Performance Marketing Foundations 1

01.06.20

How to Define Your Key Performance Indicators

(& why you need to)

Before you begin investing in digital advertising, you need to understand exactly ‘what’ you are advertising in the first place. Sounds easy enough, right? But this is exactly where most businesses stumble. The ‘what’ must be explicit, quantifiable, and measurable.

Often I speak with clients who share anecdotal success or failure in advertising. An in store customer mentioned they saw an advertisement, so they assume the ads are working or they launched a campaign but did not see an increase in leads and assume the campaign (or digital advertising in general) is a failure.’ Without having a clear definition of what success looks like before launching, it is difficult to make digital campaigns perform for you. Although this can require a bit of arduous tracking and measurement, it will save you thousands of marketing dollars.

How?

The first step is to determine key performance indicators (KPIs) and clearly define their value to your business. When you know how much you are willing to spend per result, you can work backward to identify the right marketing strategy, determine a testing budget, and evaluate performance. Don’t worry, you do not need to get this perfect immediately. After all, digital performance marketing is built around testing and responding. The following steps are intended as a guideline to create a target that can be measured and adjusted.

  1. Start with defining your goal(s) (sales, site traffic, in-store traffic, leads, downloads, etc.).
    1. For example: Laurel’s Closet is an online clothing store. The main goal of their advertising campaign is to increase online sales.
  2. Next determine how much you are willing to pay for reaching that goal. This should factor in the assumed lifetime value (LTV) of your customer, average order value, length of nurture, frequency of purchase, and what it costs your business to provide the product or service.
    1. Laurel’s Closet knows that most customers purchase 5 times per year with an average order value of $100. This means each customer is worth $500 per year (5*$100) on average. After the overhead costs, margins on each individual purchase are approximately $30. Knowing that customers buy on average, 5 times per year, Laurel’s Closet is willing to spend $30 for a new purchase, and $10 on repeat purchases.
  3. What are your upper funnel goals that indicate interest? Examples of this could be clicks, asking a question, filling out a form, etc.
    1. Laurel’s Closet’s upper funnel metrics are online Add to Carts. They could also be product page views or traffic to site.
  4. What metrics should you track?
    1. Laurel’s Closet has a conversion rate of 50% from people who add to cart that will eventually purchase, so they can optimize for add to carts as well as purchases and should be monitoring that conversion rate. Additionally, Laurel’s Closet should be monitoring click through rate from the ad to track the rate at that people who are seeing the ad are actually coming to their website.

Now that you know what you are tracking, how much you are willing to pay for it, and what the early success indicators are, you can quickly evaluate the success of any campaign and funnel more of your marketing dollars toward what is driving quantifiable results.

This process works for any business (even beyond our online example). For a brick and mortar store you might evaluate the increase in customers coming into the store or sales of a featured product. Whatever your business, taking the time to define what success looks like to you and how you will measure it, is essential before you launch any digital campaign.