What is a KPI?
A KPI is a key performance indicator that measures how your company is performing at achieving a certain goal or objective. There are KPIs for every aspect of business, whether it’s financial, marketing, sales, or operational.
Essentially, KPIs are measurable metrics that gauge overall performance over time. A great way to analyze and report on your KPIs is to create custom dashboards in your automation software.
- Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) measures the amount of money it takes to convert a potential lead into a customer.
This metric can be used to improve your marketing because it helps you make important budgetary decisions.
For example, you don’t want to spend too much money acquiring a customer if it won’t result in a profit. This helps businesses decide how much money to spend on attracting customers.
- Lifetime Value of a Customer (LTV)
Another metric that can help determine how much money to spend on marketing is the lifetime value of a customer. This metric indicates the total amount of revenue a business can expect to make from a single customer.
This is a useful metric to compare to CAC. For example, if your CAC is higher than your LTV, then you’re probably spending too much money acquiring your customers.
- Return on Investment (ROI)
Return on investment in marketing refers to the amount of money you gain compared to the marketing cost.
To calculate this, you’ll subtract marketing expenses from sales growth and then divide that by marketing cost to get the return on your investment.
In marketing, keep in mind that it can be hard to directly attribute sales growth to a marketing campaign. If that’s the case, you can subtract your average organic sales growth and marketing cost from your sales growth and then divide it by your marketing cost.
- Return on Ad Spend (ROAS)
Return on ad spend is a more specific KPI that you can use to determine the success of your ad campaigns.
This metric measures the revenue that’s generated compared to every dollar you spend on an advertising campaign. It’s usually a ratio.
For example, let’s say you made $10 for every $1 spent on an advertising campaign. That means your ROAS for that campaign is 10:1.
- Marketing Qualified Leads (MQL)
An MQL is a lead that has engaged with your company and could become a more serious prospect if you nurture that relationship.
This is a great KPI to measure because it helps your marketing team understand how many leads they’re bringing in.
Additionally, when compared to sales qualified leads (see below), your marketing team can measure how many MQLs become SQLs and then customers.
- Sales Qualified Leads (SQL)
If an MQL is nurtured correctly, then eventually they become a sales qualified lead. An SQL is a prospective customer that’s ready to talk to someone on your sales team.
Usually, these leads have been researched and vetted by your marketing department.
Again, this KPI is helpful because it can help your marketing team understand how many of their leads are talking to your sales team.
- Follower Growth
As a marketer, one of your duties might be to manage social media accounts for your company. If you work on the social team, a helpful KPI to track is follower growth.
Most likely one of the goals of your social media team is to increase brand awareness and interact with your audience. Increasing your followers is a great way to measure success for those goals.
To grow your follower base, you might consider running sponsored campaigns. One brand added 36X its typical number of followers each day during the 4 days it ran a set of sponsored posts on Instagram, increasing its follower count by 18.15%.
- Conversion Rate
The conversion rate is the percentage of visitors who complete the desired action. The desired action could be anything from completing an online form to signing up for a service or purchasing a product.
This is a helpful KPI to track because it can let you know how successful you are at attracting leads.
For example, if the desired action was filling out a web form, measuring your conversion rate could let you know that your web page isn’t converting many leads. If that’s the case, then you could start to rethink your strategy.
- Website Visitors
As a marketer, attracting people to your company is the main goal. A great way to do that is to attract website visitors.
Website visitors is an important KPI because it could track the success of several campaigns.
For instance, if you’re tracking organic web traffic, then you’ll be measuring the effectiveness of your SEO team.
On the other hand, if you’re tracking web visitors from social media, then you could use web visitors to see how many referrals your social team sends to your site.
- Social Media Engagement
Not to reiterate, but a major role in marketing is social media. One of the main KPIs for social media is engagement.
You could track likes, shares, comments, messages, tags, or mentions. Any way that a customer or lead is interacting with you, you can count as engagement.
Measuring engagement can help you analyze the success of your social media posts.
- Referral Traffic
Referral traffic is a KPI that can help you understand where your web visitors are coming from.
This is a great KPI to track because it helps you understand how most people find your company. This could be useful information when building your overall marketing strategy.
- Net Promoter Score (NPS)
Net Promoter Score is a way to measure customer satisfaction. This KPI measures how likely your customers are to recommend your business to a friend.
When you calculate your NPS, you’ll most likely leave additional space for comments. This metric can give you direct, actionable feedback and insights from your customers.
As a marketer, it’s important to listen to your customers and truly understand them. This KPI will help you do that.
- Organic Traffic
It’s important to measure the success of your SEO efforts. To do that, you’ll likely track the KPI of organic traffic and keyword performance.
With an SEO tool, you can see how well your company is ranking on search engines for certain keywords.
This KPI will inform your overall organic and SEO strategy.
- Event Attendance
As a marketer, you’ll have KPIs for every campaign you’re operating.
If you’re running an event, for example, then you’ll most likely track event attendance. This KPI will let you know how well your marketing team did at attracting people to your event.
- Customer Retention
While you might think customer retention isn’t a marketing KPI, it actually is important to consider.
Customer retention is a great KPI to track for marketers because you can use the information in your message for your marketing campaigns.
Additionally, this metric helps you better understand your customers, so you can market to them better.
Ultimately, KPIs are important because they’re how you measure success as a marketer. You’ll use KPIs in almost every situation because you’re going to need to track success for short and long term campaigns.
How to Develop Effective KPIs
- Start with strategy
You should always start with strategy. Without a firm stake in the ground around what your business is seeking to achieve, it’s incredibly easy to end up with a hauntingly long list of possible indicators that you feel you could or should measure.
