Are Your KPIs Leading to a Healthy ROI?
June 14th, 2018 by
One metric that every small business owner should track and strategically work to improve is return on investment (ROI). Improving ROI can depend on boosting any number of individual indicators that help businesses focus on what they’re doing right and where they need to improve. Learn how these indicators apply to digital marketing and how to track, set goals for, and improve those indicators.
What Are ROI and KPIs?
Most business owners are familiar with the concept of ROI as an important, perhaps the most important, bottom line for any expenditure. ROI provides a simple ratio that expresses how successful an expenditure is relative to the income it generates. For some business decisions, calculating ROI is relatively straightforward. The ROI for a rental property, for example, would be based on the cost of buying the property plus taxes and upkeep divided by the amount paid by tenants each year. In the world of digital marketing, however, it can be difficult to determine the value of clicks, shares, and retweets, and to draw a direct line from any specific customer to a specific advertisement.
Key performance indicators (KPIs) are more specific data that provide the metrics to analyze the effectiveness of a digital marketing strategy. In fact, ROI itself is a KPI. A business may select ROI as their #1 KPI, and then other secondary KPIs to watch as leading indicators of success. Paying attention to the right KPIs, and understanding how they relate to and inform ROI, can allow businesses to agilely hone a lean marketing approach around what works by cutting out the fat failing to provide a return.
How to Determine Your KPIs
It’s important to realize that not every metric is a KPI. For example, a tourism company might find it especially helpful to track how often promotional emails are forwarded or social media posts are shared. People like to share vacation experiences with friends who often rely on recommendations, and people also like to vacation with their friends. A high share rate could indicate a multiplier effect for some promotions, meaning that the marketing strategy is generating customers outside of a business’ subscriber list or social media following who nonetheless engage with the content. (Read more about creating customer advocates for tourism businesses). While every metric might not be important for your business, here are some common KPIs:
– Website traffic sources – Visitors enter your site from many avenues. The traffic sources can be organic, direct, referral, or paid. Each source can be reviewed to provide high-level information about your site traffic. Organic search traffic, when a visitor finds your website by searching keywords in a search engine and clicking through to your site, is the top source for generating traffic. It’s essential to improve SEO in order to increase your organic traffic.
– Engagement metrics – Take a moment to compare your favorite website to a website that you dislike. What impacted your experience on those sites? Optimizing your website for an intuitive user experience is essential. Bounce Rate and Average Time on Page are two key indicators of how visitors are interacting with your site. Be sure to monitor these metrics and optimize your website layout and content as needed.
– Conversion rate – This is a KPI that any business owner wants to see continually increase. Filling out an on-site form, clicking your number to call, or purchasing your product are just a few conversions that you want to encourage on your site. Each conversion can generate a lead for your campaigns. The higher the conversion rate, the higher the ROI.
How Do KPIs Affect ROI?
In a certain sense, ROI is the mother of all KPIs. The best performance indicator of almost any business investment is how much return it produces. Calculating ROI, however, requires an understanding of how a business’ applicable KPIs determine ROI.
A simple formula is just the return minus investment and then divided by the investment:
Your result can then be expressed as a percentage. In order to account for your KPIs, your return should take into consideration factors such as the average lifetime value of a customer and conversion rate of turning leads into customers, in addition to the average profit margin.
How to Set S.M.A.R.T. Goals for Your KPIs
Businesses commonly use the acronym S.M.A.R.T. when setting KPIs; it stands for specific, measurable, achievable, results-oriented, and time-bound. Focus on goals that are detailed and clearly defined, and that can be tangibly measured to determine success or failure unequivocally. They should be within reach (a business that constantly falls short of its goals needs to rethink their achievability) and based on the objective ends rather than the means. Finally, they should have a definitive deadline to make sure goals aren’t kicked to the next quarter or year.
Digital marketing may not quite be rocket science, but it does get pretty complicated. It’s important to determine what KPIs are most important to your industry, look to competitors and market leaders to see where indicators are comparable and where there’s a discrepancy, then develop strategies to boost those indicators. Small business owners have enough on their plate to worry about without poring over the nitty-gritty of analytics and lead tracking. Search Influence is a nationally recognized leader in search-focused digital marketing, with the expertise to help small businesses succeed in an ever-more digital world. Read testimonials from our clients to get a feel for how we can help your business grow, or contact us today to see what our understanding of KPIs can do for your ROI.