How to define marketing KPI’s in a world of data overload?
Table of contents
The marketing KPI challenge anno 2021.
We have more data than ever. Yet it has never been harder to understand what we should actually be measuring and paying attention to. When reports are presented the discussion can move very quickly from one KPI to the next depending on who you’re talking to. Yes, more or less everything can be measured today but that still doesn’t mean it actually matters. In order to help you determine what the right KPI is for you and help you focus on what actually matters we will introduce you to a number of concepts. This should help you to determine which marketing KPI’s make sense for you. As a note to the reader — We’ll be using the words KPI and metric. Both refer to the same concept.
The relationship between a North Star KPI and operational KPI’s or metrics.
A north star KPI is a metric that is looked at to determine the success of a company or team.
It’s the main metric that indicates if things are moving the right way. Steering a north star metric is, however, very difficult. It would also be absurd to assume that you only need to focus on one particular KPI. The north star metric is usually the result of other KPI’s and metrics.
To illustrate this example we included the drawing below. ROAS (Return on Ad Spend) can be a performance marketing team’s north star KPI.
But ROAS is composed of two other metrics being revenue and media investment. Each of these metrics then again falls apart into, increasingly, more operational metrics. These operational metrics can, in comparison to the north star KPI, be steered directly.
ROAS for instance is composed of both revenue and cost. On the revenue side we can take actions to drive up the average price of the basket or increase the volume of transactions. More transactions in return requires either more sessions (traffic) or a better conversion rate given a stable number of sessions. To drive more sessions you can optimise your advertising click-through-rate or simply deliver more impressions. The key to driving your north star KPI, in this case ROAS, in the right direction lies within your understanding of the operational metrics immediately impacting it and making operations steer those.
What is a good metric?
Before going into more advanced concepts such as leading metrics, let’s take a step back and reflect on what can be a good metric and why. A good metric should be comparative, understandable, a ratio/rate and actionable.
A comparative metric
Being able to compare a metric across time is essential. Having a Google Ads rate that is at 2.5% this week does not tell you much until you compare it with the previous period(s). That is where you will know if you’re on the right track or not.
An understandable metric
A good metric must also be understandable. A nice habit to keep when creating or modifying metrics used is to involve different departments and profiles to make sure everything can be understood by anyone. A good way to make sure it is the case is to ask a recent member of your team to go through the defined metrics and make sure everything is understood.
A ratio/rate metric
Tied to the first one, a ratio or a rate is implicitly comparative. When compared, ratios are easier to act on and make a better health check metric. When creating your reports or dashboards think about the ratios you would like to analyse and the different metrics you’re gonna need to make such ratios.
An actionnable metric
Last but not least, a good metric should be a metric you want to act on. If you don’t think you’ll be able to act on the results given by that metric, maybe it’s not that relevant and you should put it aside. This is probably the most important tip to avoid using too much data and being overloaded with data you don’t know what to do with. It is also the most difficult rule to apply as you might feel that you’re better off with more data than enough. You might also be under pressure from one or more people internally willing to report on every single metric available. Keep in mind that sometimes, less is more.
If you keep those 4 simple rules in mind when working on your KPIs, you should already be off to a good start.
Vanity, leading and lagging metrics
What is a vanity metric
A vanity metric will make you feel good, but it won’t change your next actions. A typical vanity metric is “total signups”. As this number is only going to go up, it won’t help you gather relevant insights to act on. A better metric would be, for example, “percentage of active users”. Indeed, if you are improving, this number should go up and you’ll know you improved significantly.
What are leading and lagging metrics
The difference between a leading and a lagging metric. Leading metrics give you a predictive understanding of the future, where the lagging metric only looks at the past. They are both useful metrics, but it’s important to know they serve different purposes. A lagging metric can be churn. It’s super important to be able to measure churn, but while it’s important, the damage is already done. Leading metrics, on the other hand, try to predict future results. The current amount of prospects is a good example of a leading metric. If your number is low, you can expect a low number of sales and therefore act on it by trying to increase that amount of prospects.
How marketing moves from deterministic to probabilistic measurement
So you’ve figured out which KPI is the right one for you. Life looks great now.
However, there’s one important thing you need to know as a marketer.
Users are becoming more and more conscious of their rights as “data subjects” and their privacy as such. Therefore organisations need to adhere to increasingly stricter regulations when it comes to tracking data.
As a result marketers are losing data. How can you calculate the correct conversion rate if you’re not allowed to track the conversion? That’s where marketing platforms introduce probabilistic measurement. In the past reports were only based on what was actually measured. Increasingly marketing providers such as Google and Facebook are adding what they called “modelled” data to the reports. This modelled data uses your data that has actually been measured and tries to complete what is missing in order to provide you an overview of the actual values. Something to be taken into account when you evaluate your reports.
KPI’s aren’t timeless
With all of the info shared above you should be able to determine which KPI’s are relevant for you and how to interpret them. That being said. KPI’s aren’t timeless. A KPI that is relevant for a startup might change once you move into a scaleup position. Therefore KPI’s should be evaluation timely to make sure they’re in line with your business, objectives and product.
How to define marketing KPI’s in a world of data overload?
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