Putting together the KPI Puzzle
As explained in a previous post, not all metrics are created equal. The most worthwhile metrics are those that you can act upon, those that serve a specific purpose in the analyzation and optimization of your digital strategy.
All KPIs are metrics, but not all metrics are KPIs
Actionable performance metrics, when tracked and properly scrutinized, are your business’s key performance indicators (KPIs). KPIs can be either monetary or non-monetary – however, their purpose is to measure your progress in relation to clearly defined objectives. As such, before determining what your KPIs should be, your first order of business is to determine your objectives – KPIs are useless with nothing to measure up against. As Avinash Kaushik (of Occam’s Razor by Avinash Kaushik) so eloquently states: “If you don’t actually know what you’re trying to achieve, it’s also hard to measure success.”
When you have determined your business’s most pressing objectives and the subsequent KPIs to measure, it’s important to keep three particular things in mind no matter which KPI you’re looking at:
- Single-session analyses will only take you so far: be sure to look at results over several sessions (pan-session analyses), since not all – in fact, not most – conversions will occur on a first visit.
- Source attribution will become possible thanks to pan-session analyses: by knowing which point of initial contact brought your visitors to your page in the first place (regardless of how they came to your site when they finally converted), it becomes easier to accurately measure marketing success.
- Segmentation is important to know precisely who is visiting and who is converting – knowing your ideal audience will enable you to create targeted content.
To sum up, you need to remember that your KPIs are dependant on the behaviour of individuals over time. It is important to know the entire picture of the behavioural process involved in the relationship between the user and your company. You don’t need single snapshots, you need the entire movie.
KPIs and friends
So… which KPIs should we be looking at in the first place, and most importantly, which combination of metrics should be analyzed together to get the clearest and most relevant picture of your business’s success?
Conversion rate and buddies
Many marketers are, at least at first, most concerned with the number of visitors that land on their website. However, while you may have hundreds of visitors a day, what does it matter if the visitors aren’t the RIGHT visitors? Which brings us to one of the most important and relevant KPIs to track: conversion rate. At its core, it provides insight as to the efficiency of your web presence – it shows not *only* the number of people coming to your site, but how many of them are responding to your call to action (this can either be a purchase, filling out a registration form, or another, depending on your business model).
Obviously, the first order of business when looking at your conversion rate is source attribution and segmentation: determine where your conversions are coming from (sources, location, gender, age… all possible relevant information) and what campaigns or keyword searches brought them there.
A second step is tacking on other pertinent KPIs, in particular, average order value (or average basket size). If you think about it, your conversion rate could be very high, yet revenue could still be disappointing if converted customers are buying the bare minimum. Inversely, your conversion rate could be lower, yet if your traffic is increasingly qualified, your revenue could go up simply because they’re purchasing more. This is true not only for ecommerce-based businesses: trial signups, content consumption, form submissions… whatever your business goal, measure it along with conversion rate (and perhaps number of transactions for repeat customers) to paint a clearer picture of your success than would tracking conversion rate alone.
If you compare different campaigns, traffic sources and keywords, and cross-sell and up-sell bundles, consistently improving your conversion rate simultaneously with your average order size will become a figurative piece of cake!
Exit rate and companions
Exit rate, which tells you the rate at which visitors leave your site from a particular page, is another important KPI. This metric, similarly to conversion rate, helps determine whether your campaigns are targeting the right people and driving relevant traffic to your site, the efficacy of your online presence as a whole, as well as the user-friendliness and pertinence of each of your site’s pages. Measuring exit rate in conjunction with conversion rate is important in understanding not only how many users convert, but what the process looks like to get them to convert.
Exit rate has a few relevant metrics with which it benefits from a simultaneous tracking, the first of which is checkout abandonment rate. This metric shows the rate at which people begin the checkout process but don’t finish it (be it a purchase, a signup, or other). While the spotlight of this metric should be on those checkout steps with the highest abandonment rate, it is crucial to take into account the positions of each checkout step within the sales funnel before making any alterations to the process. For example, while the checkout abandonment rate may be higher at the last step than the first, improving the first step will lead more users to the last step. If there are more users who make it to the last step in the checkout process, even if the rate remains the same, the total number of completed checkouts will increase. Cha-ching!
The second metric that should be monitored alongside exit rate and checkout abandonment rate is page depth. Statistically speaking, very few visitors that come to your site will see more than a few pages – this is simply the nature of web traffic. However, as you revise and enhance your user experience, your page depth should increase as your visitors explore deeper into your website.
By studying exit rate, checkout abandonment rate and page depth together, you will begin to be able to create picture of visitor behaviour. This user flow analysis will show you how your visitors interact with your website and the paths they take through it. By seeing at what point you tend to lose visitors (be it on the first landing page, during the checkout process or at some other point in the site exploration stage), you can more easily tailor your efforts to both improve your website’s user experience and architecture, and/or offer visitors an incentive for going further in the process. Simply be understanding where your site’s drop-off points are, you can work on catching those drop-offs before they happen.
Cost per acquisition and partner
Budget allocation optimization is a constant effort for all businesses – how much money should you put and where should you put it? The cost per acquisition KPI is here to help; this metric demonstrates the ratio between the cost of a particular campaign or marketing effort and the quantity of conversions it caused. Basically, how much did each conversion cost you and what is the bottom-line performance of each of your campaigns?
Knowing how much a single conversion cost you is only one half of the puzzle. The other half is Customer Lifetime Value. Think about it this way: if your converted client cost you 50$ and brought in 55$ in revenues, the return on investment (ROI) isn’t particularly stellar. If, however, the same converted client brought in 5,000$ in revenues over his or her lifetime, that’s a pretty interesting ROI.
When it comes to metrics, the more isn’t always the merrier. Sometimes, we become too occupied with gathering the most information possible, without stopping to wonder if the information we have is relevant. By beginning with conversion rate, exit rate, and cost per acquisition KPIs, we cover decent bases in terms of understanding our business’s web presence. However, if we add the other aforementioned associated KPIs to these three originals, our understanding becomes so much more extensive, functional and valuable.
Your business’s departments are all interdependent – your KPIs are no different. Looking at a KPI individually gives you nothing but a small piece of the entire puzzle, but what you need, is the entire KPI puzzle. Only then can your digital strategy move in the right direction.