Complex Made Simple

Do Your Digital Marketing KPIs Make Sense? A step by step approach to finding out

A webinar organized by Astrolabs Academy, hosted by by Tarek Reda (Founder of Blue Pencil) on How to Set The Right Key Performance Indicators (KPIs) for Your Business, provided these key takeaways..

Growing your traffic by 10% in 3 months are specific metrics that can and need to be defined The higher your CTR, the more relevant your content is to your target audience Working backwards is easier to understand what budget you need to set and work out your conversion rate and cost per click

By: Maha Ahmad

Last week, I attended a webinar organized by Astrolabs Academy,  hosted by bTarek Reday Tarek Reda (Founder of Blue Pencil) on How to Set The Right Key Performance Indicators (KPIs) for Your Business. Here are my takeaways from the webinar:

Do you have a solid framework for setting up the right digital marketing KPIs for your business, whatever your sector may be in? Do you know that most companies look at the wrong KPIs for their objectives?   How do you incorporate customer lifetime value into your KPIs? Can you easily plan your media budget in the right way? It’s all overwhelming because most companies start by looking at the wrong KPIs to start off with.

KPIs help you indicate if your company performance is on the right track. Most companies set the wrong KPIs because there is no context or target to reach. KPIs need to be clear and concise for each digital marketing activity. But most companies run ad campaigns, expecting to get conversions because they had the wrong KPIs in place. If you put the wrong KPIs, it will mislead your objectives, causing doubt in your strategy, your team and your business as a whole. Here are steps to help you set the right path for successful KPIs and business success:

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You Need the Right KPIs for The Right Objectives

In order to stop doubting your strategy, your team and your objectives, get these marketing objectives right from the start. A business thinks that their KPIs are increasing traffic, but by how much do you want to grow your traffic and by when? For example, by 10% in 3 months? These specific metrics need to be defined.

Top level digital marketing objectives for any organization are typically: visibility, traffic and conversions. These objective also mirror the stages of the marketing funnel (Awareness, Interest, Desire, Action). So, if you want to increase awareness, it will be ensuring visibility. Similarly, if you want people to take an action once they have made a decision, then we talk about conversions.

For Visibility, Look at the Cost Per Impression 

To get a complete view of your objectives, you need to get more specific.  For each objective, we then need to decide which metric is used. To get visibility, you need to look at impressions. This KPI is about visibility; how many times has your advert been seen by your target audience? What is the cost per ad impression (CPM)? It’s important to note that if the CPM is lower, then this is more cost effective for you. So you need to see how many impressions you are getting.

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Cost Per View

Another type of impression could be video views. If you want to measure website video traffic (or app downloads), and video views, then your metrics would be cost per view. Look at the percentage of people that have watched your video, and how many people found it relevant.

Click Through Rates and Cost Per Click

If your objective is to bring in Website Traffic (website visits, app installs, clicks), then you would be looking at Click Through Rates (CTR). This tells you how relevant your content is to your audience. The higher your CTR, the more relevant your content is to your target audience.  In the case of websites, you would be looking at Cost Per Click (cpc).  

Taking an example: If your objective is to drive traffic to your website, you could set a target for the following month of driving 1000 clicks to your website, with a click through rate (CTR) of 5%, and a CPC of $1.50.  So the Cost per click, or cost per install (CPI) for app installs, you will need to measure how cost effective you are at driving traffic to your website.

Conversion Rates & Cost per Acquisition

Some businesses want to increase their conversions (ex: a call to action, or filling in a form). In this case, you need to see the conversion rate and cost per acquisition (CPA). The higher your conversion rate, the more relevant your offering is to your audience. Are you being cost effective in driving conversions? Are you giving relevant information to your target audience?

Work Backwards

Say for an ecommerce business, every business owner knows how many customers or how much they want to generate for the next 6 months, or the next 3 years. Say your target is to get 100 transactions or conversions. Then you will need to get a conversion rate of 3% in order to get 3,333 clicks. How did we know that the conversion rate is 3%? This can be obtained from either the web analytics if you have enough data, or you can get industry average benchmarks (such as wordstream).  How do you translate those clicks into spend? You look again at historical data and your CPC. And again, if you don’t have data, you can look at average industry benchmarks.  Let’s say your CPC is $1.5, then you will need to spend $5,000 in order to get your 3,333 clicks. Working backwards is easier to understand what budget you need to set and work out your conversion rate and cost per click. Don’t just guess.

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Calculate your Cost per Acquisition (CPA) – How Cost Effective Are You?

Divide you spend into your conversion. As an example, let’s say that your CPA is $50, so every conversion will cost you $50 for this specific example. Then compare Average Order Value to see if you are making a margin on every transaction you are generating. This will help determine if you are getting a positive ROI. So your average order value is also important because it will show if you are spending too much or too little to achieve your target.  For any website or app, it is there to generate conversions (a lead, an order, etc..). CPAs are very important for websites to see how cost effective you are.

If you know your target BEFORE launching your campaign, it is better than throwing a budget and hope for the best. There needs to be specific target for every step of the way.

Understanding The Customer Lifetime Value

Let’s say your average customer lifetime value is lower than cost per acquisition (CPA). If the customer lifetime value is good, and if we expand our horizon and understand the value of this customer over a period of time, then we can determine lots of things. We need to understand your most valuable customer segments and hence be able to serve them better. Keep in mind that if you don’t have a proper CRM in place and dissect customers, you cannot properly monitor the customer lifetime value. But keep in mind that a new business that has no historical data, will not be able to study a customer lifetime value. 

Understand Your Most Valuable Digital Marketing Channels Through Customer Lifetime Value

Which digital marketing channel has the highest customer lifetime value? Is it from social media advertising, or from Google advertising, or is it from display advertising?  We don’t look at just the CPA, even though it is a good initial starting point. The customer lifetime value, generated from each digital marketing channel is way better to see in the long run because it will determine where you need to focus more on your budget.

You can watch the recording of this webinar at the Blue Pencil Education website

Blog prepared by Maha Ahmad

With an M.A. in Marketing and a Diploma in Digital Marketing, from the UK, Maha has 15 years’ experience in project management, content development, branding, marketing consultancy and marcoms for SMEs and startups. Maha continues to blog for clients on a freelance basis. Connect with me!