Written by – Miles Openshaw
As any marketer knows, creating methods to measure the effectiveness of your marketing efforts is essential. People in the profession are great at setting up spreadsheets, integrating systems and monitoring dashboards. However, are these foundations enough?
Unfortunately, the answer is no.
Beyond how you gather the information, it’s crucial to analyse the data and understand what you’re doing with the results.
That’s why understanding key performance indicators (KPIs) is vital for your digital marketing. They provide you with greater insight to not only prove that your marketing is working, but also identify areas that could be improved.
When you nurture and manage your KPIs carefully, you not only improve campaign success, but can work towards overall marketing and business goals.
And if everything’s working right? You’ll see a much better return on investment (ROI).
To help keep you on the right path, here are five KPIs to use that help ensure you’re measuring for marketing success.
1. CUSTOMER LIFETIME REVENUE (CLR)
When you consider that — for many organisations — a majority of revenue is generated after the initial sale, customer lifetime value (CLV) is crucial for success.
Put simply, CLV is the predicted net profit that any given customer will generate for your business during your that customer’s relationship with you.
CLV is an important concept because it encourages businesses and organisations to shift their focus from quarterly profits to the long-term health of their customer relationships.
One of the most important steps of working out the long term value of a customer is working out the revenue you will earn from each customer.
Given the case, you want to know your CLR. The equation that you want to keep in mind is as follows:
- Average Purchase Value (APV) x
- Average Purchase Frequency (APF) x
- Average Customer Lifespan (ACL) =
- Customer Lifetime Revenue
In a working example, let’s pretend you run a health supplements store. You’ve been running for three years.
Working out your Customer Lifetime Revenue for a year:
- Your APV = $70.43 ($104,643 / 1,480 purchases)
- Your APF = 2.41 (1,480 purchases / 612 unique customers = APF)
- Your ACL = 0.8
- Your CLR = $135.78
Therefore you can predict that you will earn $135.78 from each customer.
You can calculate APV by dividing your company’s total revenue in a time period (usually one year) by the number of purchases over the course of that same time period.
Next you establish your APF. Calculating this number can be done by dividing the number of purchases over the course of the time period by the number of unique customers who made purchases during that time period.
Finally, you want to work out the average customer lifespan. Calculate this number by averaging out the number of years a customer continues purchasing from your company.
Increasing overall Customer Lifetime Value
- Make a point of focusing on customer retention and upselling.
- Using a customer loyalty program can help keep customers longer.
- Target your most valuable customer type.
Loyalty programs a proven strategy. I’ve seen co-workers have heated discussions over coffee card loyalty points e.g. if you pay for their coffee, do you get the points?
Now that you have your CLR, you can can measure this against your cost of customer acquisition!
2. CUSTOMER ACQUISITION COST (CAC)
Once you know a customer’s value, you can calculate how much to spend to acquire them.
Calculating your CAC is simple. Divide your total acquisition costs by the number of new customers over a specific amount of time.
Your CAC must be lower than your CLV. Ideally, you want a ratio of 1:3 or higher.
That means if you spend $1 to acquire the customer, you want to ensure that the customer’s lifetime value is about $3 or more.
Using both CLV and CAC, businesses can measure how long it takes to recoup the investment required to earn a new customer — such as the cost of sales and marketing.
Aim for better Customer Acquisition Cost
The online traffic you generate needs to convert into sales. If you have a higher your conversion rate, you will lower your CAC and increase your revenue.
Ensuring your ads are converting at as high a rate as possible is incredibly important. One effective way to do this is to use remarketing, which you can read more about in our blog 5 Facebook Remarketing Keys to Success.
Also remember to optimise your landing pages for A/B split testing. When you direct traffic to a location, you want to ensure you are using conversion rate optimisation (CRO) and testing variables to see what performs best. Test everything! The copy, the calls-to-action, the headings, the images, and paths to purchase.
Another technique to lower your CAC is to use referral programs. These are an incredibly powerful means of growing revenue. Think about it this way: if a customer refers 3 friends and 2 of them purchase from you, you’ve just gained 3 customers for the price of 1.
3. MARKETING ROI
Determining marketing ROI is tough to measure. However, you can certainly use a mix of strategies to ensure you can see what is providing value.
Remember that the more complex your marketing mix, the more touchpoints to consider and track.
Here are three common methods of sales attribution can help you determine your marketing ROI:
Single attribution: all value is assigned to the first or last point of a sale.
Multitouch attribution: various touchpoints are acknowledged for contributing to a sale and each is assigned a value.
Test groups: Measure your campaign effectiveness by testing against control groups.
Getting more from your ROI
Ensure your analytics and reporting on various platforms are set up correctly. You want to be confident that the data you’re working from is accurate.
Look at the data that matters most to your goals, not vanity metrics that have no overall impact on your business.
Make it a habit to analyse your data before, during and after the marketing activity for every part of your marketing mix.
Use your insights to focus on the efforts that bring in the greatest returns.
4. TRAFFIC TO LEAD CONVERSIONS
All organisations require a steady flow of traffic and leads to survive. Without securing on-going sales, funding or supporters, it’s impossible to thrive.
When we look at converting leads/customers, we need to take into account how many subscribers, leads or users that you’re generating from the your top of funnel.
Appraise your user acquisition channels and assess their performance. To do this, take the quantity of traffic from each one, divide that by the number of conversions (however you choose to define them), and you’ll have your conversion rate for that channel.
Securing even more traffic and leads
Your goal is to improve both traffic and the conversion rate.
Do you have high traffic, but low conversions? Revisit the CRO strategies akin to those we discussed for improving your CAC. Ensuring you are figuring out what is converting traffic to leads is imperative.
High conversions with low traffic? Invest in more advertising or organic traffic generation, such as guest blogging, YouTube tutorials, or other tactics.
Once you have a worked out a self-sustaining funnel, double your efforts that generate high levels of high converting traffic.
5. LEAD TO CUSTOMER CONVERSIONS
Once you have leads you need to turn them into customers, donors, subscribers or whatever brings you revenue.
Create a lead-nurturing system that guides your potential customers through each stage of the sales funnel:
- Purchase/ Loyalty
When considering the effectiveness of this KPI, there are many ways to analyse performance:
- You could choose to look at engagement levels with your blog posts or CPC of a Facebook Ad.
- How your email marketing is performing e.g. discount codes offered in email saw a spike in sales.
- Look at actions taken that speak directly to your objective e.g. a registration completed, a product is added to a basket, or a demo is requested.
- How long it takes for a lead to become a customer.
How to seal the deal
Understand the activities that move more leads down the funnel. Think about what touchpoints lead to the most conversions? Which activities are ineffective, or worse, deterring leads?
Be sure to take the time to segment your leads! This ensures you can offer more targeted content that solves specific issues for specific buyer personas. We’ve many examples in our 3 Easy Ways to Better Exploit Your Content blog, from using lead magnets that address pain-points to supplying product reviews for confused buyers.
Finally, engage with your leads often. Following up 10 times, on average, dramatically increases your chances of making the sale.
NOW IT’S YOUR TURN!
Set up your KPIs to make sure you’re measuring for marketing success and business growth.
Written by Miles Openshaw, Digital Marketing and Growth Specialist at Liquidlabs