Marketing without monitoring and tracking your progress is pointless. In fact, it’s worse than pointless – it’s a waste of resources and a missed opportunity to improve your business. If you are going to spend the time and money required to pursue marketing campaigns, you need to be committed to carefully evaluating the success of those initiatives.
That’s where KPIs come into the picture. KPIs – key performance indicators – are measures that you select to monitor the quality of your marketing efforts. In a high-tech world, it’s easy to get distracted by the enormous wealth of information that is always available at your fingertips. However, by looking at too many numbers, you might struggle to get a clear picture of your success or failure. Consider narrowing your focus to center on these three essential KPIs.
1. Return on Investment
Return on investment – often referred to as ROI – is a logical place to start. Each of your marketing efforts is going to come along with some financial cost. Certain activities will cost more than others, of course, but your goal is to have all of your marketing initiatives generate as much revenue as possible. If a certain area of your marketing spend is actually bringing a negative return, you’ll likely want to discontinue that effort.
The calculation for ROI is deceivingly simple. To determine the return on investment for a specific marketing effort or for your marketing department as a whole, simply divide the amount of revenue generated by the cost of your campaigns. If that calculation leaves you with a number larger than one, you know that you have at least come out ahead.
So, what makes that calculation “deceiving?” The issue here is figuring out what revenue to credit to what marketing measure. How do you know which of your many marketing plans actually led to a given sale? This can be tricky, to be sure, but there are ways to produce accurate numbers.
2. Win Rate
Where you have almost certainly heard of ROI before – even if you aren’t yet tracking it carefully – you may not be familiar with the concept of win rate. This is a KPI that aims to measure how many opportunities you are actually turning into customers. It’s great to present your products or services to a lot of interested people, but if those people aren’t making purchases, it will all be wasted.
Win rate is one of those metrics that you’ll never be completely happy with. Even if you are doing a good job of turning some of your opportunities into sales, you’ll always want more. By monitoring this metric, you can see how certain adjustments impact your win rate, so you can continually adapt and grow.
It’s important to think about win rate from a big picture perspective as you analyze your business. If your win rate is falling below where it needs to be to turn a profit, there are a couple of angles from which you can approach the problem.
- A marketing issue. It’s possible that your lagging win rate is a marketing problem. That is, it’s a problem related to attracting the wrong potential customers with your advertising plan. Placing your advertising in front of the wrong people is going to result in leads that don’t have any chance of converting. Attracting quality leads is the first big step toward establishing a solid win rate.
- A funnel problem. Once you get prospects into your sales funnel, you need to have a structure in place that will compel them to make a purchase. So, for instance, if you want your prospects to click a link for more information, what happens after they do so? If your win rate is disappointing, it might be that the link you’re directing them to is to blame.
Tracking your win rate over time can provide important insights into your business. Stay on top of this one and reverse negative trends in win rate before it’s too late.
3. Cost Per Acquisition
You might also see this one referred to as cost per new customer. No matter what you call it, the idea is simple enough – you are trying to track how much it costs you to add a new customer to your business. This is important because you need to confirm that the amount you are spending is worth it in the long run. If each new customer costs more to acquire than they will be worth to your business, you are playing a losing game.
To calculate your cost per acquisition, you’ll divide the amount of money spent on a marketing campaign by the number of new leads that campaign generated. So, if you spent $1,000 on a marketing plan and that plan helped you acquire 100 new customers, your CPA would be $10.
Is that good? Well, it all depends. In some industries, a $10 CPA would be incredible and would lead to huge profits. On the other hand, some businesses would quickly fall apart if they had to pay $10 per new customer. It all depends on the value that the customer brings to your business. In other words, how much do you expect that customer to spend with you over the years to come? If they can only be expected to make a one-time purchase for $5, you are obviously in trouble. You’ll need to know the average value of a new customer, so you can properly evaluate how much you can spend for acquisitions.
Sometimes business growth can be very simple. By focusing on these three metrics, you’ll be able to make some small strides towards growth that can lead to more opportunities. Good luck!
Matt Buchanan is the Co-Founder and Chief Growth Officer at Service Direct, a technology company that offers local lead generation solutions for service businesses. He is a graduate of Vanderbilt University. He has 15+ years of expertise in local lead generation, sales, search engine marketing, and building and executing growth strategies.