With data streaming from a million points and constant pressure to deliver results, it’s easy to get lost in irrelevant KPIs when evaluating your marketing campaign. Marketers are turning to new approaches as the average number of data sources has grown by 20% since 2017. Stemming from the fact that not everything that counts can be counted, here are the five most important KPIs that you need to track.
- Return on Marketing Investment
Return on marketing investment is one KPI to watch when running a marketing campaign. This KPI measures how much revenue your marketing campaign is generating compared to the cost of running that campaign.
One key benefit of this KPI is that it ensures that you’re properly allocating your making spend.
Basically, ROI is derived from this equation:
(Return – Marketing Investment)
Your cost of marketing investment should be a summation of everything that goes into the campaign, such as creative, printing, and technical costs.
While this equation is simple, it isn’t good enough because it measures revenue based on first transactions alone. So, if you’re looking to go granular or your business is based on recurring sales, calculate your campaign ROI by customer lifetime value (CLV).
ROI = (customer lifetime value – marketing investment)
By incorporating CLV into your ROI calculations, you’ll be able to find the campaigns that help you acquire your most profitable customers.
Since every organization has different campaign goals, a good ROI ratio cannot be carved in stone. While a more than $1 return for every dollar spent on a campaign can be considered a good ROI, you should still measure your Return on Marketing Investment against industry and personal benchmarks, your historical performance and campaign spend.
If your ROI isn’t looking good, use conversion tracking to identify where your sales are coming from, and take a look at your sales funnel to see where the bottlenecks are. Also, implement A/B testing across your campaign.
2. Return on Ad Spend
If you’re looking to improve your paid search campaign, Return on Ad Spend (ROAS) is another important KPI to monitor. ROAS is the total revenue you generate from each dollar spent on ads. And, this KPI gives you a look at profitability and helps you to evaluate the effectiveness of your marketing campaign.
Think ROAS is similar to ROI? Here’s the difference between the two.
ROAS focuses on your return on advertising spend, while ROI looks at your overall marketing efforts.
You can measure your ROAS by calculating the total revenue generated for a specific marketing channel divided by the total spend on that channel.
ROAS = Gross Revenue from Ad campaign
Cost of Ad Campaign
To get an accurate ROAS, include Partner/Vendor costs, Affiliate Commission, and Clicks and Impressions in your calculations.
In general, a ROAS of 3:1 or more is considered good. This means you’re generating 3 dollars for every dollar that you spend. If your ROAS is negative, then you have a problem.
Steps you can take to increase your ROAS include refining your keyword targeting and improving the mobile friendliness of your ad. Consider using conversion rate optimization strategies to increase your average order value and reduce cart abandonment.
To get a more complete picture of where to keep investing your advertising efforts, run your campaign for a few months, and combine ROAS with CLV and CPL.
3. Cost Per Acquisition
Cost per acquisition or conversion (CPA) is the total cost of acquiring a new customer via a specific channel or campaign. This KPI is often used to measure the cost-effectiveness of paid campaigns.
To calculate CPA, divide your ad spend over the number of conversions or acquisitions you’ve gained through each campaign.
CPA= Total cost of a campaign
New customers acquired from the same channel/campaign
You need to track CPA with other metrics such as Marketing ROI and Customer Lifetime Value to gain an accurate picture of all your marketing efforts in relation to the revenue they’re generating.
Since every business is different, there is no universal benchmark in eCommerce for a “good” CPA. However, the lower your CPA in relation to your LTV, the higher your profit. Actions you can take to reduce a high CPA include running retargeting campaigns, using ad scheduling and putting a stop on non-performing keywords.
If your CPA drops too low, you could be leaving money on the table. You probably should increase marketing and sales spending to bring in more customers if you can.
4. Conversion Rate
With conversions being the lifeblood of online marketing campaigns, tracking your conversion rate is non-negotiable. Conversion rate is the number of visitors who have completed a goal on your website and an important indicator of your campaign’s success. Common eCommerce conversions include adding items to a shopping cart, completing a purchase or saving items to buy later.
To calculate your conversion rate, divide the number of conversions you get in a given time frame by the total number of people who visited your site or landing page and multiply it by 100%.
Conversion rate = (conversions / total visitors)
Generally, the higher your conversion rate, the more successful your marketing campaigns. While eCommerce conversion rate for November 2019 is 2.07%, it’s worth noting that conversion rates will vary depending on what the conversion is. If you have a low conversion rate, consider looking at things from the user’s eye, focus on improving your user experience, and A/B test your content.
Additionally, take your conversion rate tracking a step further by monitoring the conversion rate per traffic channel. Conversion rate by traffic channel gives more information on where you are getting the most traffic from and helps you allocate your budget to better performing channels.
5. Customer Acquisition Cost
Customer Acquisition Cost (CAC) is a KPI used to determine the total average cost your company spends to acquire a new customer. It helps you understand how well your acquisition strategy is working. Today, 51% of marketers track their CAC.
To calculate your CAC, add up your total marketing costs including money spent on things as ads, salaries, equipment, publishing costs, tools, and so on for a given period and divide those costs by the number of new customers for that period.
CAC = Total acquisition spend
Number of new customers
In general, a good CAC ratio is 1:3 or higher. If your CAC is high, focus on marketing towards your ideal customer, improve how your company attracts shoppers, boost your website conversion and optimize your CAC strategy.
To understand if your acquisition costs are on the right track, especially if you’re a subscription business, compare your CAC against your CLV. If your CAC: CLV is 3:1, you’re good. If it’s 1:1 or less, you’re spending too much on acquiring a new customer and this shows that you should pay attention to customer loyalty.
Now that you know the most important KPIs to focus on, you’re ready to start analyzing the performance of your campaigns. When working with KPIs remember to look at cumulative results to get the “bigger picture” and be ready to revise your list after a period of experimentation.