The first page of the marketing bible reads: “measure your KPIs”.
Every marketer knows that tracking marketing KPIs is an essential part of determining success.
Are your team’s actions helping you progress towards goals in a timely manner? KPIs are the best way to understand where your team’s time and money is going and whether or not those places are worthwhile.
There’s no denying that measuring KPIs is an important part of a marketer’s job, but determining exactly which ones to report can be difficult.
If your CEO asks how your team is performing, which of the many marketing metrics do you choose to report back?
8 marketing KPIs
- Sales revenue
- Customer acquisition cost
- Cost per lead
- Customer lifetime value
- Customer retention rate
- Lead-to-customer ratio
- Form conversion rate
- Marketing ROI
A key performance indicator (KPI) is a way to evaluate the success of an activity that an organization or department engages in. KPIs are values that can be measured against desired results.
But measuring the effectiveness of your marketing team’s activities isn’t always easy, meaning that setting KPIs for your team can’t be done on a whim.
Without tracking the right KPIs, your team could be spending too much time on projects that don’t matter as much to the overall department and company goals as other activities might.
How to choose your marketing KPIs
There are numerous “classic” KPIs that all marketing departments should track in order to determine their progress towards their goals. The reason that these KPIs are more typical to monitor is that goals such as acquiring a certain amount of revenue or leads are often, if not always, present.
“...do your marketing KPIs help you move the needle?”
CEO of Growth Hackers
By stepping away from the traditional KPIs and beginning to look at other goals that your department and company have set, you may wonder how you can ensure that the KPIs you’re choosing are the right ones for your marketing department.
There is no “one size fits all” marketing KPI, but being able to answer the following questions is a sure sign that the marketing KPIs you’re choosing are ones worth monitoring.
|What goal is the KPI assessing?
||Increase customer satisfaction
|Who is this data for?
|Who will have access to the data?
|What question will the KPI answer (KPQ)?
||How satisfied are our current customers?
|How will this KPI be used?
||This data will be used to report customer retention to marketing team.
|How will your data be collected?
||Amount of customers lost and gained over a year-long period
|How often will this data be collected?
|How often will this data be reported?
|Who is responsible for tracking and data entry?
||Mark Ruffalo, Senior Marketing Manager
|How will you determine performance levels?
||Customer retention rate = (# of customers at the end of the period - # of customers acquired during the period) ÷ number of customers at the start of the period
|What is your goal?
||Average customer retention rate of 75%
|What do you estimate your expenses will be from tracking and maintaining the indicator?
||Costs are low because data is readily available
|How well is this indicator answering the Key Performance Question and what are the limitations?
||Customer retention rate provides us with the amount of customers that remain our customers over a certain period of time, therefore proving that they are either satisfied or cannot find our product/service elsewhere.
|Are there ways in which this KPI could be intentionally or unintentionally affected by external factors?
||Customers may not have any alternative, or the time period we're using may not be long enough to be accurate.
|How long will this indicator be valid before termination or revisions need to be made?
||12 months before target revision
8 marketing KPIs your team should track
Sometimes, choosing KPIs is about a process of elimination. Instead of starting from scratch, it can be helpful to look at common KPIs that other marketing teams measure to inspire your own unique twist to better fit your team’s goals.
Below are some of the marketing metrics that are seen in marketing dashboards across many industries.
1. Sales revenue from inbound marketing
This KPI is about to be followed by many more, but in the end, the best way to prove your marketing team’s success is by making note of the growth in sales revenue.
Keeping track of how much sales revenue your inbound marketing campaigns bring to your company is crucial for knowing how effective those campaigns really are. If an inbound marketing campaign isn’t bringing in enough revenue, why continue down the same path? Albert Einstein once said, “The definition of insanity is doing the same thing over and over again and expecting a different result.”
Measuring sales revenue from inbound marketing will indicate to you and your team whether repeating the same efforts is the right thing to do, or if you’re going down the path of insanity. If that’s the case, it’s time to try something new.
