How to Measure the Effectiveness of Your Marketing: KPIs and More

In 2021, marketing is an integral part of any business. But how do you know if it works in your company and how effective is it? Let’s talk about:

6 Essential Marketing KPIs

Marketing KPIs (Key Performance Indicators) are specific numerical indicators that can be used to calculate and measure the effectiveness of marketing processes in your business. Today there are numerous different KPIs that every e-commerce business should track. In this article we’ll review the most important of them.

#1 Sales revenue

No company wants to waste money on broken solutions. Therefore, you need to understand how much income marketing is actually generating for your company.

There are two types of marketing: outbound and inbound. In the first case, marketers try to find customers through general communication channels. Inbound marketing is based on attracting the attention of the target audience and helping them to easily find a company. You can calculate an income from inbound marketing campaigns. Here’s how:

Sales Revenue = Total Annual Sales revenue – Total revenue from customers acquired through inbound marketing

For example, your total sales are $100 000 per year. Customers who came through marketing channels brought in $65 000 in revenue. Sales revenue is $35 000. 

#2 Cost per lead

A lead is a potential customer who has responded to a marketing campaign. The cost of your leads is calculated as follows:

CPL (Cost Per Lead) = Advertising Cost / number of leads from this ad

For example, let’s say you spend $1100 on advertising and that brought you 40 leads. Thus, the cost per lead is $27.5. 

#3 Cost per client

CAC (Customer Acquisition Cost) is the price that a business pays to acquire a customer. The indicator is calculated using the formula:

CAC = Total costs for the customer acquisition / Number of new customers

Total costs for the customer acquisition include the following data:

Let’s assume that these costs are equal to $40 000. You’ve gained 80 new clients. Divide $40 000 by 80. Here is it, your CAC is equal to $500. 

#4 Return on investment

ROI is a return on investment ratio that is used to calculate the return on investment of a business. In marketing it is called ROMI (Return On Marketing Investment). It measures how much a business has earned from its marketing investment. ROMI is calculated like this:

ROMI = ((Revenue – Marketing Cost) / Marketing Costs) x 100%

For example, total revenue was $5000 and marketing costs were $2000. Subtract $2000 from $5000, divide by $2000 and multiply by 100%. The result – ROMI is 150%, which means that you have earned more than you spent on marketing. 

#5 ROAS

ROAS is calculated to measure the return on ad spend. This indicator is often confused with ROMI, but these KPIs are radically different. Failure to distinguish between them can lead to calculation errors. ROAS is calculated like this:

ROAS = (Advertising Revenue / Advertising costs) x 100%

If you received $1000 in ad revenue and spent $800, then just divide $1000 by $800 and multiply the result by 100%. The result (125%) indicates that the campaign was successful. If the indicator is less than 100%, it means that you’ve spent more than earned. And if the ROAS is 100%, then your campaign has worked to zero.

#6 Customer lifetime value

The LTV (Lifetime Value, CLV, CLTV) indicator allows you to calculate how much profit you have received from a client for the entire time of working with him. 

There are several ways to calculate the LTV indicator. The most popular is the following one:

LTV = Income from the client for the entire period – Expenses for acquisition and retention

If income is $20 000 and expense is $8 000, then LTV = $12 000

LTV can be calculated both based on the statistical data as well as make forecasts for each individual client. The metric helps to create more effective advertising strategies and work on loyal customer retention. 

What Other Metrics Should be Сonsidered

Social media traffic

Today, social media is one of the leading traffic sources. Metrics that can be used to evaluate marketing decisions include:

The most popular social media platforms are: Facebook, Instagram, Twitter, and Pinterest. To determine which platform is bringing you more leads, break them down by the number of leads and percentage of traffic it brings. This will allow you not to waste your time and budget on social networks that didn’t work for you. 

Landing page conversion rates

A landing page that doesn’t generate leads is useless. It may have a cool design and generate a lot of traffic, but its main goal is to drive leads. So keep an eye on your conversion rate. A low rate means that something needs to be changed urgently. For example:

Organic traffic

One of the main goals of inbound marketing is to get the most traffic from organic search. High organic traffic means that people find your site on search engines on their own. This saves a lot of effort and budget for the company.

The right SEO strategy allows you to find your business based on targeted queries from potential customers. Track organic traffic metrics, and if they go down, it means you need to change search engine optimization decisions.

Which Metrics the Marketing Department Can’t Influence?

Marketers can’t always influence metrics. Sometimes, poor advertising campaigns and marketing strategies are not the marketers’ fault. If we exclude the lack of professionalism of specialists, then why may your marketing campaign not work for you?

  1. Marketing and sales departments do not interact with each other. 

Marketers and salespeople can have different KPIs. Sometimes, specialists in the sales department are not aware of the marketing activities. Such a mistake might cost the company new clients. 

  1. The sales department doesn’t cope with the tasks.

The job of marketers is to drive leads, and the job of salespeople is to process and convert them into customers. If salespeople do their job unprofessionally, then it is almost impossible to gain a decent number of customers.

  1. There is a problem with a product or service

Lets say marketers and salespeople are doing their job well. But their work doesn’t make sense if customers are unhappy with a product or service. In this case, new customers will never turn into loyal ones, and over time you’ll get less and less leads. 

  1. Micromanagement 

Sometimes CEO of a company or managers interfere with the work of marketers or offer non-working solutions. Because of this, some ad campaigns fail, resulting in loss of money or even brand reputation.

  1. Marketing activities are not always objectively assessed

For example, if there is no data for a certain period of time or the CRM is not working correctly. You might also have too many sales channels and it is pretty hard to correctly proceed all the data. Besides, marketing always works for the future. More of that, the effectiveness of some campaigns can only be assessed over time. 

Final Thoughts

Marketing KPIs are a great way to analyze the effectiveness of your marketing strategy, promotion channels, and advertising campaigns. KPIs are useful if they are calculated regularly, and all marketing activities are adjusted or changed according to the received data. 

 

About the author:

Olha is a Content Manager and SEO Analyst at Whidegroup. Starting as a Content Writer for software and web development topics in 2011, Olha has always been guided by a desire to thoroughly inspect every field of study before writing a single word. She found her passion in e-commerce and delighted in expanding her expertise in web development, analytics and SEO for small to medium e-commerce businesses.