In digital marketing and in general, Knowing where you are now is critical to moving forward in the right direction. Just try asking Waze how to get to Times Square without telling it your current location. No can do. This is where Digital marketing KPIs come in.
Short answer
What are KPIs
Key Performance Indicators (KPIs) are the measurements that tell you where your business is holding now. Knowing how to choose, measure and use digital marketing KPIs is essential for any success-focused business with a digital presence.
The Meaning and smart use of KPIs in digital marketing
Key Performance Indicators (KPIs) are the metrics that tell you whether your business processes are meeting your goals. For the standard for-profit business, your KPIs will be the metrics that reflect on the profitability of your digital marketing efforts and sales processes.
If your business meets or exceeds your KPIs, your business is on track. If not, you know something is off, and you can make informed decisions as to how to get back on track.
Traditional VS digital marketing KPIs
The term KPI has been around for the past few decades, with its original use in the manufacturing industry: the metrics used to evaluate the performance of production processes. It was in the 1990s, however, that KPIs came into more widespread use, being applied to business performance in general.
Traditional marketing KPIs, however, suffered from the following disadvantages:
- Long lag times between when you ran the campaign and when you could collect, measure and use the KPI information
- Little to no ability to test different campaign elements and measure what worked better
- Unclear attribution, if there were several campaigns or sources that could have influenced a consumer
Digital marketing tools changed all that for KPIs, enabling:
- Real-time tracking, measurement, reporting, and decision-making. You can run a campaign today, tweak it tomorrow and perfect it later this week, all based on what the KPIs tell you.
- A/B testing. You can isolate different campaign elements, like copy, timing, design, or audience makeup, and measure which gives you better results.
- Detailed user behavior tracking and attribution. You can see exactly what the consumer did after they clicked on your ad or your email. If a consumer is exposed to multiple campaigns of yours (for example search ads, social media ads, and email marketing), by the time they become a customer, you can track all the different touchpoints they went through along the way and attribute each one’s contribution.
Importance of measuring digital marketing performance
Assuming you’re not in business just for the fun of it, you’re there to succeed, to earn a living (and maybe more). But the road to business success is never straight. It has curves, hairpin turns, and potholes. If you put your business on auto-pilot and fall asleep at the wheel, you’re probably going to crash.
On the other hand, if you are constantly monitoring the twists in the road and making informed decisions about how to handle your vehicle, you have infinitely better chances of making it to your destination.
Your digital marketing KPIs are your essential meters and monitors of the business road you’re traveling. Are you going in the direction you intend? Do you need to change, tweak, optimize, or pivot? If you choose and use the right digital marketing KPIs, they won’t steer you wrong.
What are the “right” KPIs? Let’s take a look at some of the most common and helpful digital marketing KPIs that should be monitored by businesses.
Key digital marketing metrics: CTR, conversion rate, ROAS, ROI
CTR (click-through rate), conversion rate, ROAS (return on ad spend), and ROI (return on investment) are four key digital marketing metrics and KPIs that you’ll find on most analytics and reporting tools – and for good reason! They all concretely measure how well what you are doing is working.
- CTR (click-through rate) is the percentage of users who click on an ad or link to your website (or any landing page you use).
- Conversion rate is the percentage of visitors to your website who take the action you want, like buying or signing up.
- ROAS (return on ad spend) is the revenue generated from your ad campaign, compared to how much you spent on the ads.
- ROI (return on investment) is the revenue generated from a marketing campaign, compared to how much money it cost to run the campaign.
How do ROAS and ROI differ?
ROI takes into account all costs associated with a campaign, including (for example) what you paid to create the images or copy for the ad and the cost per person-hour for the time staff spent working on the campaign – in addition to the money you spent on running the ads. ROAS only considers the cost of advertising. So ROI is a broader measure of campaign profitability, while ROAS is more focused on the efficiency of advertising spend.
Let’s go into a little more detail about how these digital marketing KPIs are calculated. First, though, we need to define an important term among digital marketing metrics: impressions.
Understanding impressions in digital marketing and advertising
Back in the old days, periodicals would charge for ads (in part) based on their circulation. The more people that read a publisher’s newspaper or magazine, the more eyeballs that would be seeing your ads, and the more money you should be paying for your ad.
This equation was no doubt correct if you bought an ad on the front page. But what if your ad was buried on the bottom half of page 87? How many of the periodical’s 200K subscribers actually saw your ad?
With the advent of digital advertising, the number of reader views (= impressions) you were paying for became much more precise. Tracking technologies – ad server logs, cookies, javascript – could register how many times ads were displayed on readers’ screens, and you would know that you were paying for an actual set of eyeballs resting on your ad.
