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 are going and whether or not those places are worthwhile. While marketing analytics software can help measure these KPIs, determining 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?
A key performance indicator (KPI) evaluates the success of an activity that an organization or department engages in. KPIs are values that can be measured against desired results.
KPIs are crucial for marketing success because they provide a data-driven way to measure progress and campaign effectiveness. Without them, marketing efforts can be like flying blind - you're putting resources in but unsure of the impact.
By tracking KPIs aligned with marketing goals (brand awareness, website traffic, sales), marketers can:
However, measuring the effectiveness of your marketing team’s activities isn’t always easy, meaning setting KPIs for your team can’t be done on a whim.
Without tracking the right KPIs, your team could spend too much time on projects that don’t matter as much to the overall department and company goals as other activities might.
There are numerous “classic” KPIs that all marketing departments should track to determine their progress towards their goals. These KPIs are more typical to monitor because 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?”
Jonathan Aufray
CEO of Growth Hackers
By stepping away from the traditional KPIs and looking at other goals that your department and company have set, you may wonder how to ensure that the KPIs you choose 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 worth monitoring.
| QUESTION | SAMPLE ANSWER |
| What goal is the KPI assessing? | Increase customer satisfaction |
| Who is this data for? | CMO |
| Who will have access to the data? | Marketing team |
| 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 the 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? | Monthly |
| How often will this data be reported? | Quarterly |
| 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 will your expenses from tracking and maintaining the indicator? | Costs are low because data is readily available |
| How well does this indicator answer the Key Performance Question, and what are its limitations? | The customer retention rate provides us with the number of customers that remain with us 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 external factors could intentionally or unintentionally affect this KPI? | 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 the target revision |
Sometimes, choosing KPIs is a process of elimination. Instead of starting from scratch, looking at common KPIs that other marketing teams measure to inspire your own unique twist that better fits your team’s goals can be helpful.
Below are some marketing metrics seen in marketing dashboards across many industries.
Many more sales KPIs are about to follow this one, but the best way to prove your marketing team’s success is to note 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 generating enough revenue, why continue down the same path? Albert Einstein once said, “The definition of insanity is doing the same thing repeatedly and expecting a different result.”
Measuring sales revenue from inbound marketing will indicate to you and your team whether repeating the same efforts is right 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:
Track the revenue for each marketing campaign your department executes by noting customer journey maps from the top of the funnel to the bottom.
CAC is the total amount 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 cost to acquire customers is greater than the revenue 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
Example:
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 acquired each customer for $50.00.
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 CPL 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
Example:
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 associated costs can lead to insights that can help your team make better decisions and investments in marketing activities in the future.
The customer lifetime value predicts the total amount of money a customer will spend in your business during their lifetime. While putting a number on a customer's worth may feel strange, this KPI helps you and your team decide on investments in acquiring and retaining new customers.
Customer lifetime value = revenue x gross margin x average # of repeat purchases
Let’s break this equation down even further:
A good customer lifetime value can only be calculated once customer acquisition cost is considered. 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.
Example:
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.
Every marketer knows that it’s better to retain the same customers than to spend 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 that they’re happy with the way they’re being served.
While important for sales departments to measure, customer retention marketing is also crucial for 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 lifetime value grows, allowing you to focus 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
Example:
Let’s start with a business that begins its month (time period) with 200 customers. In that month, it loses 15 customers but gains 23 new customers. At the end of the period, it has 208 customers.
(208 - 23) ÷ 200 = 92.5% retention rate
A large part of marketing is acquiring leads. While keeping track of that number is important, wouldn’t tracking how many people become customers is more important?
The lead-to-customer ratio is a critical number that marketing teams should measure to determine their conversion effectiveness. Typically calculated weekly or monthly, this conversion rate has no benchmark. 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
Example:
A marketing team generates 100 qualified leads in one month. Of those 100 qualified leads, 14 go on to make a purchase.
14 ÷ 100 = 14% conversion rate
Converting website visitors into leads (whether 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:
Like much of marketing, forms and landing pages 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
Example:
A landing page has a form offering a free trial of a product. In its first month, it had 1,200 visitors and 240 submissions.
240 ÷ 1,200 = 20% form conversion rate
Companies invest a lot of money in many different activities. Return on investment, or ROI, is typically an overall company KPI that measures its ROI using the equation (return—investment) ÷ investment.
To facilitate a business's operations, departments like marketing often keep track of their own ROI, which 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, etc. 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
* Each business and marketing department must determine whether or not 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 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:
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 it will be measured in the future.
Returning to the origin of the meaning of “KPI” may be the most important factor in choosing the best ones: key performance indicators.
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 that 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. Explore KPI software for data-driven results.
This article was originally published in 2020. It has been updated with new information.
Daniella Alscher is a Brand Designer for G2. When she's not reading or writing, she's spending time with her dog, watching a true crime documentary on Netflix, or trying to learn something completely new. (she/her/hers)
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