customer (LTV)
- Customer Lifetime Value (CLV)
- Marketing Qualified Leads (MQL)
- Sales Qualified Leads (SQL)
2) Marketing KPIs
- Return on Ad Spend (ROAS)
- Return on Investment (ROI)
- Average Order Value (AOV)
- Customer Acquisition Costs (CAC)
- Cost Per Acquisition (CPA)
- Cost Per Lead (CPL)
- Lifetime Value of a Customer (LTV)
- Customer Lifetime Value (CLV)
- Marketing Qualified Leads (MQL)
- Sales Qualified Leads (SQL)
- Conversion Rate (CVR)
- Keyword Rankings
- Backlink Profile
- Email Open Rate
3) Conversion KPIs
- Conversion Rate (CVR)
- Customer Acquisition Costs (CAC)
- Cost Per Acquisition (CPA)
- Average Order Value (AOV)
- Lifetime Value of a Customer (LTV)
- Return on Investment (ROI)
- Lead-to-Sale Conversion Rate (%)
4) Revenue/Financial KPIs
- Gross Profit Margin
- Net Profit Margin
- Average Order Value (AOV)
- Lifetime Value of a Customer (LTV)
- Customer Lifetime Value (CLV)
- Customer Acquisition Costs (CAC)
- Cost Per Acquisition (CPA)
- Return on Ad Spend (ROAS)
- Return on Investment (ROI)
How Do You Track KPIs?
Now that you know everything about KPIs and SMART goals, let’s explore how to track KPIs to ensure progress on your business objectives.
It doesn’t do you any good to take the time to build a strategy if you’re not going to monitor performance.
Tracking your KPIs boils down to personal preference and the financial commitment you can make.
Suppose you’re a small business or solopreneur. In that case, your options are likely more limited, so you will need to take advantage of free KPI tracking tools like Google Analytics or Looker Studio (formerly Google Data Studio).
Google Analytics has several customization and reporting options that integrate with Looker Studio, allowing you to create elaborate dynamic reports with bars, charts, and graphs. You will also need to leverage Excel or Google Sheets to track conversions and monitor how the conversions are getting you closer to achieving your KPIs and SMART Goals.
More established businesses should leverage Google Analytics with marketing insight platforms and CRMs to track specific campaign metrics and sales channels. Examples of marketing insight platforms include SEMrush, Spyfu, Wordstream, and Moz. These tools allow you to track keyword rankings, backlinks, overall marketing channel engagements, and more.
In order to track leads and sales, these same businesses will need to rely on CRMs like Hubspot, Monday, ClickUp, and Salesforce to understand MQL, SQLs, lead-to-sales ratios, etc., that are driving the most revenue. This data can also be tied back to campaigns to see which marketing channels and campaigns drive the most revenue by implementing server-side or offline conversion tracking.
Utilizing KPI Data to Make Informed Marketing Decisions
You should have a pretty solid understanding of KPIs, how to create KPIs, how they align with SMART Goals, and how to track them.
The only topic we have yet to explore in detail is how to use KPI data to make informed decisions to help you optimize marketing campaigns.
I will use the SMART Goal example I created in our Outperforming Competitors with SMART Goals blog to make this concept easier to understand. You should read that blog to learn how we created this goal.
Goal: Our current quarterly revenue is $20,000 per quarter. We want to increase next quarter’s revenue by 25%, so we need to generate $5,000 ($25,000) by the end of next quarter. To accomplish this goal, we will use Google Ads to onboard 9 more clients, each paying $556/month for our marketing software. That means we must close roughly 3 monthly sales over the next quarter. The additional $5,000 generated next quarter will help us buy new computers for our team since our current computers are five years old.
Is that not a sexy SMART goal, or what?
Possible KPIs:
- Return on Ad Spend (ROAS)
- Return on Investment (ROI)
- Average Order Value (AOV)
- Customer Acquisition Costs (CAC)
- Cost Per Acquisition (CPA)
- Cost Per Lead (CPL)
- Lifetime Value of a Customer (LTV)
- Customer Lifetime Value (CLV)
- Marketing Qualified Leads (MQL)
- Sales Qualified Leads (SQL)
- Conversion Rate (CVR)
Understanding the Cause and Effects of KPI Optimizations
While this list of KPIs seems extensive for this scenario, remember that our goal is to generate $5,000 in revenue over the next quarter. That means the most relevant KPIs will be revenue-based KPIs.
Based on our SMART Goal, we’ve already determined we need to acquire 3 paying customers. To keep things simple, we aren’t going to focus on MQLs or SQLs and all of the metrics and KPIs needed to monitor lead-to-sales ratios. That is a topic for another blog. Instead, we’re just going to assume our ads are amazing, and we get 3 paying customers per month to illustrate a basic campaign optimization.
Since we’re optimizing for revenue, we will be focusing on the following KPIs:
- Customer Acquisition Costs (CAC – not to be confused with CPA)
- Return on Ad Spend (ROAS)
- Return on Investment (ROI)
Do you see the benefits of creating a goal and then breaking down that goal to focus on specific KPIs? This approach keeps us focused and allows us to optimize the metrics inside a campaign that directly impact each of these KPIs.
The ultimate benefit is that you are not left wondering what changed inside a campaign that resulted in a decrease or increase in revenue. You will have a clearer understanding of cause and effect as you make changes to your campaign, and it will be easier to identify positive or negative changes.
Remember, campaign optimizations involve identifying patterns in your campaigns and making incremental changes until you’ve maximized performance as much as possible.
Common Pitfalls to Avoid
As you continue to become comfortable creating SMART Goals and building campaigns that leverage true KPIs, it is essential to keep your eye on the prize.
Aside from not setting up KPIs in the first place, a common issue we see with campaigns is choosing too many KPIs at a time.
In the scenario above, we showed you 11 possible KPIs you could track. We narrowed it to 3 KPIs because our primary focus was increasing revenue.
Another common mistake is placing too much emphasis on vanity metrics vs KPIs.
Below are some of the more common vanity metrics confused for KPIs;
- Click Through Rate (CTR)
- Bounce Rate
- Engagement Rate (usually relates to SEO and Social campaigns)
- Website Visitors
- Followers (social media)
- Video views (only relevant when used as a specific top-of-funnel engagement campaign)
- Social media likes
Ready to Start Leveraging KPIs to Optimize Marketing Campaigns?
Understanding and effectively utilizing KPIs can make the difference between a successful campaign and one that fails to meet a business objective.
By setting SMART goals, defining clear KPIs, and consistently tracking and analyzing performance data, businesses can make informed decisions that drive actual results.
Remember, KPIs are more than just numbers; they are powerful tools that provide insight into your strategies, highlight areas for improvement, and ultimately guide you toward achieving your business objectives.
Embrace the power of KPIs to optimize your marketing efforts, stay ahead of the competition, and achieve sustained growth and success. Now that you know what KPIs are and how to use them, are you ready to supercharge your marketing campaigns to drive better results?
If any of this sounds too complicated for you to implement on your own, feel free to contact us. We would happily audit your current marketing campaigns and help you establish KPIs to track campaign performance.
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