Find out the importance of marketing KPIs for your small business and eight essential metrics you can track to determine increase your bottom line.
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You’re sitting down to review your business performance. On the surface, everything looks fantastic.
Your Instagram Lives have been fruitful, giveaways successful, and your customer engagement appears to be through the roof.
It sounds like you’ve got a successful business on your hands, right?
But when you dig deeper, your data might tell you a different story.
You can’t build a successful business on vanity metrics or numbers that do nothing for your brand and marketing goals.
What you need is to analyze your efforts thoroughly to see where you’re failing and what you’re doing right. For this, you need marketing KPIs.
Keep reading to find out the importance of marketing KPIs for your small business and eight essential metrics you can track to determine the effectiveness of your marketing campaigns, streamline strategies, and ultimately increase your bottom line.
What is a marketing KPI?
A key performance indicator (KPI) is a measurable and actionable piece of data that reflects your company’s performance and how well you’re progressing toward your business objectives. In marketing, this means metrics that are linked to sales and marketing goals.
According to Ilia Markov, the Head of Content at ChartMogul, marketers often undervalue their work because they are too focused on the short-term benefits.
“A $500 blog post that brings in a couple of $10 sales isn’t that impressive. But once you consider the long-term impact of those $10 customers, the picture changes,” he says.
This is where marketing KPIs come in.
They help you track strategic activities and evaluate results to see whether your efforts are succeeding or need improvement. This way, you can plug the gaps in your marketing strategy before they become a big issue.
At ChartMogul, Customer Lifetime Value (LTV) is an essential KPI. LTV provides a clearer picture of the kind of customers you’re attracting and how much you can spend on marketing to persuade them to join you.
“In the same example from above,” adds Markov, “that $10 initial sale, is actually a $120/year customer, who sticks around for 3 years on average, meaning that your blog post is actually turning a profit after just 2 conversions.
“For an even clearer picture, you should be looking at LTV (and comparing it to Customer Acquisition Cost (CAC)) segmented by marketing channels, content types, specific ad campaigns, etc.”
Using marketing-specific KPIs can thus take your performance to the next level.
Benefits of tracking your KPIs
Every healthy business runs on data. Without it, you’d be unable to make accurate, informed decisions that’ll effectively power your company’s revenue and growth ambitions. So, why is monitoring and analyzing marketing KPIs vital?
1. Learn your success points
As the saying goes, numbers don’t lie.
By monitoring the right metrics, you’ll know how specific decisions or campaigns contribute to your overall targets. Tracking your KPIs brings clarity to your market performance, enabling you to understand what’s working and what isn’t.
Consequently, you can figure out where your successes are coming from and keep building on them.
Nandini Sharma, Assistant Marketing Manager at ProofHub, says their marketing KPIs are the key drivers of their marketing strategy. She adds, “We actively pivot, re-iterate and abandon campaigns based on the performance; we have a heavy reliance on accurate reporting of marketing KPIs..”
ProofHub uses marketing KPIs for tracking the performance of their smaller campaigns by checking the success of a campaign over time and if it meets the desired results by analyzing deeper marketing KPIs such as average user session time and scroll behavior. This allows them to optimize their campaigns while they are live.
2. Enables better communication
It can be hard to motivate your team to keep pouring in time and effort into a campaign or strategy when there’s no proof their hard work is making an impact.
By tracking KPIs, you can show them how many leads, email sign-ups, or sales that a campaign has generated and get your team fired up.
At ProofHub, enabling better communication is essential to their marketing team’s success, especially when validating ideas. At every strategy session, they ensure the team reviews critical KPIs and are on the same page.
“By comparing previous campaign KPIs and user trend data, we push ideas from the to-do stage to execution, which helps reduce risk and maintain a steady traffic flow,” says Nandini. This keeps their team better coordinated.
3. Manage your strategy better
KPIs create a road map to your business objectives, and tracking them helps determine whether you’re still on the right path.
Natalie Slyman, Content and Social Media Manager at Benchmark Email, says, “Instead of simply looking back at your monthly or quarterly strategy to determine whether or not you were successful at meeting your goals, you should implement your strategies and tactics with your KPIs at the forefront.”
This way, you can easily adjust your strategy or replace it with a new tactic that’ll bring you closer to achieving your goals. Instead of just making guesses about what’s working, you can leverage data-driven decisions that’ll help your business outpace competitors and maximize returns.
For example, at Benchmark Email, their key metrics specific to their business strategy include the following, with the corresponding tactics to drive it:
- Social media community growth: Growing their business’s social network helps establish credibility and build a community of brand advocates. It also taps into other channels for lead and customer engagement. To drive this strategy, Benchmark Email recommends you:
- Use hashtags with keywords or phrases applicable to your audience so you can pop up in more feeds or garner more attention, generating opportunities for engagement with potential customers.
- Tag or mention other brands you’ve included in your content to encourage reshares, broadening exposure and increasing your brand visibility.
- Follow industry peers and professionals to encourage follow-backs and build your professional network.
