KPIs – Measuring the Success of Your Marketing Campaign
Just think, 20 years ago, all you had was newspapers, billboards and radio jingles to market your business. The internet was brand new – nothing like the veritable buffet of communication channels we have today.
It’s this abundance that makes many modern start-ups trigger happy with the executing of their marketing campaigns, and slack on measuring success. But to neglect your KPIs is a mistake, as the wisdom that comes from them not only delivers success, but shows you how to replicate it ad infinitum.
What are KPIs and why are they important?
KPIs – as you may already know – stands for Key Performance Indicators. It’s one of those oft-used corporate acronyms like OTE and ROI, but the definition is simple: KPIs are a group of indicators set by you that measure your progress towards your goals. They ensure efficiency and focus, and should lie at the centre of your performance management process.
Where to start in designing your KPI system
There are lots of different indicators you can use to track your performance, which we’ll go into detail on below. But to get you started with your basic KPI framework, let’s look at three basic measures of performance:
- Raw numbers: you might decide you want to gain 1,000 new mailing list subscribers over 2 months. Raw numbers are okay, but make sure you’re clear on where that number has come from. Is it just a nice round number, does it just sound impressive, is it what someone else is doing? Or will it efficiently achieve something tangible/help you reach a certain goal?
- Progress: here we’re dealing with percentages rather than numbers. This type of indicator helps you to establish milestones. You might like to use progress metrics for things like fundraising e.g. 50% towards our target raise, and tracking social media progress, e.g. 75% towards our goal of 10k followers.
- Change: this indicator looks at changes on your previous performance. It’s also dealt with in percentages, and can be used to look at % increase in sales or revenue.
The target numbers you come up with for each are the measure. For each category, crucially, you’ll also need to state the time you want to reach those numbers in; the source those numbers will come from; and the frequency – how often are you going to be reporting on this KPI? Ideally, you’ll be reviewing your goals and progress on a monthly or quarterly basis.
Return On Investment
Back to those good old marketing acronyms, ROI or Return on Investment is a KPI that measures how much revenue your marketing is generating compared to how much you’ve spent on it. There are two ways to look at your ROI: Value and Rate. Let’s say a company spends £15,000 on marketing, comms, and advertising for a new spiced rum brand. From this campaign, they make £35,000 in sales.
The first calculation – the Value calculation – is simple: £35,000 – £15,000 = £20,000 net profit.
The second calculation concerns the Rate of return. Here, you’ll divide your net profit by your marketing spend, and then multiply by 100 to reach your percentage: (£20,000 ÷ £15,000) x 100 = 133%. Naturally, anything above a 100% return is pure profit.
When you launch your marketing campaign, your customers will be at the top of your sales funnel. This is the widest part, with the broadest reach, and it’s where your customers are aware but not yet fully engaged. As customers become leads via your campaign, they sit in the middle of the funnel. The bottom of the funnel is the closest point to buying (e.g. checkout stage). How effectively you’re able to move your customers through the funnel will depend entirely on your business.
If you’re an agency or service, it’s the handover from marketing to sales. This is likely to be a sales team interaction like a call or meeting. If you’re a Direct To Consumer brand, it’s likely to be your website experience. In either case, myriad deciding factors will influence conversion, like your pricing, postage costs, delivery time, or small print.
No matter how expertly tailored your marketing campaign, your sales funnel will have a huge bearing on your all-important conversion rate.
Your conversion rate is an important KPI, assessing how many customers you’re able to take from being aware of your product to actually buying it.
So, what makes a “good” conversion rate?
Obviously, the best possible conversion rate is 100%, but that only exists in unicorn land. In SME land, we’re looking at an average of 2-5%. If a customer came to you ‘organically’ – in other words, off their own backs, with no prompting or direct marketing spend from you – the average conversion rate is around 16% across industries. This number is so high because they’ve come with genuine intention to buy, rather than being reluctantly persuaded. The average conversion rate for Amazon sellers is a very solid 9.55%. A strong Google ads campaign will yield a 3-5% conversion rate.
Cost Per Lead
Cost Per Lead (CPL) compares your spend on marketing with the leads that it’s generating. This is another really simple calculation – once your campaign has run, simply divide your total ad spend by the number of leads you gained, giving you your CPL. What counts as a “good” CPL depends on your business, specifically:
- Your conversion rate
- What your average order value from a sale is
- What the customer lifetime value is once you’ve converted that lead.
To break it down: if you spend £1,500 on a Facebook campaign, and you gain 100 leads, your CPL would be £15. Whether that figure is good value or disastrously expensive depends on these three bullets. If you manage to convert every single lead but your average order value is £15, you’ve broken even. In the more likely scenario you only converted 20% of your leads with an average order value of £15, you’re losing money. However – if you only convert 20% (20 sales), but your average order value is £1,000, you’ve made a significant profit of £20,000.
This wild variation is why we always start with targets. Go back to your basic KPI measures framework, and divide your target earnings by your average order value. This will give you the amount of sales you need to hit your target:
£20,000 in first year sales ÷ £15 average order value = 1,333 sales needed in a year.
You can divide your sales needed by your average conversion rate to figure out how many leads you need to generate:
1,333 sales needed ÷ 20% = 6,666 leads
If this feels like a very high number of leads needed – which it does – you might need to look at your average order value, and see how you can increase that in order to meet your target.
Cost Per Win
In parallel to your CPL, you can calculate your CPW – Cost Per Win, sometimes referred to as Cost Per Sale. It’s a little more basic in the sense it doesn’t require any additional calculations. Simply divide your total ad spend by your sales, so if you spent £1,000 on your campaign, and made 5 sales, your CPW is £200. Again, if the average sale value is well over £200, this might be okay. If your average sale value is well below £200, you’re losing money, and will need to assess your prices, chosen marketing channels, or both.
This Key Performance Indicator will relate to the ‘Progress’ category in our basic framework. It’s a simple look at the relation between your marketing efforts and your (hopefully) rising sales revenue. It should factor in not just sales of a single product, but how many additional products your customers bought as a direct result of your marketing campaign.
Customer Lifetime Value
Although there are some brands that expect customers to purchase just once in a lifetime (Le Creuset springs to mind), most companies will need to consider the lifetime value of each customer they acquire. This helps them to decide how much they should spend on CRM (existing customer outreach, relations, and retention), and also to make accurate predictions on future revenue.
We all know the old statistic that it’s at least 5 times more expensive to acquire a new customer than to keep an old one. Even companies selling long-life products like cars and furniture will want their customers to return eventually. In fact, the automotive industry is particularly good at developing brand loyals, especially with the advent of PCP deals. Ford has the highest number of loyal customers, with 54.3% of buyers going back for a second.
You can work out your customer lifetime value by multiplying your average sale value by the average purchase frequency rate. If you sell wigs and weaves, your average customer spends £200, and they last roughly 6 months, your average customer is spending £400 per year. Multiply that by your customers average age and life expectancy, and you’ll have an idea of the revenue potential of your existing customer database.
CLV is a Key Performance Indicator for measuring success that you can take much further depending on your size and rate of growth. There are lots of different methods you can use for CLV analysis – too many to cover in this post, however this article has some seriously in-depth calculations (prepare to have your brain fried!), as well as helpful case studies on the CLVs for Amazon Prime, Netflix, and Starbucks.
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