Despite its shortcomings, the impressions metric is certainly more advanced than the old-school “circulation” numbers, and it’s usually what we have to work with when calculating KPIs like CTR or conversion rate.
One more word to the wise:
We mentioned above that impressions were an often misunderstood metric, because the “number of reader views” is not the same thing as the “number of readers who viewed.” If one reader sees your ad seven times, that will count as seven impressions. Sometimes the “number of individual readers who viewed” (often called “reach” or “unique views”) is available as a metric for your campaigns, and there are times you will want to use that. We’ll go into more detail below.
Interpreting CTR meaning in digital marketing
CTR (click-through rate) is calculated by most digital marketing platforms by dividing the number of clicks on a specific link or ad by the number of impressions. It is expressed as a percentage.
For example, your ad had 1000 impressions and 30 clicks. 30/1000 = 0.03, making your CTR 3%. If you just see the term “CTR” in a digital marketing platform, you should assume that it is referring to this calculation.
Sometimes, however, you want to know how many individuals clicked out of the number of individuals who saw your ad. Facebook Ads calls this “Unique CTR,” and it is calculated as the number of individuals (as estimated by user accounts) who clicked on your link or ad divided by the total number of individuals who were shown the link or ad (= reach).
Let’s take a look at the difference this makes:
The first campaign had 13.5K impressions (i.e. number of times the ad was shown), but only 2.9K reach (i.e. number of individuals who were shown the ad). So most of these individuals saw the ad multiple times.
So the CTR for the campaign is 1.01% (i.e. for every 100 times the ad was shown, it was clicked 1 time), but the Unique CTR is 4.37% (i.e. for every 100 individuals who were shown the ad, 4 of them clicked).
Comparing these two CTRs (when available) can give you valuable insight as to how well your ad is being received, and how efficient the digital marketing platform is being with your ad spend.
Measuring ROI in digital marketing and advertising
ROI (return on investment) measures the overall financial return on the investment you put into a campaign.
You calculate ROI by subtracting the cost of investment from the revenue generated and dividing the result by the cost of investment. The resulting number is expressed as a percentage.
For example, if you spent $10,000 on a marketing campaign and generated $20,000 in revenue, your calculation would be (20,000 – 10,000)/10,000. Expressed as a percentage, your ROI would be 100%. So you made back your costs, plus an additional amount of money that equals 100% of your costs.
Calculating ROAS in digital marketing
ROAS measures the effectiveness of a specific advertising campaign by calculating the revenue generated for every dollar spent on advertising. ROAS is expressed as a ratio, calculated by dividing the revenue generated by the cost of advertising.
For example, if you spent $1,000 on advertising and generated $4,000 in revenue, your calculation would be: $4,000/$1,000 and your ROAS would be 4:1.
Performance marketing KPIs for digital marketing
Wouldn’t it be great if you only had to pay digital marketing platforms when they delivered results – brought you actual leads or money in your pocket from sales?
The commission-based model in the sales industry does have its parallel in the digital marketing industry. It’s called performance marketing, where advertisers pay publishers only when users perform specific actions – like submitting lead forms or purchasing products.
Performance marketing KPIs center around results, such as:
- Conversion Rate
- Return on Ad Spend
- Cost per Result
Best tools for measuring KPIs
The first line of tools you should use for measuring your digital marketing KPIs are the analytics provided by whatever platform you are running your digital advertising on. Some platforms will only give basic KPIs, and others will offer more extensive analytics, especially if you spend a few minutes customizing what it shows.
Facebook Ads, for example, has default metrics that it shows, but you can choose from among hundreds – or create your own custom metric.
The next go-to tool should be Google Analytics (GA). Even out of the box, GA can show you plenty of data about your website performance. But when you spend a little time setting up GA (like defining Conversions and their value) and making sure you tag your digital marketing campaign links so GA can attribute the source correctly, you can get even more powerful, complete KPI data.
For calculating ROI and ROAS in digital marketing, it’s helpful to use one of the online marketing or ads calculators out there. Hubspot, for example, has an ads calculator that you can use to guide your ROAS calculation and make informed decisions about what you should be spending on digital ads.
Omni Calculator has a more comprehensive online marketing conversion calculator that covers your total marketing ROI for any given campaign.
To conclude: KPIs are key!
We’ve come a long way from the traditional marketing spray-and-pray approach with its somewhat helpful but rather limited KPIs. All the different types of online marketing metrics, with their specificity and real-time results, give you the ability to keep on top of your campaigns, optimize your digital marketing spend and move ever closer to the ROI of your dreams.
