What are Metrics, KPI and ROI in Digital Marketing?

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Hello there.

In this article,  I am going to talk about what are metrics, key performance indicators and return on investment, in the Digital Marketing world. Additionally, I will explain the difference between these concepts and will provide some examples. I will also mention basic information about the balanced scorecard as tool for managers. Then, I will refer to the reasons why, it is important that you, as a digital marketer, understand and apply these concepts at work. Finally, I will wrap up the article with a few comments or takeaways.

What are metrics, KPI and ROI?

First, let’s define metrics in Digital Marketing.

Simply put, metrics are values, usually expressed in the form of percentage but also in digits, used by marketing teams to measure and track the effectiveness of their marketing efforts. 

In other words, a metric is a number or a percentage, that tell us about the performance of a marketing campaign, and if measured repeatedly, metrics allow us to track the effectiveness of such campaigns in time.

Now, let me define what KPI’s are.

KPI is the acronym for Key Performance Indicator. KPI is a type of metric used to measure specific and highly relevant marketing goals, and objectives. As the name indicates, KPI’s are key metrics, that help leaders monitor the progress of the marketing efforts. 

As a marketing leader, you should not monitor too many KPI’s, because this defeats their purpose, meaning that the idea of KPI is to focus on the most important and relevant metrics at the time. 

Pick anywhere from 10 to 20 KPI’s and organized them into a balanced scorecard report. Think of what are the most relevant, critical metrics that, as the manager, you need to know. Keep in mind that you get what you measure. In other words, analyze the consequences of asking your team to report based on those KPI’s, making sure the outcome is aligned with your marketing plan.

Managers select the key metrics on which they will be measuring the effectiveness and progress of all marketing efforts, while the other team members make sure to rely on other metrics that are aligned to maintain or improve the key performance indicators (KPI’s). In other words, managers focused on KPI’s while the rest of the marketing team rely on additional metrics to adjust the tactics to achieve the desired KPI’s.

Before I move on to explain what ROI is, I will provide a simple example to illustrate the difference between KPI and other metrics.

Say, Manuel, the Global Digital Marketing Manager of your company, establishes “Landing Page Conversion Rates” as one of the KPIs. Manuel knows that the average conversion rate for the current landing pages at his company is 2% (calculated as the number of people who converted by the number of total visitors and multiplying the result by 100). Using the SMART methodology, Manuel is asking his marketing team to increase the landing page average conversion rate of the landing pages (A, B, C and D) to 5%, within the next 6 months. The marketing team decides to hold a meeting in order to define the tactics or steps to achieve this important goal. Because of this, they decided to use the following metrics: Bounce rates, Average time on page, Traffic source and Form abandonment rate. 

The marketing team’s plan is to measure the current value for these metrics and to improve them monthly. For this, they will get the values daily and will graphic the results to notice important patterns. The marketing team knows that by decreasing the landing page bounce rates, increasing the average time on page, improving the traffic sources and decreasing the form abandonment rate, the KPI established by Manuel (“Landing Page Conversion Rates) will inevitable increase. Now, in order to get to the 5% requested by Manuel, the team knows that they will have to give a daily follow up to these metrics, and make adjustments on the go.

Let’s now move on to the next concept; ROI.

ROI is the return on investment. ROI is one of the many metrics that can be utilized in digital marketing and it is used to calculate how much of a value an investment is. There are some metrics specific to digital marketing, like social media traffic and mobile traffic, while other metrics are more of general use like ROI, Sales Revenue and Net Profit Margin.

One way to calculate ROI is to divide the net profit (return) by the amount that was invested:

Another way to calculate ROI is to take the gains of an investment, subtract the cost of the investment and divide the result by the cost of the investment:

According to businessnewsdaily.com, “many companies use ROI to identify methods of marketing and advertising that will yield the highest return based on previous successes. This way, ROI becomes not only a measure of past success but also an estimate for the coming months”.

The difference between metrics, KPI and ROI.

Based on the definitions and examples I provided above, simply put, ROI is one among many marketing metrics, while KPI’s are the most important metrics according to the marketing manager. The selection of KPI’s are highly influenced by the industry and the specific circumstances of each company.

Following, I will mention examples of metrics that can be utilized as key performance indicators. Additionally, I will refer to the balanced scorecard; a way to organize the KPI into coherent groups.

Example of metrics:

• Engagement (Visits, downloads, site hits, subscribers, views, cart activity, check-out, purchases)
• Revenue/growth (Sales, sales goals, financial targets, money inflow)
• Customer acquisition (Marketing spent, volume of marketing, cost of acquisition, per customer cost)
• Life Time Value of a Customer (Value per customer, value of customers over time, lifetime value of customer)
• Retention/churn (Recurring customer base, retention rate, incoming customers, rate of return, frequency of visits)
• Referral Rates (Net promoter score, customer satisfaction, surveys, referral rates)
• Internal system rates (Decision making, take-in feedback, assimilate feedback)

These are only some examples of metrics to show you the many options available. In traditional marketing used to be more difficult to measure the results of marketing campaigns. Nowadays, the internet provides many options for you to measure and understand the results of your digital marketing efforts. When talking about KPI, the challenge is selecting less than 20 metrics as key performance indicators.

To organize these KPI's, a manager uses different tools, being the Balanced Scorecard the most used.

The Balanced Scorecard

According to balancedscorecard.org, "the balanced scorecard (BSC) is a strategic planning and management system that organizations use to:

• Communicate what they are trying to accomplish.
• Align the day-to-day work that everyone is doing with strategy.
• Prioritize projects, products, and services.
• Measure and monitor progress towards strategic targets.

They continue to say, "The name “balanced scorecard” comes from the idea of looking at strategic measures in addition to traditional financial measures to get a more “balanced” view of performance".

As you can notice from the image above, a balanced scorecard is usually organized into 4 main categories; Financial, Customers, Internal processes and employ learning.

I want to add that metrics can be used in every area of a company, and therefore, it is important to understand their purpose and how they work, especially the metrics and KPIs regarding marketing, which is our subject of study.

Why are metrics important in Marketing?

Metrics serve as a guide to helping you achieve business success. As now you know, metrics are measurements, and as H. James Harrington put it, “Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.”

If you understand and utilize metrics, it will provide you with more control, will enable you to know what it works, will save you money and will allow you to grow better.

Wrapping up

As digital marketers, we must understand what are metrics, how they work, the importance of metrics, and how to use them so we can back up our marketing efforts with numbers. I hope the information above gave you good insights about this topic, and hopefully, you follow some links if you feel that you need more information.

It is very important to focus on those metrics that really matter and to stay organized. Keep in mind that what you measure is what you get.

I will keep on posting more about different Digital Marketing topics according to the basic topics digital marketer should know and the table of content for our digital marketing journey.

If you have any questions, suggestions or comments, please, let me know down below. Every opinion on how to improve the content of this blog will allow me to make adjustments on the go, with the objective of providing quality information for you, my dear readers.

Sincerely, Alberto Salas