Your strategy therefore acts as a starting point for designing appropriate KPIs – but only if it’s clear! All too often companies create a 30–40-page strategy document that no one ever reads or understands. A great way around this is to create a simple one-page strategy. This will help you clearly define your objectives, and help you work out what you need to put in place to achieve them.
- Define the questions you need answers to
Linking your KPIs to your strategy will immediately sharpen your focus and make the relevant KPIs more obvious. Identifying the questions you need answers to will further narrow your focus, because questions give the indicators context.
That’s why, as well as KPIs, We always advise our clients to think about KPQs: Key Performance Questions. These will help you work out what data you need to gather, and, therefore, which KPIs you’ll find most useful. For example, if you plan on executing a simple strategy to increase your income by focusing on the most profitable areas of your business, you could ask “Where are we making profit and which processes are most costly compared to the returns we receive?”
Once you are clear on the questions you need to answer, you can make sure that every indicator you subsequently choose or design is relevant not only to your strategy, but also provides the answers to very specific questions that will guide your strategy and inform your decision making.
- Identify your data needs
Once you know what questions you’re trying to answer, you need to define your data needs to establish what KPIs, metrics or data you need in order to answer those questions. In this phase, forget about reality for a moment and consider what information and knowledge you want to have in an ideal world. After all, everything can be measured!
- Evaluate all existing data
Having worked out your ideal data in the previous step, perform a gap analysis by comparing what data you would ideally like to have with what you already have – that way you can easily see what’s missing. Ask yourself what you need to change, tweak or implement to ensure the data collection is completely aligned with the strategy and will fully answer the questions you need answered. And then come up with the right indicators to deliver those objectives.
Remember, most companies are full of data. Often KPIs are already being collected for all sorts of different reasons by different divisions and different managers. It makes sense, therefore, to determine whether what you need is already being gathered by someone somewhere in the business, or perhaps it’s almost being collected and a few tweaks to the collection process would deliver exactly what you need.
- Find the right supporting data
KPIs are incredibly powerful in the right hands, but we need to acknowledge that we also have access to vast quantities of supporting data that is every bit as insightful and useful as traditional KPIs. By finding the right supporting data – be it industry information, demographic data, trend statistics, or whatever – you can triangulate and verify your findings.
The datafication of our world, where vast amounts of information are being created and stored every minute, means there is a great deal of supporting data that can potentially provide information that is relevant to your strategy. By finding the right supporting data, you can make a much better sense of the world, much more quickly, which helps you make better, faster business decisions.
- Determine the right measurement methodology and frequency
Knowing what you need is one thing, working out how to access and measure that information is another. Finding the right measurement methodology is critical. Therefore, once you know what information you need to collect, you need to find the right measurement methodology to get it. This is especially true if you have to develop new KPIs or tweak existing ones.
It’s always preferable to align measurement frequency with how and when the data is used in the organisation, because all data has a “shelf life”. This means measurement frequency must be in line with the reporting frequency. If it’s not, the data may lose impact and/or relevance. For example, if you collect customer satisfaction data via survey in the summer and report on the findings in the winter, then the findings are already six months out of date.
- Assign ownership for your KPIs
Effective KPIs require two types of ownership. The first is the ownership of the KPI in terms of its meaning and interpretation. Someone needs to be in charge of looking at the KPI, interpreting its meaning, monitoring how it’s changing and deciding what that means for the business.
The other ownership refers to the data collection. Sometimes you can automate the process but, more often than not, data collection will require some human interaction. Perhaps certain personnel are involved in transferring data from one database to another, or they have to collect it manually. Again, this ownership needs to be clearly set out and followed through.
- Ensure KPIs are understood by people within your organization
It’s essential that everyone in your business is aware of what you’re trying to achieve, and how you’re measuring progress towards those achievements. This is especially important for those who are charged with ownership of the KPIs, but it’s also important for people right across the business, at any level. KPIs should form part of the decision-making process for every employee, and everyone should be able to answer the question, “How will what I am doing today affect our KPIs?”
You therefore need to ensure everybody understands how the metrics you are gathering are linked to your strategic priorities. This will increase “buy in” – how personally involved and enthusiastic your staff feel about your priorities – and ensure that constant review and improvement are at the heart of everything your people do. If you simply tell everyone that they have to collect a whole heap of extra data from now on without explaining why, you are likely to end up with a very cynical and disengaged workforce!
- Find the best way to communicate your KPIs
It’s always wise to think about how best to communicate your KPIs so their insights are obvious, engaging and apparent to all. So many KPIs are reported in long reports full of numbers or tables, perhaps with a traffic light graphic to indicate urgency. This is not good enough. There is absolutely no point hiding important insights in excessively long reports that no one ever reads.
Really effective visualisations clearly illustrate trends and variations in data, and engage the reader. Try to find the right picture for your KPIs and create an explanation of the insights so that the nuggets of wisdom extracted from the data are clear, unambiguous, accessible and, most importantly ,actionable.
- Review your KPIs to ensure they help improve performance
If a KPI isn’t useful in helping you or others in your business make better decisions, which, in turn, will improve your business’s performance, then it’s just noise. You therefore need to constantly review the metrics you are measuring to make sure they are genuinely useful and you aren’t spending hours (or asking your staff to spend hours) measuring data simply to tick off boxes.
Used properly, KPIs provide a vital tool for improving performance, making better business decisions and gaining a competitive advantage. We hope these 10 steps help demystify KPIs and provide a simple framework for making KPIs work in your business.
This is why every business should keep an eye on how they can improve and give an even more efficient customer experience, and this reason is more than enough as to why enhanced KPIs should be given special attention.
Thus, with the services mentioned above, it is definite that the organizations will improve to a greater level, thus achieving their aimed objective. The KPIs, if used and enhanced correctly, will give an overall lift to the businesses.