It can be easy to get lost in the amount of raw data offered by the marketing world. In order to navigate through the array of possible performance indicators, you must first define your own essential marketing KPIs. Make this a well-thought out process that results in relevant indicators for your business’s short and long-term goals.
Define S.M.A.R.T Online Marketing KPIs
Start by wisely choosing which KPIs you will focus on. The acronym S.M.A.R.T helps you judge whether an online marketing KPI is necessary for your website and well defined for measurement:
- Specific: clearly define what you want to measure with the KPI, as well as how the information will be used by your business and website.
- Measurable: make sure that it is actually possible to measure your KPI in numbers, and that you have a standardized benchmark for comparison.
- Achievable: establish reasonable cost, time, and return expectations.
- Relevant: create KPIs that are tightly related to your business strategy and performance goals.
- Time-bound: link your KPIs to a well-defined and consistent time dimension.
1. Cost Per Acquisition of New Leads
Cost per lead measures the total cost for a business to acquire a new lead. It is important to note that the costs of acquiring prospects are not limited to PPC and other paid campaigns. Here are some other cost sources you should consider:
- Monthly cost of landing pages.
- Cost of SEO per month.
- Monthly cost of creating content targeted at acquiring leads.
- Other lead-acquisition related costs.
All these costs should be considered when calculating the cost of acquiring new leads. And of course, don’t forget your paid campaigns and other business-specific costs,
Data sources for collecting information on acquisition costs
When aggregating the costs of each activity, consider the following sources: AdWords reports, Facebook reports, amount paid to employees, amount paid to other websites, amount paid to freelancers, amount spent on images and other website resources, and any other relevant expenses related to lead acquisition.
To track the conversions on your website, you can set up Google Analytics Conversion Goals. They will help you link conversions to specific landing pages and website behavior. This will make it easier to track which pages are more efficient in generating new leads.
2. Cost Per Conversion of Existing Leads
Converting leads to paying customers is a completely different process than acquiring new leads. Retargeting Ads, for example, are one of the most effective strategies to target visitors that already demonstrated interest in your product. Addressing leads also involves shifting the content strategy and the marketing tools used to spread your content.
In addition to direct costs (such as retargeting PPC campaigns), here are some ideas of indirect cost sources of conversion campaigns:
- Monthly cost of creating content targeted at converting leads.
- Monthly cost of conversion email campaigns.
- Other conversion related costs.
Another interesting cost source you might want to consider is the foregone revenue from discounts and promotions. While this is not a direct expense, it reduces your profits and can be considered as a cost when estimating the cost per conversion. Remember: it is always better to overestimate costs and underestimate revenues.
How to calculate the actual cost per conversion
While the cost per lead can be calculated on a monthly basis, the cost per conversion is better calculated over a longer period of time. This happens because it usually takes longer to convert a lead into a paying customer than it takes to acquire a new lead.
Other than that, the process is similar to the previous section.
Start by aggregating the costs of different conversion-focused campaigns over the period of at least two months (if you have a better estimate of conversion time, use it).
Then simply divide the total cost by the total number of conversions over the same time span. This will give you a good overview of how much it costs for you to convert a lead into a paying customer.
You will then be able to compare this metric with your average customer lifetime value to estimate your profitability margins.
3. Revenue Per Acquisition
Revenue per acquisition is an essential KPI because it tells you whether the lead acquisition process is being profitable. While it is fairly easy to calculate the profitability of conversions, the acquisition numbers are less clear. This happens because not every lead becomes a paying customer, so many leads will generate costs but no real revenue.
The process for calculating the Revenues per Acquisition involves three phases:
- Defining the value of a subscription (or acquisition) on your website.
- Setting up Google Analytics Goals.
- Implement the tracking on your website.
None of them is excessively complicated, so let’s understand the general characteristics of the process.
How to estimate revenue per acquisition with Google Analytics
At a broader level, estimating revenue per acquisition is fairly simple. Simply divide the total revenue from acquiring new customers (a good practice is to exclude the revenue from existing customers, as they are not actively involved in the conversion process) by the total number of lead acquisitions over the same time period.
Once you have an estimation of acquisition revenue, you can set up a Google Analytics Goal to forecast future revenue based on actual acquisitions.