The amount of revenue that can be attributed to marketing will differ depending on how a company's strategy is laid out. Revenue is often broken down by managers in the following three ways:
- Revenue per product: Is there a certain product that’s performing well? If so, should your marketers be dedicating more time to promoting it?
- Revenue per territory: Is there a certain sales territory that’s more willing to buy? Should you rework your marketing strategy to align with this sales territory?
- Revenue per customer: How much revenue are existing customers contributing? What about new customers?
Track the revenue for each of the marketing campaigns that your department executes by keeping note of customer journeys, from the top of the funnel to the bottom.
2. Customer acquisition cost (CAC)
The customer acquisition cost is the total amount of how much it costs to convince a lead to become a customer. This marketing KPI is often also considered a KPI of the entire company; if the amount it costs to acquire customers is greater than the amount of revenue that comes in from those customers, your business model needs revision.
Setting goals for customer acquisition cost makes the most sense when paired with customer lifetime value (see 4).
Customer acquisition cost = expenses related to acquiring customers ÷ number of customers
If we have a business that spends $200,000 on customer acquisition and their efforts result in 4,000 customers, the calculation would look like:
Customer acquisition cost = $200,000 ÷ 4,000 = $50.00
In this case, the marketing team was able to acquire each of its customers at a cost of $50.00.
3. Cost per lead (CPL)
Knowing how much you make from marketing efforts is just as important as knowing how much it costs to get there. Turning strangers into contacts doesn’t happen magically, and the first step towards this process is determining whether or not these strangers qualify as leads.
Determining your cost per lead (or cost per acquisition) can show your team exactly the amount you’re spending to acquire new customers. To do this, both your CRM and marketing automation software will need to be integrated so that you can accurately follow relevant actions.
Average CPL = total marketing cost ÷ total new leads
If the total cost of a single campaign is $12,000 and, after running its course, 1,080 new leads are gained, then the average CPL is $11.11
$12,000 ÷ 1,080 = $11.11
Noting the individual sources of leads and the costs associated with them can lead to insights that can help your team make better decisions and investments in marketing activities in the future.
4. Customer lifetime value
The customer lifetime value is a prediction of the total amount of money that a customer will spend in your business during their lifetime. While putting a number on the worth of a customer may feel strange, this KPI helps you and your team make decisions regarding investments in acquiring new customers and retaining the ones that exist.
Customer lifetime value = revenue x gross margin x average # of repeat purchases
Let’s break this equation down even further:
- Revenue is the amount of money received by a company over a certain period of time. Revenue is calculated by multiplying the number of sales in that period of time by the price at which those goods or services are sold.
- Gross margin is the percentage of total revenue that a company keeps as profit after subtracting the costs directly related to producing the goods or services sold. Gross margin can be calculated by subtracting the costs of goods sold from the total sales revenue and then dividing the result by the total net sales.
A good customer lifetime value can only be calculated once customer acquisition cost is taken into account. CLV is a key metric for businesses to monitor. Calculating this formula gives you insight into how effective your spending is and also helps you justify your customer acquisition spend.
The average sale for Business X is $50,000, and the average customer shops with this business three times a year for two years.
Customer Lifetime Value = $50,000 x 3 x 2 = $300,000
The gross margin is calculated at 20%.
Customer Lifetime Value = $300,000 x 20% = $60,000
Measuring the value of a relationship doesn’t have to be done by hand. Integrating your marketing automation software with CRM software can help you find all of the information you need to accurately calculate customer lifetime value.
5. Customer retention rate
Every marketer knows that it’s better to retain the same customers than have to spend the money to acquire new ones. High customer retention is an indicator that your business is providing value that your customers struggle to find elsewhere, and they’re happy with the way they’re being served.
