Types of Key Performance Indicators
Key Performance Indicators are used to measure the outcomes of progress and output of outcomes to upper management business objectives. An example of an upper management business objective is “increase company-wide revenue by 30%” annually”. Revenue growth would be an example of an outcome KPI. Another example of an outcome KPI is to “increase customer lifetime value by 20% annually”.
Output-based KPIs are used to set goals by lower-level teams to reach outcome KPIs. An example of an output-based KPI could be “grow website traffic by 20% annually”. Output KPIs are referred to as marketing metrics by the marketing and sales team.
How does Hitting Output KPIs Achieve Upper Management Outcome KPIs?
Let’s use the example above of “growing website traffic by 20% annually”. In order to determine website traffic growth is a great output digital marketing kpi to focus the marketing and sales team on. We would need to ask ourselves the following questions…
- How much revenue do we need to reach campaign success?
Ask this question to determine how much sales needs to be generated in order to reach upper management goals.
- Does the traffic generate sales?
Before we start mapping out digital marketing strategies to execute for increasing traffic to the website. Focus on determining if the website is even generating any sales. The answer could be no. This means you either need to generate more targeted traffic or you need to improve the website to increase conversions. However, there may be another channel that is already generating new revenue. In this case, the best option is to focus on the channel that will increase sales the fastest and as efficiently as possible since upper management focuses on sales.
- What is the average amount of sales generated from the website traffic?
Ultimately upper management cares about the growth of the company and a huge part of that growth is sales and ROI. Your digital marketing efforts are worthless if they do not communicate sales growth and ROI. This is why it is crucial to determine the average amount of sales converted from the website. Once the average amount of sales converted is calculated we could use it to calculate roi of the digital marketing campaigns. For instance, if you know that for every $1 of ad spend generated from traffic to the website the company receives $3 this is an ROI of 200%.
A great formula for determining market ROI is the following:
(Sales Growth – Marketing Cost)/ Marketing Cost = ROI
Since we calculated that traffic from the ad campaign to the website is an ROI of 200%. Then we could calculate the ROI of our other marketing strategies. The digital marketing strategy with the highest digital marketing roi is the most efficient choice.
Total revenue generated from website traffic is a part of important key metrics to focus on. For instance, if the total revenue generated from website traffic is lower than other marketing channels. Then it may be best to focus on increasing revenue from marketing channels that are generating more revenue. However, do not allow this to be the only metric that you base your decision on. Take into account all key metrics when making a decision.
- What is the conversion rate of the website?
The conversion rate of the website is a crucial metric when choosing where to focus your marketing efforts. Ultimately, return on investment is an important outcome KPI for upper management. Understanding how to interpret the rate of conversion for a website will enable you to achieve the most efficient return on investment for upper management.
Determine the average conversion rate for your website and industry. In cases where the rate of conversion is below average, there may be a great opportunity to increase ROI by focusing on improving the rate of conversion as opposed to increasing traffic. Although, the rate may already be at or above the average rate for your industry. When this occurs the best course of action may be to focus on increasing traffic to the website.
Understanding the information above allows you to choose output KPIs for your marketing efforts to achieve outcome KPIs upper management will love.
