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An overview of the key performance indicators to track in marketing, a step-by-step guide on how to set marketing KPIs
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Acquiring new customers is tough. Getting them in the door takes time, effort, and money. But keeping customers for the long term is even harder.
To achieve this, it's essential to keep tabs on your marketing efforts and measure progress - learning how marketing is performing and what to track.
And that's where your KPIs (Key Performance Indicators) come in.
Key performance indicators are quantifiable metrics used primarily for performance measurement. They enable a company to assess its performance in relation to its predetermined goals over time.
These indicators vary from company to company and, more importantly, from industry to industry. These variations are a result of differences in objectives.
In addition, a company can have several critical strategic, financial, operational, and marketing objectives. Hence it's good practice to use appropriate KPIs to track specific key objectives.
In this article, we'll focus on the best KPIs to track in marketing, metrics that help you monitor and evaluate marketing strategies, and how to set your KPIs.
Let's dive right into it!
KPIs essentially indicate the pace at which a company can fulfill its key objectives. It serves as a gauge to measure individual or team performances, the outputs of activities, and the overall company's performance.
The six key performance indicators marketers should track include:
Often called the net profit margin (NPM), this KPI assesses the company's performance in terms of revenue and profits within a specified timeframe.
The profit margin is exclusive of taxes, interest payments, and expenses. And becomes negative when production costs outweigh revenue generation. The goal is to generate more than you spend.
A low-profit margin within a particular period indicates ineffective marketing initiatives during this period.
The net profit margin can be calculated using this formula: Net profit margin = ( Net profit / Total revenue) × 100.
This shows the number of customers a company can maintain using inputs from customer spending, loyalty, customer satisfaction, sales, and marketing costs.
Customer retention is a very important KPI to track because profitability is largely influenced by customer retention rate. And one of the ways to boost your company’s retention rate is through effective marketing.
Retention rate tells you how impactful your brand is; customers remain loyal as long as your products meet their needs. You can calculate the customer retention rate using this formula: Customer retention rate = (( E-N) / S) × 100).
E represents the number of customers at the end of the period.
N represents the number of new customers within the period.
S represents the number of customers at the beginning of the period.
This marketing KPI provides information about the total cost of acquiring a new customer. It is usually measured against a specified period.
Knowing the costs of acquiring a customer enables you to make better budgetary allocations for future marketing campaigns. It's also good practice to break down your marketing strategy into components to know the effectiveness of each.
Putting more effort into components that boost conversion rates improves customer acquisition costs in the long run. You can calculate customer acquisition cost using the formula: Customer acquisition cost = (Total marketing expenses + Total sales expenses) / Number of new customers acquired.
This refers to the potential revenue the company stands to accrue over the lifespan of a customer.
Keeping track of how much financial value can be obtained from existing customers helps you ascertain if your brand is making much impact. When a significant number of your customer base have positive CLVs, a large fraction of the marketing budget can be channeled towards bringing in new customers.
Customer lifetime value can be calculated as follows: (Average sale per customer) × (Average number of times a customer buys per year) × (Average lifetime of a customer).
Every company wants to see a return on its investment, even for its marketing efforts.
It's crucial to assess how well your marketing campaigns are doing and if they're bringing in revenue to the company directly or indirectly. To avoid increasing the marketing budget for ineffective activities and not putting enough money into the effective ones.
There are different calculation techniques. However, a simplified version by Impact Plus shows that you can calculate your marketing ROI using this formula: Digital marketing ROI = (sales growth - marketing investment) / marketing investment.
ROI enables you to determine the total revenue generated by a marketing campaign in contrast to the operating costs of the campaign. It's a high-yield indicator that explicitly states whether a marketing campaign is worthwhile.
Lead generation is simply the process of gathering information about prospects for a future sales outreach. A marketing qualified lead, however, is a lead that the sales team can reach out to.
When you identify a qualified lead according to the standards of your organization, it's easier to track the effective steps and activities in the marketing pipeline. It could be through sign-up forms, website traffic and behavior, social media engagement, etc.
It's not enough to have KPIs; the most important thing is to monitor them actively. Setting KPIs for marketing involves:
Avoid using arbitrary KPIs. The KPI created should be based on a well-defined marketing strategy to guarantee focus and add meaning to the KPIs.
The strategy adopted is based on your key objectives and the best possible path to achieve them. In addition, the marketing strategy depends on your budget, customers, available resources, and competitors.
What follows is that you choose KPIs that match your marketing strategy's goals.
If your goal is to increase your yearly revenue, a good KPI example will be to increase monthly recurring revenue by 5%.
You need to find and tune your KPIs using historical data to serve their purpose best. This also helps you come up with the best strategy.
Just a look at previous data might show that the best way to increase yearly revenue is to increase monthly recurring revenue by 10%.
While there are various KPIs, the primary KPI to measure marketing success is the Marketing Qualified Leads (MQLs).
It's a very vital KPI to track in marketing for two major reasons:
First, it provides information about the number of leads brought in within a given period.
Secondly, it is a good measure of conversion rate. Typically, leads graduate to prospects and finally become your customers; marketing qualified leads to help you monitor this progression.
Relationships with potential customers begin from the moment they engage with you. It could be by filling out an online form or signing up for a service till they eventually purchase your products.
Tracking conversion rate helps the marketing team know how successful it is in securing leads.
A marketing KPI dashboard visually represents a company's key marketing KPIs.
It's an analytical tool that enables you to monitor and evaluate marketing performance. A marketing dashboard guides and dictates an organization’s marketing strategies. It helps you estimate the performance efficiency of different aspects of the business to ensure they are running smoothly.
It shows you how your organization is faring against critical KPIs. A dashboard helps you deliver on your brand promise. In addition, you can observe your prospects' real-time response to your marketing efforts, making refining your strategies easier.
A dashboard provides a breakdown of your marketing efforts and helps maintain customer relationships.
The primary aim of every marketing effort is to gain new customers and boost profit margin.
But this means there isn't a one-size-fits-all approach to measuring marketing performance. The best results can be achieved by combining different KPIs and analytics.
So, by establishing clear KPI benchmarks, you can start to define your target market, measure your marketing channels' performance and better understand your audience.
It's all about closing the loop – learning from past mistakes, getting customer feedback, and using this information for future planning. And monitoring these key performance indicators in marketing will help you get there.
Finally, tracking tools like Assembly help to introduce transparency and validity to your marketing process. Try it here for free!!
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