Monitoring the results of strategies and actions taken is essential for any company to make business decisions based on data. There are numerous KPIs that a company can consider. In this post, we are going to look at the main ones for monitoring marketing and sales objectives.
What is a KPI, and what features should it have
KPI, or key performance indicator, is a measurable value used to evaluate a company’s performance and demonstrate the level of effectiveness with which a company is achieving its operational and strategic goals.
Every company uses different KPIs based on the industry in which it operates and its objectives, but there are requirements that each KPI must have to be considered as such:
- Measurable: it must be quantifiable
- Effective: it must be able to offer useful output to correct any deviations of the company from achieving its goals
- Relevant: it must have a common understanding with the objective being analyzed
- Useful: it must look at the concrete result
A good KPI, therefore, must be able to provide objective evidence of the state of achievement of set goals; measure key aspects so as to provide adequate information and support decision-making; measure the variation in performance over time, and be able to be used in both a consumptive and predictive mode.
A KPI must always be linked to its strategy and shared among the parties.
How to choose KPIs
It is important to distinguish KPIs and metrics. In fact, the difference is that all KPIs are metrics, but not all metrics are KPIs because not all of them can be “key” to the reality in question. Only when a metric is a key to reality can it be called a KPI. It is challenging to know which metrics represent key indicators for one’s business to monitor its performance. Moreover, these indicators vary from company to company and within the company itself based on the department, the type of activity it performs, and the goals it has to achieve. We will go below to analyze the KPIs of key departments for business growth and development, which working in synergy can bring great business value: marketing and sales.
Main Marketing KPIs
In marketing, data analysis is essential to understand whether the strategies implemented are effective and, if so, to go and correct them. Marketing KPIs are many and also constantly evolving, especially with the spread of digital marketing. Indeed, the digital world has facilitated data collection and analysis by making activities more traceable, measurable and immediately comparable.
As we have already seen, each reality uses different KPIs; therefore, even when referring to marketing, there is no “package” of KPIs that is valid for everyone. In fact, the KPIs to be evaluated depend on the type of initiative and campaign carried out, the objectives, the tools used, etc. There are, however, some metrics that are most widely used and most prevalent that we list below.
Let’s start with two indicators that can be used to evaluate both offline and online marketing actions, although the digital world allows for greater accuracy and data tracking.
- CAC (Customer Acquisition Cost): an indicator to calculate the cost incurred to acquire a customer. It is calculated by dividing the marketing and communication investments made with the purpose of acquiring customers by the number of customers acquired. For understanding the value of this indicator, there are industry benchmarks to help to assess one’s performance, but most importantly, this indicator gains weight when compared with CLV.
- CLV (Customer Lifetime Value): an indicator designed to calculate an individual customer’s average contribution to profit. It is calculated by multiplying the marginal contribution of the individual sale given by the difference between the average order and direct variable costs by the number of average orders each customer placed during the period under consideration.
These two indicators should therefore be evaluated together; particularly, an activity can be called economically profitable when the CLV is greater than the CAC.
KPIs related to the digital world:
- Reach: indicates the number of people viewing a piece of content (in terms of unique visits), i.e., more generally, the audience reached
- Impression: indicates the number of views of a piece of content. It differs from Reach in that it considers all visits made by the same user (multiple visits).
- CTR (Click-Through-Rate): it is obtained from the ratio between the number of clicks an advertisement gets and the number of times that message is viewed (impressions).
- Bounce rate (of the site): it is the number of users who leave a site or page within a few seconds without taking any action. It should be distinguished from the term bounce rate used in e-mail marketing, which instead indicates the rate at which an e-mail is not delivered.
- CR (Conversion Rate): it is the conversion rate given by the ratio between the number of users who take action requested by a CTA (call to action) and the number of users to whom the CTA was submitted.
- Keywords with highest traffic and conversion: a useful indicator for quantifying which most searched brand-related keywords and what their conversion rate is.
In general, when analyzing data related to a website or e-commerce, we measure the number of users reached and the way they interact with the web page by evaluating the number of visits, the average time of a visit, the number of unique users, number of pages visited average time spent on a page and more. Next, we can move to deeper analyses to evaluate an investment’s costs and results.
In the field of e-mail marketing, on the other hand, the main KPIs are the Open rate; the click rate, or the click-through rate of e-mail campaigns given by the ratio between the number of users who opened the e-mail and those who clicked; the number of new subscribers to a newsletter; the unsubscription rate to a newsletter; and many others.
In the world of Social Networks, on the other hand, useful indicators can be the Engagement rate, which indicates the degree of “connection” between followers and the brand and is measured by taking into account the number of “Likes, new mentions or comments”; or social audience growth, which instead quantifies the number of followers reached.
The main KPIs used to calculate the cost of an advertising campaign are as follows:
- CPM (Cost Per Thousand): used to estimate the cost of a campaign per thousand views. It is calculated by dividing the cost of the campaign or advertisement by the number of contacts reached and multiplying the result of this division by one thousand.
- CPC (Cost Per Click): used to calculate the unit cost it takes to get one click on a paid ad. It is obtained by dividing the advertising action’s cost by its number of clicks.
