How To Choose Good KPIs

This is a part two - to my previous post that explains what a KPI is. If you haven't read that one yet, I strongly recommend it :)

So if we wanted to continue our analogy from our road trip in the last post, we know that we have a starting point, an end point and a speed. And we also talked about how that speed is our indicator (which is why it's the probably the biggest visual interface in your car) of whether we'll successfully reach that destination on time. But there are other factors we need to consider. Other "metrics" that help us determine if we can keep that speed up. Here are a few:

  • Fuel gauge (do we have enough fuel to sustain us to our destination?)
  • Odometer (how far have we travelled so far?)
  • Tachometer (How many RPMs our engine is running at)
  • Temperature (How hot or cold our engine is)

Not all of these metrics are terribly useful to us at all times. In fact, if you're driving an automatic transmission car, you might not even have a Tachometer, because you'd only need to know your RPMs to shift gears. So what we start to think about is how to prioritize these metrics. We might only need the Fuel Gauge unless something bad is happening and we see smoke coming out of the front of the car.

All to say - the only KPIs needed for this trip are Fuel and Speedometer.

Marketing is not a roadtrip however, the need to keep our brains clear and focused remains. In this post - we're going to walk through a simple three step process for identifying good KPIs in marketing.

Instead of taking a road-trip - we're going to sell cars. We work for a vintage car company that sells classic VW Beatles. We have three really simple things we're trying out - bringing us to step 1:

1. Clarifying The Tactics

For Awareness and audience building - we'll run some display ads.

For Engagement - we'll run a small blog where we can post pictures of our cars and provide descriptions of each one so that potential customers can virtually kick the tires.

For Action - we'll provide a contact form where people can ask for a quote, or offer to buy a specific car.

For each of these elements, we need to think about how we move from those ads, to a detailed car page, to a quote. So in step 2 we

2. Prioritize The Key Metrics

For the ads - The number of clicks we get back to our blog (everything else is just a supporting data point to help us improve, but will not lead to our ultimate objective)

For the blog - Clicks on the button to access the contact form

For the contact form - Form submissions

Easy stuff right?

So now that we know the important metrics - let's define some Key Performance Indicators

3. Identify Rates of Progress

See how I didn't say step 3 was identifying KPIs? Rates of Progress doesn't really sound sexy, but it's basically a KPI, and gets us out of old misconceptions.

So now all we need to do is figure out how many clicks we need from our ads over a period of time, and likewise for clicks on the contact form, and ultimately submissions. So how do we do that?

Well let's assume that the owner of our vintage car company has agreed to let us perform our marketing experiments, as long as we can prove that they deliver on three new sales each month. Great. We have established a measurable goal. Three form submissions (let's assume that each one equals a real sale for the sake of this exercise) every month.

So now we identify how many clicks we'd need on the contact form to result in three form submissions. Maybe we assume that 10% of all arrivals to the contact form page, result in a submission, which means that 30 visits to that page will get us the results we need.

30 Visits to that page, means we need enough people coming to the blog to convert to that "Contact Form" click. Assuming on average 1% of our traffic takes that action - we'd need 3,000 visits per month.

Ultimately - that leaves us with the need to drive 3,000 people to the site with ads, which could mean we need 300,000 people every month to see the ad if we have a 1% conversion rate.

All of these conversion rates being assumed, we now have four simple KPIs to use to track our progress:

300,000 Ad Views / Month
3,000 Blog Visits / Month
30 Contact Form Clicks / Month
3 Contact Form Submissions / Month

What are you working on right now that you can apply this thinking to? Have you established measurable goals? Think about this model on the next project you start, and you'll find that you're able to clearly articulate how you plan to measure, and optimize your program in a predictable way.