14 December 2020 Mino Bedin

KPIs: everything you need to know about performance indicators

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Everyone has heard of KPIs at least once, but knowing the actual meaning and importance of these indicators is not so obvious.

Before starting with the technical and detailed explanations, here is, in my opinion, what you need to know about this topic:

when speaking of measurement it is very important to always keep in mind what are the real objectives of the actions we are carrying out, whether they are marketing, user experience or other.
It is always interesting to deeply explore the behavior and performance of our business through analyzes, but it remains essential not to lose sight of the macro-objectives we have set ourselves.
My advice is to start with the simplest objectives and measurements to read and monitor, especially in the digital environment, where the amount of measurable data is extremely high.
Relying on the advice of digital analytics or digital marketing experts allows you to “not get lost” in the data and keep the focus on the most relevant information to monitor.
The introduction of more complex measurements, especially as regards the reading of the data, can be faced over time.

KPI (Key Performance Indicators)

Let’s start with the basics: What are KPIs?

Frequently called by their acronym, the Key Performance Indicators, are one or more measurable indicators that allow the monitoring of a company, a website, an app or any activity or process.

The purpose of the KPIs is to provide a numerical value that can be monitored and compared over time.
Thanks to the KPIs it is possible, in fact, to evaluate the achievement of certain operational or strategic objectives.

These indicators, in order to be defined as KPIs, must meet the following requirements:

  • they must be quantifiable, that is they must be measurable in numerical format.
  • they must be really important for the activity you want to monitor.

A goal to be achieved can be set on them.

They must also provide an indication of the direction the business is going (improving or worsening, for example).

  • they must have a clear and defined origin, such as Google Analytics or CRM
  • they must be able to be defined within a time frequency, for example monthly or quarterly

What is the difference between KPIs and Objectives?

In the course of this article, we talk about objectives, KPIs and measurements in general, so let’s try to clarify the terminology, even if in many cases it tends to be confused.

By objective, or goal, we mean the goal to be achieved. For example, improving the sale of an e-commerce site.

Sometimes a goal can be accompanied by a target, in this case the goal becomes an effective value, which, once achieved, we can define as “completed”. For example: improve sales by 10%.

The KPI, on the other hand, is the measurement of the metrics that could lead to the achievement of a goal, such as the number of sales or the % increase/decrease in sales compared to the reference period.
For example, + 15% sales compared to the previous year is the key indicator that provides the signal on the actual achievement of the goal.

What are the types of KPIs?

There are different types of KPIs and many depend on the scope to which we refer.
If, for example, we are evaluating measurements in the field of business economics, where it is necessary to measure business processes, we are talking about company KPIs and related sub-categories (operational, financial, by departments, etc.).

In this article, we focus on the web and digital fields, so we talk about marketing KPIs and digital analytics KPIs.

What are the best KPIs? How are they measured?

Very difficult to indicate which are the best KPIs for each site or digital environment. The reason is related to the fact that each activity can use different KPIs to measure its results.
This may depend on the type of business (an e-commerce is different from a showcase site) and on the business objectives that are chosen at a high level (a company that launches a new site could choose to focus more on increasing traffic and visibility, instead of increasing customers or sales).

We can try to provide some examples of the most used KPIs in the digital field:

Conversion rate

How to calculate: with the ratio between conversion and incoming traffic.
The conversion of a site is the main action a user can perform and the most important at the business level. For example, in an e-commerce it is the purchase.
A high conversion rate is positive and indicates that traffic is more likely to buy.

When it can be used: It can be used for any website or digital application, to measure marketing campaigns or other types of traffic on a website, such as organic or SEO traffic.

Which tools are used: Google Analytics and other digital statistical platforms are the most suitable tools for this measurement. The conversion rate can also be calculated from the panel made available by the advertising platform (for example: Google Ads or Facebook Ads).

Revenue

How to calculate: it is calculated on the basis of the total sales produced by the site or digital activity. It is one of the most used KPIs in e-commerce.

When can it be used: can only be used in areas where a sale can be made.

Which tools are used: any digital or advertising statistical platform.

Cost per acquisition (CPA)

How to calculate: it is calculated on the basis of the acquisition of a user or a customer and is obtained, in essence, from the ratio between the cost of the advertising campaign and the number of acquired customers. In this case a sale is not required, but can also be measured on a user registration or subscription to a service.

When it can be used: it can be used on most digital sites and applications, only in the presence of advertising campaigns, in particular those aimed at acquiring customers.

Which tools are used: the advertising platform used for the campaign.

ROI (Return on Investment)

How to calculate: It is calculated with the ratio between the profit generated by a campaign and the total costs incurred by the advertising activity (including agency costs or any fees). Sometimes the revenue generated by the campaign net of costs is used instead of the profit. In other cases, the cost of the campaign is used, without including any agency fees.

For this reason, this KPI is confused with ROAS very often.

When it can be used: it can only be used in areas where it is possible to make a sale and carry out advertising activities.

What tools are used: the advertising platform used for the campaign.

ROAS (Return on Advertising Spending)

How to calculate: It is calculated with the ratio between the revenue generated by a campaign (revenue) and the total costs incurred by the single advertising campaign.

Often, this KPI is confused with ROI because the latter is not calculated correctly.

When can it be used: it can only be used in areas where it is possible to make a sale and measurements are performed on individual advertising campaigns.

Which tools are used: the advertising platform used for the campaign.

Bounce Rate

How to calculate: it is calculated with the ratio between the number of visits to the site that prove not to be interested (do not interact with the site), called bounces, with total visits.
Be careful that, in this case, very high values ​​indicate, in most cases, less activity and interest in the website.

When can it be used: It can be used to measure interest in any website. Used above all in measuring blogs, showcase sites, magazines and, in general, sites that provide content, where it is not possible to measure a real “conversion”.

Which tools are used: Google Analytics and other digital statistical platforms.

How do I assess if the KPIs are positive or negative?

To determine whether a KPI is measuring positive values ​​for a business or website, there are several scenarios and possibilities to consider.

The experience factor is very important: an advertiser, an analyst or a marketer with an important experience can certainly have a more precise idea of ​​the expected results than those measured.

Thanks to his experience he can also distinguish between different types of sites or campaigns, and evaluate the results selectively.

For example, a magazine can record a bounce rate even higher than 70%, while an e-commerce should record significantly lower values.

Another example can be linked to the source of traffic: display campaigns (advertising banners) have lower conversion performance, compared to search campaigns (advertising on search engines), where users are more likely to convert.

An effective statistical method is benchmarking, which consists in making an average of measurements in similar areas, for example among competitors, to usually establish which values ​​are achieved for sites and applications of the same type.

The drawback of this methodology is that it is not always possible to perform an effective and precise benchmarking, due to the limited availability of public data, especially in the case of complex or highly confidential KPIs.

The most valid and most recommended alternative is to evaluate your own performance indicators.

By measuring the values ​​recorded on your site or in your business over a sufficient period of time, it is possible to establish a minimum value, a maximum value and an average, which thus allow you to identify whether the subsequent changes are to be considered positive or negative.

Therefore, evaluating the values ​​that your indicators provide is not easy, but it is possible to do so thanks to a good historical data collection, in addition to the experience and professionalism made available by your digital consultant.

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