- CPA (Cost Per Action or Cost Per Acquisition): follows the logic of CPC but, instead of clicks, counts the actions taken by the user, such as filling out a form or downloading content. It is obtained by dividing the advertising action’s cost by its number of conversions.
- CPL (Cost Per Lead): indicates the cost per lead and is used to measure the effectiveness of those campaigns that aim to generate leads. The CPL is obtained by relating the amount spent on such campaigns to the number of leads generated by those campaigns.
While the first metric is used to evaluate awareness campaigns, the second and third are used to assess conversion campaigns. Then there are many other KPIs aimed at evaluating the costs of marketing actions that follow the logic of those listed above but vary according to the specific activity carried out: for example, in the case of video advertising, we talk about CPV (Cost-per-View), which indicates explicitly the cost incurred to obtain a video display. In the case of Apps, CPI (Cost per Install) can be evaluated, while in LinkedIn campaigns, a specific KPI is CPS (Click per send), used to monitor the results of In-Mail campaigns, especially in the B2B world.
If you want to evaluate the return on your marketing investments, the two main KPIs are:
– ROI (Return Of Investment): This allows you to measure marketing investments’ profitability. It is calculated using the following formula:
ROI = (benefit obtained – investment) / investment) x 100
– ROAS (Return Of Advertising Spend): used to measure the return on advertising campaigns as it allows us to assess how much money the campaigns make in relation to each euro spent. It is calculated using the following formula:
ROAS = revenue from ADV campaigns / campaign cost
We could define ROI as a more “business-centric” indicator, as it measures the adopted strategy’s performance and tries to explain how an advertising campaign contributes to achieving a business goal. ROAS, on the other hand, is “advertiser centric” because it specifically measures the effectiveness of corporate advertising campaigns. So ROI measures corporate strategy overall, while ROAS measures a specific tactic employed in the strategy.
The main sales KPIs
The sales team’s main goal is to close deals and acquire customers, but to monitor the effectiveness of their sales team’s activities. It is not enough to consider won opportunities as the only metric. In fact, by itself, this metric cannot show the sales process’s strengths and weaknesses and understand where they are acting efficiently and where they should intervene instead. The sales funnel, which consists of a visual representation of the four main stages that characterize the sales negotiation, is very useful in this process.
To best evaluate sales activities, multiple KPIs should therefore be considered. Below we look at some of them together:
- Volume of activities performed: this consists of going to analyze the activities that an individual salesperson performs in a given period, for example, the number of calls made, the number of e-mails sent, marketing materials used, etc., to understand how they can optimize their sales methods.
- Contracts closed on the number of opportunities handled: indicates how many of the opportunities assigned to the sales team were actually closed, thus representing the closing rate obtained from the following ratio:
Number of qualified leads assigned / number of contracts closed
- Average contract closing time: indicates the average time salespeople take to turn an opportunity into an actual sale. It helps assess the length of the sales process, especially if deepened by breaking down the process into sub-steps and evaluating the time of each step to understand which steps waste the most time and efficiency and apply corrective actions accordingly.
- Number of opportunities managed by the individual salesperson: Analyze how many prospects each salesperson has under management in a given period. It is useful to understand whether the number of sales networks needs to be increased or can be reduced.
- Number of demos made monthly: indicates the number of presentations of the product or service offered that a salesperson makes to a new prospect. It is used to assess the efficiency of the sales network.
- Average close value: this is a financial metric, and it is important to assess its trend over time to understand whether gradually larger customers are being acquired or cross-selling or up-selling activities are being done, and also to set challenging goals for sales team members.
- Sales growth rate compared to the previous month: useful to monitor sales trends over time and be able to act promptly in case of critical issues.
- Average contract cost: evaluation of the resources required to get to the close of a contract.
Marketing & sales KPI
The connection and coordination between marketing and sales are important, so there are also KPIs aimed at monitoring the more delicate stages of connection between marketing and sales teams. Moreover, in recent years the digital world has expanded beyond B2C: B2B business development is also increasingly grasping the importance of having digital marketing among its allies. That is because the integration of business development and digital marketing also allows the data collected from these two activities to be interwoven. For example, by gathering insights from ADV campaigns and interweaving them with sales insights, assessments can be made about the targets, products/services offered, and better target business strategies.
Returning to KPIs, a useful indicator to consider in the transition between marketing and sales is the following:
Percentage of qualified leads: this allows us to understand how many of the leads generated by the various marketing channels can be considered a real sales opportunity for the company. It allows one to understand whether marketing works in a coordinated way to achieve sales goals. In fact, the quality of the leads that marketing passes on to sales strongly impacts sales results. Otherwise, there is a risk of wasted time and energy on the part of the sales team on contacts that are not in line or not interested in buying, thus bringing poor results to the company.
A CRM can be a useful tool to align the two functions better and gather valuable data and information for reporting and collecting data for analysis.
Summing up the message of this post, any marketing or sales action can only be fully effective if it is accompanied and supported by a timely analysis of its results. Only in this way does strategy become an interactive process that can evolve over time and improve with the input that KPI analysis provides.