What is a KPI in Digital Marketing?
Summary
Key Performance Indicators or KPIs are integral in tracking and analyzing your marketing efforts. A KPI is a metric that can be a gauge for marketing activity. KPIs serve as high level guides to summarize your data into an easy to digest format.
Why Do You Need to Track Your KPIs?
KPIs are important because they allow you to understand more easily what is working. For example if you advertise on Facebook and Google Ads and both produce 10 sales which is more effective? We could use conversion rate to understand the effectiveness of both channels. If Facebook has a 1% conversion rate while Google Ads has a 10% conversion rate, holding all else the same we would want to increase our budget on Google Ads as it more effectively brings in those 10 sales.
What Digital Marketing KPIs Should You Track?
The KPIs you should track will vary from business to business. Here are four general KPIs that most businesses track.more effective? We could use conversion rate to understand the effectiveness of both channels. If Facebook has a 1% conversion rate while Google Ads has a 10% conversion rate, holding all else the same we would want to increase our budget on Google Ads as it more effectively brings in those 10 sales.
Customer Acquisition Cost (CAC)
CAC measures how much you spend to get a new customer. This includes all costs in prospecting and conversion.
Customer Lifetime Value (CLV)
The name tells all here. What is the value of your customer over a lifetime? A lifetime can vary from business to business, but a common timeframe is often 1 year after acquisition. If a customer buys every month for a year, the value of each one of those purchases is added up to find that customer’s CLV.
Return on Investment (ROI)
ROI combines the CAC and CLV to tell you how much profit you generate. If you spent $10 to acquire a customer with a $50 CLV then your ROI would be $40.
Conversion Rate (CRT)
CRT is the rate at which leads become customers. The importance of this metric was shown above in the why do you need to track your KPIs section.
These four KPIs are extremely powerful measures of your business performance. Here is an example of how you can use all four together. Our CAC is $10, CLV is $110, and our CRT is 10%. How many leads and how much do we need to spend to get $1000 in profit for the year?
The answer can be found by (Desired Profit/ROI)/CRT for leads and leads*CAC for cost. If we do the math, we find that we need 100 leads which will cost us $1000.
How Do You Track Your KPIs for Digital Marketing?
Now that you know the why and the what of KPIs you need to know how to track your KPIs. The most basic way to do this is to use Facebook, Google Ads, etc. interfaces to view and track your data.
Those interfaces present a few problems. First, how do you directly compare my ad spend across both channels when the data is in different locations? Second, how do you view overall ad spend and performance for all digital marketing or groupings of channels?
The answer to these questions is to use a dashboard to aggregate your separate data sources. Dashboards can be built to effectively track and display KPIs. This allows you to better understand your business quickly, compare your marketing efforts, and create automated reports with alerts.
Below is an example of a KPI dashboard used for measuring funnel performance.
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