How would you define success with regard to your marketing efforts? Sure, the ultimate goal is to ‘make more money’, but how do you get there? It’s no secret that tracking key performance indicators – or KPIs – is an important part of managing a business and driving growth. In this post, we’d like to highlight three important KPIs that you should be watching closely as you invest in various marketing strategies.
Why KPIs Matter
Before getting into the specific KPIs that you should be tracking, we’d first like to take a moment to reinforce the importance of selecting and monitoring KPIs in the first place. Sure, this may be review for many readers, but it’s worth going over to make sure this matter stays near the top of your priority list.
- Getting the most for your money. This is the big one, and we will get into this matter in greater detail later in the article. From a big picture perspective, KPIs are all about turning more of your marketing dollars into customers and revenue. That’s the whole point of being in business, after all.
- Spotting opportunities. If your current marketing efforts are going along reasonably well, it would be easy to think that you can just keep it up and not make many changes. That might be okay for a while, but it’s the businesses that pursue constant growth that come out ahead in the long run. Properly monitored KPIs can help you see opportunities to take another step forward.
- Signs of trouble. Often, it will be a decline in one of your KPIs that helps you notice a marketing effort that is starting to lag behind the rest. With consistent monitoring, you’ll be able to keep an eye on everything and make prompt changes before too much money is wasted.
Return on Investment
Early in your business career, you learned that it’s essential to achieve a positive return on your investments. If you spend $50, you’d like to make back $100. If you aren’t getting a positive return on your investments overall, you’ll be out of business in short order. Not everything you do will be a win, of course, but it’s imperative that enough of your investments work out in a positive manner to keep the company moving along.
Unfortunately, many businesses do a poor job of tracking their ROI when it comes to marketing efforts. That is often due to a failure to accurately track what sales are coming from what marketing channels. In other words, you need to attribute your sales to particular customer acquisition methods if you are going to understand what is working and what isn’t.
To properly measure return on investment for your marketing efforts, you need to have a method in place to account for new sales. These kinds of methods are never 100% accurate, but they can get very close to painting a clear picture. For instance, you can assign different phone numbers to your various marketing channels, so new leads can be assigned to those channels. In time, you’ll get a good idea of which marketing channels and services that are paying off, and which should be terminated.
Cost Per Acquisition
This KPI can also be called ‘cost per new customer’, and the name pretty much speaks for itself. The goal here is to determine how much money you have to spend to acquire each new customer. Later, that number can be compared to the average value of each customer to your business, to make sure acquiring customers at this cost is a net positive.
To determine your cost per acquisition, you simply need to divide the amount of money you are spending on marketing by the number of customers you have added in a given period of time. You can look at this KPI from an overall marketing perspective, and you can also break it down into specific marketing channels (which will be more informative).
Knowing exactly how much it costs you to obtain a new customer is an essential piece of business knowledge. With that data point available, you can make other decisions regarding the viability of your business and what changes might be necessary moving forward. Do you need to extract more value from each customer in order to make your business model add up? Or do you need to find more cost-effective marketing channels to drive that CPA down? Making these decisions comes back to accurate tracking of this powerful KPI.
Track Your Win Rate
Business is about winning. It’s a competitive world out there, and you need to win as often as possible to keep up with the others in your market. As a KPI, ‘win rate’ refers to how many of your opportunities you are actually converting into customers. So, for instance, out of each 100 people that call your business in response to a marketing effort, how many of those wind up as a paying customer? The higher the percentage, the more profitable your business will be.
Win rate is particularly important because it can help you patch up holes in your sales process. For instance, let’s say you run an ad campaign that you track carefully, and it leads to 100 new contacts. Out of those 100 contacts, only 10 become customers. In most markets – except for those with particularly high-value transactions – that would be a rather disappointing rate. If you only look at how many new customers came from the ad campaign, you may decide that 10 is not good enough to continue those ads.
But what if the ads aren’t the problem in the first place? After all, 100 people contacted your business, so maybe the ads worked and something about your sales process further down the line was the weak point. Knowing that your win rate was so low would allow you to address possible weaknesses in your funnel to hopefully convert more leads into sales moving forward.
The Big Picture
It will take some time and effort to complete the setup required to properly track KPIs. Once you have done the groundwork, however, tracking those metrics will be quite simple, and the information you collect will be incredibly valuable. Start with these three KPIs and you just might learn something new that can elevate your entire operation.
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