- Email conversion rate: Integral to their email marketing; every email sent has a desired action for leads to take. To drive this strategy, they recommend you:
- Use eye-catching buttons or images for email CTAs.
- Keep the lead-in copy short and simple.
- Create campaigns around specific promotions and sending a follow-up email to recipients.
- Segmenting your list based on specific data so you can send personalized content.
- Referral traffic: This shows the source of your visitors who come from other sites. To drive this strategy, they recommend you:
- Contribute content to other high-quality sites with lots of traffic.
- Create content that is sourced easily or that other people will be more inclined to link to in their content. For example, a reader is more likely to click a link to your brand from a content piece written on an authority website with high SEO value than one from a lesser known site. This can help better shape up your referral traffic strategy too.
- Solicit press mentions so your company can be included in industry roundups or articles.
Top KPIs for small businesses
Thanks to technological advances in digital marketing, you can obtain data on practically every marketing initiative. If you don’t know what data points to focus on, selecting the marketing KPIs to track can be challenging and overwhelming.
Here are some of the most impactful KPIs that your business can benefit from monitoring.
1. Customer acquisition costs (CAC)
Many expenses go into promoting your business and convincing a customer to follow your brand. The sum of those expenses determines your customer acquisition cost.
Tracking CAC helps measure the impact that each customer has on your profits. You don’t want to spend too little getting customers and inhibit your business growth. On the contrary, you don’t want to spend too much and run your business into the ground.
Ideally, your CAC should decline over time, which means you should be spending less on each new customer you acquire.
How to measure
Add up all the marketing costs spent during a particular period and divide it by the number of new customers acquired in that time frame.
This includes costs of any activity that directly contribute to your marketing efforts, be it spending on ads, SEO, or social media campaigns. The total of these costs from all channels is your Sales and Marketing Cost.
You can also determine the CAC for each marketing channel that you employ. This is referred to as the CAC per marketing channel. For example, you can look into the CAC from Instagram ads versus Facebook marketing tactics.
By weighing up individual channels, you can see which have the lowest CAC and decide where best to spend your marketing budget.
Pro tip: Consider the average worth or spending value of each customer.
For example, a customer acquisition cost of $1,000 might seem on the high side. But if each customer is worth an average of $7,000, spending that much money acquiring them is reasonable.
For more information on how to determine your CAC and analyze these factors, check out Neil Patel’s blog post on the topic here.
2. Lead conversion rate
The percentage of visitors who come to your site and turn into leads by handing over their information or performing some other action makes up your lead conversion rate. This metric is usually used by those businesses with an established website and strong online presence. It aims to show how effective the website is in generating interest in the business’s product or service.
Measuring the number of qualified leads you generate from month to month can help you determine if you’re targeting the right audience — those who are most likely to become paying customers.
If your lead conversion rate is low or decreasing, that’s a sign for you to rethink your marketing strategies and create stronger campaigns that resonate with your target market.
One of the best ways to improve your lead conversion rate is to focus on attracting niche audience segments that are highly interested in what you’re offering rather than trying to appeal to everyone.
For example, Lefty’s is a popular online store that specifically sells products for left-handed people. What a specific but creative niche to tap into, right?
Lefty’s targets prospective customers through smart SEO strategies and online ads, effectively positioning them in the eyes of the customer. In the long run, this helps improve their lead conversion rate.
How to measure
Divide the number of leads captured by the number of prospects generated in a given period.
3. Customer conversion rate
Of all the leads that your business drums up, how many of them take a desired action that furthers them along your sales funnel into being converted customers?
Here, the word “conversion” in the customer conversion rate refers to any specific action you want your leads to take. Depending on the nature of your business and the channels being used, the customer conversion rate formula can be tweaked to give you the insights you need.
For example, for an ecommerce business, the customer conversion rate could be measured by dividing the number of new customers by the number of site visitors. Alternatively, say you’ve launched a new and optimized landing page with a lead magnet for a new product you’ve launched. Then, your customer conversion rate would be the number of successful leads divided by the number of visitors to the page.
Knowing your customer conversion rate will help you understand whether you’re successfully turning more leads into customers or losing them at some point in your funnel.
From there, you can refine your tactics and redirect resources toward channels that are bringing in qualified leads and identify the areas that are lacking.
Maybe the problem is that you’re getting the wrong kind of leads, or you have poor product quality/market fit. Or perhaps your sales process leaves something to be desired.
A great way to approach this KPI is by doing an overall calculation for your site, and then segmenting the conversion rates per channel to see where you’re getting the best results.
You can improve your conversion rate when you know your strongest channels.
How to measure
Divide the number of conversions generated (i.e., number of leads taking a desired action) by the total number of visitors.
4. Customer lifetime value
Your customer lifetime value tells you how much a customer is worth to your business throughout your relationship. Tracking this KPI can help you project your expected ROI, better allocate your budget, and formulate strategies to achieve your business goals.
