KPIs in online marketing: how to judge your effectiveness

Entrepreneurs often say that business rests on numbers and exact data. Only on that basis can a business be made profitable and its growth accelerated. 

To judge a business's effectiveness, and each employee's contribution to the result, KPIs are used. Let us work out what they are and which KPIs exist in marketing. There are many such parameters, and it matters to understand what each of them means and how they relate to one another. 

What are KPIs in online marketing?  

The effectiveness of marketing, online and offline, is measured with a multitude of figures. Some companies use more than ten parameters to judge it. KPI (key performance indicator) means the key indicators of the performance of a company, of activities and of individual employees. 

With properly set KPIs you can define goals more precisely and judge the work done reliably. 

KPIs are always specific and measurable. The phrase "attract as much traffic as possible" cannot be a KPI. But "generate 100 leads for the sale of flats in a new residential complex" already meets the criteria. 

A business task has three main measures: 

1. quality,

2. cost,

3. volume. 

Omit even one of them and judging effectiveness becomes difficult or downright impossible. 

The priority of KPIs 

In some situations the tasks and the KPIs set cannot be met in full. The reasons may be the level of supply and demand, competitors' activity or other factors. Because of that, the priority of the KPIs has to be determined. 

Let us go through an example: 

• 300 orders are needed within a month;

• the source of traffic and leads is advertising on Instagram and Facebook;

• the cost of acquiring one customer is up to 15 USD;

• conversion should be 2%.  

When setting tasks, their priority has to be determined. If it matters to you that the cost per customer does not exceed 15 USD, the number of orders will have to be adjusted down to 250 or even 200. The conversion figure will fall as well. 

KPIs and the sales funnel 

Thanks to various info-business people, the term "sales funnel" is on everyone's lips. The flood of information has distorted the concept. Originally a sales funnel is a methodological tool for strategic planning: it maps a user's path from first contact with a company to a purchase and to repeat orders. 

A funnel should be not a pretty diagram but a working tool resting on data. It helps identify the stages of making a decision, and it is needed to move people from interest to purchase. 

The popular, simplified version of the funnel has four stages: 

• becoming aware of the problem;

• interest in the solution the product or service offers;

• the decision to buy the product;

• the purchase. 

Services for analytics and for designing a sales funnel 

Google Analytics — the main, universal and free analytics tool. It tracks user behaviour on a site, average time, the number of unique users, page visits and conversions. 

To build a funnel through Google Analytics, goals have to be configured in the system. Those can be: 

• following a link or visiting a particular page;

• the duration of a visit;

• the target actions a marketer defines (adding an item to the basket, payment and so on). 

Statistics on goals reached will help you build the sales funnel. 

SuiteCRM — a free CRM system with analytics and wide scope for integration. It helps manage marketing, sales and even business processes. 

KPIs in your sales funnel 

To raise the number of sales and optimise marketing activity, analyse the KPIs at every stage of the funnel. 

At the site-visit or interest stage, the main KPI is the cost of attracting one visitor. It is defined as the ratio of spending on advertising and SEO to the number of visitors to the site. 

The second stage of the funnel is what people do on the site. A target action might be registering, subscribing to a mailing list and so on. To work out the cost of one target action, divide advertising spend by the number of registrations or subscriptions. 

The third stage is adding an item to the basket. Here the cost of an order is worked out on the same principle: promotional spend is divided by the number of enquiries received. 

The last stage is a completed purchase. It is singled out because many potential buyers add an item and never pay for the order. At this final stage of the funnel, the cost of acquiring and retaining a customer is calculated. The figure describes the ratio of all marketing spend to the number of customers who actually paid. 

Types of KPI in online marketing and the formulas for calculating them 

When choosing key indicators for a business, it matters to understand what they mean, how they are calculated and how much they tell you. Let us go through the meaning and the formulas of the main KPIs in online marketing.  

The conversion rate (CR) and how to calculate it 

Shows what percentage of all visits to a site ended in target actions. CR shows the effectiveness of your site or of an advertising channel. To calculate it, divide the number of target actions by the number of visits and multiply the result by 100%. 