While important for sales departments to measure, customer retention is also crucial for marketing teams because it tells you how well you’re communicating your business’s value. The longer you can keep a customer around, the more their customer lifetime value grows, allowing you to focus your efforts on acquiring new customers that fit more closely to that persona.
Customer retention rate = (# of customers at the end of the period - # of customers acquired during the period) ÷ number of customers at the start of the period
Let’s start with a business that begins their month (time period) with 200 customers. In that month, they lose 15 customers but gain 23 new customers. At the end of the period, they have 208 customers.
(208 - 23) ÷ 200 = 92.5% retention rate
6. Lead-to-customer ratio (sales closing ratio)
A large part of marketing is acquiring leads. While keeping track of that number is important, wouldn’t you think it’s more important to keep track of how many of those people become customers?
The lead-to-customer ratio is a critical number that marketing teams should measure to determine their conversion effectiveness. Typically calculated on a weekly or monthly basis, there’s no benchmark for this conversion rate. While 4% may be a horrible number for one company, it could be a positive result for the company next door.
Lead-to-customer ratio = # of qualified leads that resulted in sales ÷ total # of qualified leads
A marketing team generates 100 qualified leads in one month. Out of those 100 qualified leads, 14 went on to make a purchase.
14 ÷ 100 = 14% conversion rate
7. Form conversion rate
Converting website visitors into leads (whether they’re marketing qualified or sales qualified) is typically done with a form. Forms are a way of exchanging value between visitors and marketers.
For visitors, the value might come from an e-book, a demo, a live webinar, or a playbook. For marketers looking to collect leads, value comes from contact information.
Forms that don’t perform well could be a result of several things:
- An offer isn’t as valuable as it was once thought
- Marketers ask for too much information in exchange for a little reward
- Value is not communicated well enough on the landing page
Forms and their landing pages, like much of marketing, are all about experimentation. Leveraging A/B testing can help improve a form conversion rate. Copy can be tested, the layout can be changed, or information required from the visitor can be lessened.
Form conversion rate = # of form submissions ÷ # of page visitors
A landing page has a form offering a free trial of a product. In its first month, it has 1,200 visitors with 240 submissions.
240 ÷ 1,200 = 20% form conversion rate
8. Marketing ROI
Companies invest a lot of their money into a lot of different activities. Return on investment, or ROI, is typically an overall company KPI that measures its ROI with the equation: (return - investment) ÷ investment.
To make it easier for a business, departments like marketing often keep track of their own ROI so that it can be combined with other departments’ sums to find the total sum for the business.
The equation for marketing ROI is difficult to specify because every marketing department invests in different things: software, employees, supplies, ad space, and so on. Instead, a more general equation acts as an umbrella over all of your expenses.
Marketing ROI = (profit - marketing investment - *overhead costs - *incremental expenses) ÷ marketing investment
* It is up to each individual business and marketing department to determine whether or not they want to include overhead costs and incremental expenses in their equations. Not including these costs may provide a more accurate estimate of ROI, but it’s important that whatever elements are chosen to be used in this equation are used consistently.
Marketing ROI is something that can be difficult to calculate for the first time because it involves interpreting what the terms mean to you and your business. For example, the term “return” could mean:
- Total revenue generated from a campaign
- Gross profit (revenue - cost of goods sold)
- Net profit (gross profit - expenses)
Again, there is no right or wrong way to measure marketing ROI. What’s most important is that the way this KPI is measured the first time is the way that it’s measured in the future.
If you cannot measure it, you cannot improve it
Going back to the origin of the meaning of “KPI” may be the single most important factor in choosing the best ones: key performance indicator.
Are the metrics you’re choosing to put up on a pedestal the ones that truly belong there? If your CEO asks how your team is doing, are the KPIs you’ve chosen the ones that you feel would accurately depict how your team is performing?
Following the template and using the examples provided as a guide will ensure that the answers to these questions are undoubtedly “yes”.
Honesty and accuracy with your KPIs are what will propel your team forward. Leaning on vanity metrics will hold you back.