What is your business model?
The way your company makes money matters a great deal in KPI selection, particularly the way that your website and digital presence contribute to your company’s revenue. At a high level, there are three core types of revenue models online. Each of them will place a different value on different metrics, depending on how those metrics tie into the bottom line.
Content Creation: These websites offer free content and generate revenue from sponsored content, display advertising or both. For these types of sites engagement is king. The more content is viewed and consumed, the more impressions from display ads and the more clicks on sponsored content a site can get. Depending on the type of content being offered, however, the type of engagement being measured might differ slightly.
Some types of content are sporadic and represent once-in-a-while needs. For example weather updates, movie times, sports box scores etc. Visitor loyalty may not be as valued as a steady supply of new or occasional visitors. If one can’t expect daily or regularly recurring consumption, then overall page views and average time on site might suffice as useful KPIs. Other forms of content, however, might lend themselves more readily to repeated or even daily consumption. Content like news and current events, lifestyle blogs and community-oriented sites, for instance, rely on regular and return visitors. Here, loyalty driven metrics like frequency of site visits or duration since last visit might also be important KPIs to measure in addition to overall sessions.
Lead generation sites: These websites might sell a physical product, but not through a shopping cart platform. More often they sell software, services or other solutions. But before any ink hits a dotted line on a contract the business needs prospect information like a name, an email or phone number. For these sites, engagement is important, yes, but lead gen sites shouldn’t just measure time spent on site or page views, particularly if lead information is not being captured. Does a high volume of page views matter if it has no correlation to monthly leads? However, such a discrepancy might suggest that the site is confusing to inbound prospects and they click on multiple pages out of puzzlement rather than interest.
For lead generation websites, it’s the conversions or actions taken (form fills, white paper downloads, demo requests, etc) that tend to matter the most. It’s these actions, these kinds of engagements, which will result in new prospects and new contacts to nurture.
Ecommerce: These websites sell a physical product through a shopping cart platform. Pure site engagement metrics still matter for these types of sites, but certainly not the in the same way as with lead generation sites. We may have fully engaged visitors, but if they aren’t checking out and entering in payment information, then engagement alone won’t result in sales. Metrics that are specific to ecommerce and might serve as useful KPIs in this sense are cart abandonment rates and average order values. While new visitors and prospects are often a focus for lead generation, in ecommerce spaces, return visits might be equally (or more!) important. Customer loyalty and lifetime value of customer acquisition, for example, often make for good ecommerce KPIs.
When you can clearly articulate your core business type you can better discern the value of pure traffic vs. engagement vs. actions taken.
What’s the maturity of the market, your business and its digital marketing initiatives?
Business types matter, but so do market and organization maturity. The key question here is what’s most important for the next X months? The goals you’re considering may include very basic functions like growth or performance optimization. For new markets, metrics like average order value or demo download rates may not be as important as more growth oriented KPIs such as Reach, New Visitors or email signups. If you look at several of the top online ecosystems from Amazon to Facebook, when they first emerged into new markets, all of them prioritized user base growth for years before they prioritized anything else.
Even for established markets, new companies that are still in a growth phase might be best served by using KPIs that align to growth, rather than profit or sales performance. Even established companies in established markets may just be getting their feet wet with a new website or a new digital channel. In these cases user growth almost always precedes performance optimization and should be prioritized accordingly.
What are the specific business goals for the quarter and year?
A KPI that doesn’t align or speak to company goals is not really a KPI – it’s just another metric. KPIs are the metrics that best align with overall business and revenue goals.
For example, if a business goal is to drive 10% more revenue from online sales on an ecommerce website, one could focus on driving more new visitors (growth), getting repeat customers to buy more often (loyalty), incentivizing larger average order values (engagement) or by simply lowering cart abandonment rate for all visitors (conversions). Each of these have the potential to grow revenue by 10%. The question now becomes which should you focus on and why?
Would a leading or a lagging indicator best inform progress toward this specific goal?
Some metrics can be considered leading (early/top of funnel) and others are better categorized as lagging (later/bottom of funnel). Lagging indicators tend to be the biggest direct contributors to the bottom line. Executive teams often love lagging indicators like new customers acquired or total sales revenue. Because they are outcome based, they are high on the ease of measurability scale, they’re clear and understandable to nearly everyone they also seem to encourage accountability.
But, lagging indicators may also only show part of the picture. Lagging indicators are often outcomes of efforts that first showed results as leading indicators. By also tracking leading indicators you can see initial movement and remain agile enough to change course as needed.
Here’s an example of how lagging metrics may first be affected by leading ones. Imagine you’ve set a goal to increase conversions from social platforms by 10%. First you’ll need to drive more referral visits from this channel. To increase referral visits you’ll probably need to increase your engagement on social platforms. Improving engagement on social platforms often requires growing your audience (Followers, Likes, etc). In this case, movement toward the ultimate leading goal of conversions could be preceded by improvement in more lagging metrics in various stages. If any of those leading metrics fails to show improvement it will likely impede, or at least delay, the achievement of your ultimate goal.
Make sure you are not entirely reliant on either leading or lagging indicators. An over-emphasis on lagging metrics can prevent you from understanding where your strategy needs to change, whereas being too focused on leading metrics can be a distraction from the data that truly impacts profitability. A good collection of KPIs would demonstrate some type of balance between leading and lagging indicators and may change as your active campaigns and tactics change.
How many KPIs are you tracking already?
Remember, the "K" in KPI stands for “Key”. If you are tracking too many metrics, not all of them can be “key”. You should be monitoring at least a few different KPIs but if you have too many of them they will begin to lose value as they get lost in data reporting noise. Using your hands and fingers to tally up KPIs can be a good rule of thumb, pun intended. The number of KPIs you are tracking, and reporting on, should take up at least most of one hand (3 to 5 KPIs). On the other end of the spectrum, if you have to use more than 2 hands to count all of your KPIs (more than 10-12), then you probably have too many. Anywhere from 4 to 10 KPIs is usually just the right amount.
Putting it all together
Once you’ve declared your revenue model, assessed the maturity of market and organization, and identified your business goals, it becomes easier to choose the right KPIs. It also helps to consider the role of KPIs as they relate to individual channels. For that, here are some final hints. We’ve created a basic table broken out by digital channel, showing what could be considered leading and lagging indicators for each one.
Leading and Lagging KPIs by Digital Channel:
|Channel||Leading Metrics||Lagging Metrics|
|Organic Search||Rankings, impressions||Conversions, revenue|
|PPC||Impressions, clicks||Conversion rate, cost per acquisition|
|List growth and delivery rates||Click to open and conversion rates|
|Referrals||Number of referring domains||Conversions and revenue|
|Social Media||Audience size, engagement||Shares and conversions|
To select the right KPIs, first assess your recent overall performance from each channel and determine the value of leading vs. lagging indicators accordingly. If you’re just getting started in email marketing, for example, focus early on growth and leading indicators. Conversely if PPC has been a long-standing channel of activity then lagging indicators like cost per acquisition and overall conversion rates might make more sense to measure than pure impressions or click-through rates. No matter your particular situation make sure that what you’re measuring speaks to your business goals and that you’ve established somewhere between 4 and 10-12 metrics as “key”.
There is no single perfect set of KPIs that works for everyone, but there is most likely a set that is right for your business. If you follow these guidelines, but maintain the flexibility to adapt as tactics and goals change, you’ll be well on your way to a more successful measurement strategy.