What Are KPI and ROI in Digital Marketing?

What Are KPI And ROI In Digital Marketing

In the old days, you would measure the effectiveness of your marketing by how many customers shopped at your store or the success of an ad campaign. If any formal measurements were taken, they would usually be in the form of a survey that asked how you heard about their company or how many unique codes were returned from a coupon campaign.

That way, you could determine how many coupons were redeemed and from what areas or which marketing platforms were hitting the target market and by what percent.

Nowadays, we have more sophisticated metrics, wider coverage, and many different business models. Problem is, these various metrics can become confusing when they were meant to simplify market segmentation and analysis.

The two biggest terms bandied about in business and marketing circles are Return on Investment (ROI) and Key Performance Indicators (KPI).

ROI refers to how much of a return you get on your initial investment. It isn’t solely applied to financial investments, but also engagement and other customer-initiated activities. If you put forth an investment of time or money in X area, how much of a return will you get for your efforts?

What is a Key Performance Indicator (KPI)?

The rates of activities like page clicks, subscriptions, unique views, and bounce rates are known as key performance indicators. They let you know how well your marketing and outreach plan is doing in specific, measurable areas.

Understanding individual KPIs as they relate to digital marketing activities will tell the tale of how much ROI you’re getting.

KPI, ROI, and Marketing

One look at a Google Analytics spreadsheet or your FB business reporting will expose you to a page filled with charts, stats, and percentages. In order to make sense of it all, you need to understand which metrics reflect ROI and how to apply them to your digital marketing efforts.

You can create new metrics, parse numbers, and skew statistics to mean anything you want them to, really. But in order to gain insight that’s decisive and actionable, you need to cut through the clutter and focus.

Here are the most important KPIs in digital marketing and how to apply them to determine ROI.

“Cost Per” Rates

These various categories measure how much your company spends to attract and convert leads.

* Cost per lead KPIs tell how much you’re paying for each lead you collect from your various marketing channels. Are you spending more to collect leads than you generate when your team closes?

* Cost per acquisition is calculated by learning how much you spend to generate leads versus how many leads you convert. Simply divide marketing costs per lead by total sales to find your cost per acquisition.

Lead Close Rate

This is the second factor in your acquisition costs. What is the close rate in relation to the number of leads generated by each digital marketing campaign? In order for this number to bring meaningful analysis, your close rates should be entered and tied into your other digital metrics, which isn’t always the case if your company lives in the real and virtual realms.

Average Order Value

Relying on sales figures isn’t granular enough to tell you whether your business is growing at a steady rate. You should also pay attention to how much your customers are spending on each order. Is this number going up, staying flat, or declining, and why?

Conversion Rates by Channel

Digital marketing is a multi-platform activity. In order to determine ROI, you need to know which marketing channels are most effective at generating buzz and which ones work best to convert leads to paying customers.

However, it goes deeper than that. You could get a higher percentage of people responding organically to an ad campaign or social platform, but convert more of them from an activity with a smaller percentage of respondents. Look at percentages of engagement from platform to platform, but also the rate of conversion within each platform.

Conversion by Device

This is becoming more relevant as consumers access digital marketing platforms from a variety of devices. Your audience could be conducting initial product research on a PC, but actively engaging with your company by placing orders or making appointments via mobile device. Knowing how customers interact with your company will tell you where to put your marketing dollars to work.

Click-Through Rates

This KPI reveals a lot about audience engagement. Click-through tells not only how much traffic visits your page, but how long they spend there and what they do while they’re there. You want to measure page views and clicks in relation to bounce rates. Are they leaving your page right away? Is the disengagement happening at checkout? Why or why not?

How you and Google interpret this data will affect content creation and influence how your page is indexed and ranked by search engines.

Landing Page Performance

Your landing page is often the first phase of customer awareness. Is it driving traffic to your site or leading to higher conversion rates? If not, what is it about your landing page that isn’t connecting with your audience? A few tweaks and some A/B testing can help you get to the bottom of things.

Final Thoughts

Analysis and reporting are two of the most important components of digital marketing. They allow you to make sense of data you need to refine and direct your marketing efforts and provide you with insight into how much of a return you’re getting for your marketing dollar.

Understanding each of these concepts, as well as how they apply to strategy and implementation, will allow you to direct your energy and resources where they will do your business the most good.

Although many KPIs measure daily, weekly, or monthly stats, you’ll better identify ongoing trends rather than temporary spikes or downturns by looking at your Year-to-Year (YoY) numbers.

When you need help understanding how your business performs or you’re ready to step up your marketing strategy, consulting with a professional marketing team is a solid investment.

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