This metric will give you a good idea of how your revenue per acquisition are compared to your acquisition costs. Excluding revenue from existing customers also isolates the spillover effect from income unrelated to acquisition campaigns.
4. Retention Rate
Retaining your customers is way cheaper than acquiring new ones (depending on the industry, retention costs are as low as 4% of acquisition costs). Therefore, it is essential for your business to keep existing customers happy and to focus on up-selling and on prolonging their relationship with your company.
For subscription-based businesses, retention leads to extended monthly payments and a steady source of revenues. For products and services based on single payments, happy customers are not only more likely to return to your business when looking for related products, but they also act as one of the best sources of new business opportunities.
How to calculate the retention rate of existing customers
The formula for calculating retention rate is straightforward:
Retention Rate = ((CE-CN)/CS)) * 100, where:
- CE: number of customers at end of period
- CN: number of new customers acquired during period
- CS: number of clients at start of period
This means you need to collect data on the number of both existing and recently acquired customers. While it is possible to control the information with spreadsheets and Google Analytics Goals, we recommend setting up a simple CRM for the job: there are many free options for small businesses, and using a CRM from early on is essential for the healthy scalability of your website.
5. Engagement Per Online Channel
Engagement is one of the most important KPIs for measuring your audience’s interest in your online brand. It tells you whether your posts, articles, and online ads are catching the eye of your target market and leading them to action.
While there is little evidence of a direct correlation between social engagement rates and direct sales, the relationship between high engagement and strong online presence is clearly visible.
Engagement, however, does not stop at social networks. You should also measure how your customers engage with the content offered via organic search, online PPC campaigns, email marketing, among other channels.
Are visitors less likely to share a page if their entry point is a PPC campaign? What is the engagement-to-sales ratio for each online channel? How can you improve it?
Where to find information about online engagement
The process of calculating engagement rates involves collecting data from all your online campaigns – be it social media, email, organic, or PPC – and analyzing how many people actually interacted with your content. The formula is straightforward:
Engagement rate = Engagements/Reach, where:
- Engagements are relevant interactions as defined by your business (likes, shares, comments, among others);
- Reach is the total amount of users reached by your content.
Notice that a low engagement-to-sales ratio should not be considered as a bad thing. Your business should focus on both spreading your online presence and increasing the sales level, but different platforms have different behaviors. Facebook and Twitter, for example, are more likely to bring engagement rather than sales, and PPC campaigns work the other way around. Consider the ratio as relative (is the KPI improving or getting worse over time?) rather than as an absolute KPI.
6. Leads and Conversions from Organic Search
Organic search performance works as a two-step measurement for determining whether your website is providing the right type of content. The first step, the amount of organic traffic, gives you insight into how effective your website is in SEO terms; the second, the organic conversions, refers to how efficient your content is.
If your organic traffic is high but it leads to only a few conversions, it is time to think about how to create a purchase intention in your visitors without actually decreasing the quality of your content.
It is important, however, to understand that the very nature of organic traffic is different from that of paid traffic. People who click on organic results are normally looking for information, while people who click on ads are specifically looking for a product or service.
Therefore, conversion rates tend to be lower on organic traffic.
How to define data sources for analyzing organic search behavior
Nonetheless, measuring organic leads and conversions is still essential for analyzing website performance over time. The data sources you are looking for can all be retrieved from Google Analytics. In fact, by combining information from the Goals section with the traffic acquisition report, you will obtain a good high-level perspective of the KPI.
Simply filter your website traffic according to the different sources and analyze how the Analytics Conversion Goals behave for each category. Keep in mind that you should not only benchmark your performance against your past numbers but also compare it with industry-specific standards and other relevant indicators.
Naturally, there is much more to the world of online KPIs and business performance. This guide, however, provides six indicators that your business cannot live without. They are a great place for you to start measuring performance and standardizing data collection and analysis procedures.
Once you get established in measuring these six KPIs, we strongly encourage you to adopt other indicators and increase the level of detail of your performance reports.
So make sure to start tracking these metrics immediately and enjoy the many benefits of a well-structured online marketing analysis strategy!
We want to know what you think! Are there any other KPIs you think are essential that other Qreuzers should know about? Drop us a comment below, we’d love to get your input.