It tells you which audience segment brings in the most profit and which ones reduce your net profit and are hard to convert. It allows you to determine whether it’s more profitable for your business to retain old customers or acquire fresh ones. Your CLV can also help you arrive at a reasonable customer acquisition cost.
If you have a low CLV, you can adjust your marketing efforts to reduce your cost per lead. But if you have a high CLV, it might make sense to invest more money in acquiring customers.
How to measure
Multiply the average purchase value for each customer by the average purchase frequency per customer and the average retention time for a customer.
For example, if you run a SaaS company and the average subscriber pays $150 per month and stays with your company for 24 months on average, your customer lifetime value would be $3,600 ($150 × 24 subscriptions).
5. Net promoter score
Your current customers are the most effective and easiest way to acquire new customers. If they love your business and are satisfied with your products, service, and overall customer experience, they’ll be more willing to recommend you to others.
Your net promoter score measures your customer’s loyalty, satisfaction, and how likely they are to tell people about your offerings in their personal and professional network. If it’s high, you have nothing to worry about as long you keep reminding and incentivizing customers to recommend your brand.
But if you get a low score, you need to talk to your customers and find out what you can do to improve their experience.
There are three categories of customers, according to Netigate:
How to measure
- Conduct customer interviews or surveys and ask respondents how likely they are to recommend your business to colleagues, friends, or family on a scale of 1 to 10.
- Break down the number of responses you received that are Detractors, Passives, and Promoters. Add up the total responses for each.
- Determine the percentage for each category by taking the group total and dividing by it the number of total respondents.
- Finally, subtract the percentage total for Detractors from the total percentage of Promoters to get your Net Promoter Score.
Simply put as a formula, NPS would be calculated as:
(Number of Promoters — Number of Detractors) / (Number of Respondents) x 100
6. Cost-per-click (CPC)
This refers to the price you have to pay whenever a visitor clicks on your ad. The price is usually determined by the platform you’re advertising on based on several factors and is related to your clickthrough rate and ad quality score.
Tracking your CPC can tell you whether you’re getting your desired returns on ad campaigns and help you optimize your marketing activities to maximize results and nail your goals.
According to the CPC model, no matter how many times the ads are viewed, the advertiser will only pay the publishers for the number of times it is actually clicked on by a user. It does not differentiate for unique visitors.
Ideally, you should strive to achieve a high clickthrough rate with a low cost per click. Otherwise, you could end up spending too much on advertisements without getting good returns.
How to measure
Divide the total cost of clicks or amount spent on the campaign by the total number of clicks generated. Alternatively, you can go to the analytic reports page of the platform you’re advertising on to see your cost per click.
7. Bounce rate
This KPI shows you the percentage of people who visit your website and leave without making any further interactions or opening any additional pages on your site. It tells you the number of visitors that didn’t stay on your site long enough to do anything. They just landed on your page and bounced right off.
A high bounce rate indicates that your website/landing page either has a poor design or user experience. It could also be that your content doesn’t meet readers’ expectations or that you’re attracting the wrong kind of audience to your site.
Alternatively, it could also indicate that you have customers at the top of the funnel who are simply seeking out informational content and not yet looking to make a purchase.
When you know your bounce rates for specific pages, you can figure out why it’s happening and implement changes to your content marketing strategy to drive your rate down.
How to measure
Use a tool like Google Analytics to track the bounce rate for your whole site or for the particular pages that you’re running paid marketing campaigns on.
Your bounce rate is calculated by dividing the average number of bounces across all your pages by the total number of visits to those pages within a specific time frame.
8. Customer churn
If your business is involved in ecommerce activities or a subscription-based model, you want to track customer churn.
Not all customers stay with you forever. Some will make a single purchase and never return, while others will remain loyal for many years before eventually ending their relationship with your business. This phenomenon is known as customer attrition or churn.
Tracking this metric allows you to know how many new customers or sales you have to generate to make up for your losses and keep your company running profitably.
How to measure
Divide the number of customers lost during a given period by the total number of customers at the start of the period, then multiply by 100.
If your business works on a subscription model, you can calculate your attrition rate by examining the number of canceled subscriptions within a given period. So if you had 5 cancellations in January with 200 active subscribers at the beginning of the month, your attrition rate would be 2.5% (5 ÷ 200 × 100).
For those in the retail business, you can calculate customer attrition rate by measuring how many of your customers do not visit your website or app to purchase in 30 days (short-term) or 90 days (long-term), then dividing by the total number of customers you had at the start of those periods.
Customer churn rate is, in essence, a very simplified formula. A business’s definition of the total number of customers for a period can vary, especially if there are other factors at play to consider.
For example, the total number of subscriptions for a month can vary as a concept due to subscription cancellations, renewals, and sign-ups.
Many marketers tweak this formula to suit their business model. For more information about how you can do this and the factors to consider, check out this in-depth article by Profitwell.
If you don’t measure it, you can’t improve it
Marketing KPIs are a great way to keep track of your growth and performances to ensure you’re effectively working toward your business goals.
Focusing on the right metrics can help validate your marketing activities while enabling you to identify and fix any issues.
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