- Learn how to use best KPIs to measure your business performance
- ROI = Income – (Production Costs – Advertising costs) / (Production Costs – Advertising Costs) x 100
- The CPA or Cost Per Acquisition (CPA = Cost / Number of Conversions)
- LTV or Lifetime Value (LTV = Average transaction + Annual Purchase Frequency + Expected Years of Relationship)
- CR or Campaign Revenue (CR = Total Conversion * LTV * Closing Ratio)
- ROAS or Return on Advertising Spend, most important widigital KPIs
- (ROAS = Total Campaign Revenue / TotalCampaign Cost)
- Page Engagement and Post Engagement
- 1000 Reaches metric and the CPM
Learn how to use best KPIs to measure your business performance
Business Metrics and KPIs are the central pillar of any well-structured marketing strategy; if properly used, could be a very precious ally to evaluate your business performance.
According to the “Digital Metrics Field Guide”, published in 2015, there are 197 digital metrics and KPIs that can help you estimate and examine the performance of your ads.
These metrics are a quantifiable measure that are used to assess and analyze the performance of your online advertising campaigns (but also several other aspects of your business). Therefore, it is fundamental to know about them.
A really important KPI, or Key Performance Indicator, is obviously the Return on Investment or ROI.
ROI = Income – (Production Costs – Advertising costs) / (Production Costs – Advertising Costs) x 100
Unfortunately, it is not as simple as it seems. You will need some valuable data and a well-done analysis to do that; you will need to track down your results with the more suitable metrics possible.
But before this, remember that using metrics is useless if you haven’t set any goal for your business, so be sure to define some clear objectives firstly.
Even if ROI is for sure a great metric to measure your business performance, it has still some limits that might reduce its comparative efficacy. That Is why you should choose carefully which metric suits your business better.
The CPA or Cost Per Acquisition (CPA = Cost / Number of Conversions)
This KPI shows the price to acquire a new lead or a new client in any given channel. In other words, it exposes which channel is the more profitable for your business, allowing you to reallocate your budget profitably.
Of course, CPA depends significantly on the industry. The Health sector, the Employment Services, and the Legal field are the three most expansive sector for CPA metric. On the other hand, e-commerce, the technology companies, and the home goods stores appear to have a cheaper CPA.
LTV or Lifetime Value (LTV = Average transaction + Annual Purchase Frequency + Expected Years of Relationship)
The LTV represents an estimate of the revenue that a new customer will bring (taking into account several associated factors). According to Baruch Labunski, the co-founder of Rank Secure, the LTV is: “The sum of all the transaction or the total value a customer will spend over their lifetime “.
Knowing the LTV allows you to compare it to the cost of acquiring a new client and, then, determine if you can afford to acquire or retain it.
The LTV is a pretty complex metric. The newcomers can be reluctant to use it but you should get into it as soon as possible. The LTV ensure that you are tracking the best customer audience for your ROI.
CR or Campaign Revenue (CR = Total Conversion * LTV * Closing Ratio)
The CR is not very difficult to understand. You just need to know that the Closing Ratio represents the possibility for a lead to not be convert into a new customer,
If a lead do not make into a new customer half of the times, then your closing ratio will be 0.5.
Your CR should have a 5-to-1 revenue when compared to the cost ratio.
ROAS or Return on Advertising Spend, most important widigital KPIs
(ROAS = Total Campaign Revenue / Total
The ROAS is a very important metric, sometimes even more precise then ROI, especially for online operating businesses investing in advertising.
In most of the cases, ROAS and ROI are interchangeable. However, it exists some differences. The ROI measures the benefice generated by an ad relatively to its cost while the ROAS estimates the gross revenue generated for every dollar spent on the advertising campaign or on a single ad. While the ROI is more business-centric and tend to see the big picture, the ROAS is advertiser-centric which makes it better to assess the effectiveness of a Digital Advertisement Campaign.
Page Engagement and Post Engagement
Of course, there are plenty of metrics and all of them are not as difficult to understand as the ones above. For example, Page and Post Engagement metrics are easier. They simply refer to the number of clicks on a page or on a specific post.
1000 Reaches metric and the CPM
Let’s finish with two KPIs that are often mixed up.
1000 Reaches metric evaluates hoe much time you need to reach 1000 different users. It is a suitable metric to appraise brand awareness. The CPM, or Cost per Mille, refers to the cost for your ad to be shown 1000 times. In this metric, your ad could be viewed two or even more times for the same customer, so with CPM we measure traffic, while we consider customer fidelity with 1000 reaches metric.
We only have spoken about 8 out of the 197 existing metrics, but there are plenty of them that are not essential to estimate the ROI. For example, what Justin Adelson (founder of Perfect Pixel Marketing) called the “Vanity Metrics and KPIs” – Likes, Shares or Comments – can be great to look at but are not crucial in a sales funnel. Those metrics are useful to examine
the virality (or in some cases the interest) but must not be central in the calculus of ROI.
All those metrics and KPIs can be very confusing and difficult to understand. The communication between Digital Advertising Agencies and businesses is essential to achieve a successful campaign. However, most of the time, there is a lack of trust between the two actors. While the first one has difficulties to guarantee the success and the transparency, the other one experiments trouble to understand some of the core issues.
Last but not least, you will improve you ROI just defining you perfect audience. Every marketer must know its audience and understand their customer demography. This is compulsory to optimize any advertisement campaign.
This is where Bigbom is coming in. Providing a detailed and easy-to-look-at database, it makes easier, even newcomers marketers, to use all of these metrics and KPIs and determine their targeted audience.
If you still face some problem, Bigbom will be happy to help you with any issue that you will have.
Save your budget and boost your performance with one click.
Check this article and learn how to creaste a super effective Facebook advertising campaign: https://bigbom.com/8-tips-you-should-know-about-to-succeed-with-your-facebook-ad-campaign/
(1) Patrick Liddy – “Ad ROI Analysis : Choosing Digital Advertising Metrics that Matter” on Vendasta Blog – 2019
(2) Bigbom.Global Facebook Page.
(3) Klipfolio – “Business Metrics Definition”