More than a hundred years ago, John Wanamaker infamously observed, “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”
Don’t be that guy.
Today’s marketers use key performance indicators (KPIs) to measure the success or failure of every marketing investment. However, many marketers fly blind like Mr. Wanamaker without KPIs because they lack tools to establish and track marketing performance goals.
KPIs are used across industries and are not unique to advertising and marketing, but this article focuses on how it applies to these trades. The term KPI gets thrown around a lot with a pretty loose definition. This article demystifies KPIs by stripping away the buzzwords and industry lingo while breaking it down into bite sized pieces. What makes KPIs different from other metrics? How should they be used? What’s the best way to track them?
What are KPIs?
KPIs are a set of quantifiable measures that a company uses to gauge its performance over time. In other words, something you can measure and track that lets you know how your company is doing in comparison to its own goals or its competitors.
Marketing KPIs differ from company to company and from campaign to campaign. It’s up to you to decide on the most useful metrics for your situation. For example, a company whose main business is smart phone apps would consider installs and cost per install KPIs. A conference organizer would make attendees and cost per attendee KPIs.
For marketing and advertising popular KPIs include:
- Conversions + Cost Per Conversion
- Downloads + Cost Per Download
- Installs + Cost Per Install
- Leads + Cost Per Lead
- Registrants + Cost Per Registrant
KPIs don’t always need to be financially based. In fact, an overreliance on the financial aspect – especially in marketing and advertising – will result understanding only a piece of the puzzle. Things like behavior changes and interactions are also powerful indicators of the health of your marketing. For example, video completions or percentage viewed are telling when it comes to how your target audience is reacting to the advertisements. For social media advertisement, engagement and shares are important to discern interest level.
Popular non-financial KPIs include:
- Video completions
- Demo sign ups
Why are KPIs important?
If you’re thinking, “so KPIs are metrics?” you are correct, but more specifically, KPIs are the metrics you deem most important in measuring success. Keying in on a few KPIs rather than trying to make sense of every available metric focuses efforts on areas that make the most impact.
Think about it like a visit to the doctor’s office. The doctor takes a few important measurements and only digs deeper if he notices something suspect. This saves a ton of time and still allows the doctor to collect the important information needed to address your issue.
Approach KPIs like a doctor. They provide a guide that quickly informs you of the health of your campaign. If you see anything curious then you can investigate further using complimentary metrics.
For example, your KPI shows you that installs are down from last quarter. Now you can investigate further using the supporting metrics – is the new creative underperforming? Is the number of installs down for all age groups?
Focusing on the metrics that truly matter eliminates information paralysis – the state of not being able to make a decision because you’re considering too many inconsequential metrics – that delays meaningful action.
Choosing the right KPIs
All the information in the world won’t help if you’re not paying attention to the right stuff. That is why setting the right KPIs and calculating it correctly is so important.
A good tactic is to use the S.M.A.R.T. criteria as established by George T Doran in 1981. KPIs should be:
- Specific – Make the description as simple and clear as possible. i.e. Our client relies on app installs to generate revenue. Our KPIs are the number of app installs created by our advertising and the average advertising cost per install.
- Measurable – You must be able to accurately and consistently measure and track the KPI.
- Attainable – Can you directly affect this KPI? In other words, is this something adjustments to a media buy could fix.
- Relevant – Does this matter? If you’re at an agency or a contractor the question should be, does this matter to us and this client? Aligning agency and client goals are important in building strong relationships. Determine what insights are most important to achieving those goals.
- Timely – Can you track this based on a monthly, quarterly, and annual basis? If you can, are you able to react to the information quickly enough to make a difference?
Using these criteria helps your KPIs have clear links to your goals. A positive byproduct is that many businesses are also able to better articulate their goals in the process. It also prevents you from falling into the trap of reporting on a set of metrics simply because it’s the easiest to track.
The practice of regularly revisiting KPIs builds a healthy dialogue around what really matters for the company, keeps goals top of mind, and gets the team into the habit of thinking critically about advertising strategy and tactics.
As noted in the S.M.A.R.T criteria, it’s important to accurately and consistently measure and track KPIs over time (Measurable and Timely). This puts a lot of stress on many media planning teams’ systems and workflows.
Going to every advertising platform to pull the data and compile it all in a spreadsheet takes time away from higher value work like strategy and analysis. Additionally, KPIs aren’t always the easiest metrics to compile because some platforms do not include everything you need. As a result, manual calculations and complex formulas are used to handle the math. Unfortunately, these methods are prone to typos and data entry errors.
The smarter solution is investing in a dedicated system to track and compile the data while your advertisements are running. This provides you with a central hub of information sourced directly from the platforms and cuts out the manual processing.
Ideally, KPIs should be tracked on numerous levels. Sure, you want to track the overall health of the client’s advertising, but to do so you also need to understand what’s happening at the campaign and even placement levels. Your KPIs can differ at each level as well.
Using the app company example, it has already been established that the KPIs for the client are installs and cost per install. Tracking those metrics at every level provided is the only way to get the depth you need to enact any changes. Now, say you’re running a social media campaign to attract installs. Setting the KPIs for the campaign as engagements and shares measures the interest level and reaction to the campaign as well as the appropriateness of targeting. If no one is engaging with the ads chances are you’re targeting the wrong audience. Finally, within the campaign you run a :30 video. Tracking the average percentage viewed or video completions shows how effective your creative (the video) is and the interest level of the audience.
KPIs are necessary for all advertising campaigns
Setting KPIs are essential for even the simplest of campaigns. Taking the time to thoughtfully plot goals and measurements help make sure you are spending money wisely and not paying for unnecessary placements. KPIs are also an early gauge of a successful strategy.