Bounce rate 

Shows the percentage of visitors who looked at only one page and left. If you run an online shop and its bounce rate is above 40%, the content, the usability and the technical state of the site need improving. 

The average order value (AOV) and how to calculate it 

AOV is calculated by a very simple formula: divide total revenue by the number of orders received. The figure is used to compare two reporting periods. 

CPC — the cost per click and how to calculate it

Shows the ratio of advertising spend to the number of clicks through to the site. It is most often used to judge paid search or targeted advertising and paid publications on advertising platforms. CPC depends on how relevant the ad is to the search query. 

The return on investment and how to calculate ROI

The main figure for calculating the effectiveness of an investment. It is calculated as the ratio of the net income received to the investment. 

The lifetime value of a customer, LTV 

The parameter shows the profit a company has received over the whole period of working with a customer. LTV is the difference between the income received from the customer and the cost of acquiring and retaining them. 

RVR, the returning visitor rate 

Repeat sales to customers you have already acquired matter to a business. To understand how successfully you retain customers, calculate the returning visitor rate. Google Analytics provides the information on repeat visits. 

The RVR figure is the ratio of repeat visits to the total number of visits. 

The main approaches to KPIs in online marketing 

There are three approaches to choosing, setting and judging KPIs in marketing: 

• Marketing with an emphasis on traffic — a marketer's success is judged by the number of visitors to the site, the growth in subscribers, the reach of posts and the number of emails opened. 

• Promotion with an emphasis on leads — here what is tracked above all is calls, orders, consultations booked and other target actions. 

• Marketing for profit — this approach counts how much money the client earned thanks to the work of the digital marketing specialists.  

Marketing for generating traffic: when it is justified and what its drawbacks are

This is the classic and most widespread approach to online marketing. It has a substantial problem: traffic by itself brings the client no profit. Trouble converting traffic into leads arises often, and in such situations disputes and mutual dissatisfaction arise in the client's dealings with the contractor. 

Focusing on traffic is justified in content marketing, SEO, paid search and social media. 

Marketing for lead generation

This approach is also called performance marketing. Here the client pays only for calls, enquiries and completed purchases. It is an atypical approach for marketing. 

Taking responsibility for enquiries is a risk for a marketer. Clients often have poorly thought-out, low-quality sites which for various reasons they do not want to rebuild — and improvements to a site are often what the conversion of visitors into leads depends on. 

With content marketing and social media, focusing on leads is not justified. The reason lies in the nature of those channels: through them a company strikes up conversation with customers and the audience gets to know the services and products. A marketer can use aggressive techniques in content marketing and social media; that will work for a short while, but the audience burns out quickly and the flow of leads stops. 

Focusing on leads is right when using targeted advertising.   

Marketing focused on money 

Picture the situation: a client invests 1000 euros in marketing and expects 1500 euros of profit by the end of the month. For clients this is the most convenient and safest KPI system. Marketers rarely agree to such an approach, and that does not necessarily speak to bad faith. 

The main difficulty is that a client's profit depends not only on the marketer. The client's own sales department also enters the picture, and an outside company cannot influence it. A KPI system with an emphasis on profit is better accepted only if you are sure the sales department is staffed by high-level professionals.

The second option is to focus on profitability where the sales department's role is minimal — online shops selling inexpensive goods, for instance. 

Working with contractors on promoting a site 

For work with marketers and SEO companies to be productive, follow three main rules: 

• Formulate every task as clearly as you can. 

• Define the KPIs for measuring the result once the task is done. 

• Motivate contractors to do the work well. 

Money is the main motivating factor for contractors. Arrange payment in two stages and, where possible, bonuses. 

Summary 

KPIs are a universal tool for business, whatever the market niche. Calculating and setting them correctly will help judge marketing's effectiveness and optimise campaigns. 

Every figure is connected with the others, and understanding those relationships helps find a solution to marketing problems faster. 

When choosing an approach to KPIs, remember that every option has its minuses. So a mixed approach should be chosen for each project. Pick the figures you judge by according to the specifics of the business, the promotional channels in use and the market niche. 

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