Skip to

Google Analytics, PPC reporting

The 5 Minute Guide to Understanding KPIs

Behind every successful online campaign lie effective analytics. It’s the whetstone which sharpens the edge of every marketing strategy. “And what’s the secret to effective analytics?”, you might ask. Simple. Choose and monitor the right Key Performance Indicators (KPIs) that provide actionable insights. They’ll bring to light the areas your campaign is underperforming and provide insights for actionable improvements.

Due to an abundance of available metrics many digital marketers struggle with picking the right ones to focus on for analytics. And not choosing the right metrics as KPIs ultimately results in a failed campaign. So to help our growing community of digital marketers gain a better understanding of KPIs, we have tried to answer, definitively, the following questions.

  • What are KPIs and Metrics?
  • How to choose the right KPIs?

Broadly, these answers are relevant to anyone interested in data driven management, but they are written here specifically for digital marketing professionals, online marketing agencies and any fresh entrants in the field of digital marketing.

What are metrics and KPIs?

We begin by defining exactly what Metrics and KPIs are. In the realm of digital marketing they are integral ingredients. We use them every day to create campaign reports for our clients. They form the very basis for an effective analysis of any marketing campaign.

Definition KPI
*Note the words ‘specific’ and ‘relevant’ in the KPI definition? That’s the essence of a good KPI.

KPIs fall into two broad types. Number and Ratio metrics. Metrics such as Page Views, Impressions, visitors are number metrics as they can be represented in natural numbers.

Metrics that are expressed in percentages, such as conversion rate, bounce rate, etc. are ratio metrics.

The difference between a KPI and a metric

It’s important to understand how KPIs differ from Metrics and that they are not interchangeable. While all KPIs are metrics of one form or another, all metrics are not KPIs. KPIs, therefore, are a subset of metrics.

Metrics refer to all sorts of numbers and ratios that may or may not provide useful information for a specific purpose. KPIs, on the other hand, are specific indicators that measure performance in the pursuit of a clearly defined goal. KPIs differ from metrics in that unlike a general metric, changes in the value of a KPI have a direct impact on your bottom line.

To better understand it, let’s consider the following example:

Let’s say that an ad you put out there to promote a client’s website, gets a certain number of daily and weekly impressions. This number is technically a metric. But if your objective is to get traffic to your client’s business website, then simply knowing how many people saw your ad (i.e. impressions) doesn’t help much. This particular metric would be quite useless as a KPI to measure how well your ad is doing.

On the other hand, a metric like ‘Cost Per Acquisition (CPA)’’ conveys the average cost of gaining one new client or customer for your business. If the CPA is too high compared to the profit margin, odds are the campaign isn’t sustainable in the long run. By knowing, monitoring and drawing conclusions with this specific metric it might become clear cuts in the cost per acquisition are required.

As you change strategies to achieve this, you can check how well your strategies are working by monitoring for changes of the CPA. The CPA, in this instance, becomes a Key Performance Indicator (KPI) for your business and it provides, like all other KPIs, a way to measure and evaluate the progression towards a specific business goal.

Okay, now that the difference between a ‘metric’ and a ‘key performance indicator’ is clear, let’s dive a bit deeper.

The form and function of key performance indicators

As the example above shows, KPIs enable you to accurately measure your progress as you pursue your campaign goals. They provide the right context to a metric by highlighting its direct relevance to a specific objective.

It is essential to understand that KPIs are not absolute. Any metric can become a KPI depending on the objectives to be pursued. Different business verticals will most likely have their own unique set of meaningful KPIs. Just like there are a set of most relevant KPIs in online marketing campaigns.

There is one thing that all KPIs have in common though – every performance indicator is tied to a target and provides relevant data that shows how close you have come to that target over a period of time.  

Naturally, if you want to get the most useful data to refine your marketing strategies you need to choose the most relevant KPIs to monitor. This is where most marketers stumble. And this also brings us to the most important part of this article – a crash course in how to differentiate between general and relevant metrics and choose the most useful KPIs.

How to choose the right KPI

Choosing the right metrics as your KPIs is an essential skill for any online marketer. To help you make better choices when selecting KPIs to measure the effectiveness of your marketing campaign, here are some simple actionable insights.

If you want to perform effective campaign analytics with useful and relevant KPIs, always choose:

  • An available and easily measurable metric:
    A KPI should be easily measured and understood. Choose from the set of metrics available to you. As you go along and new sets of data crop up, you can expand your set of KPIs. But when starting a campaign from scratch you will probably have a limited number of metrics available. That’s okay. Start from where you are, work with what you have.
  • A metric based on accurate Data
    Use KPIs that are based on concrete and verifiable data (‘Customer Happiness’ for example, is very difficult to quantify). Only monitor those metrics that provide concrete data and can be readily verified if needed.
  • A metric that directly impacts your bottom Line
    When determining relevant KPIs you might find that there are many metrics that directly or indirectly affect your bottom line. It is best to always choose to monitor those metrics that have a direct correlation to your business objective.
  • A metric that provides the Right Context
    A useful KPI is one that provides the right context along with the raw data. It points to a specific action that can be taken to enhance your strategy. For example, a high Bounce Rate tells you that the content on your web page is not engaging enough so you need to work on that. And that’s precisely the point. Studying such metrics can lay bare the flaws in your existing strategy, so you can fix them.
  • A metric that reflects your Organisational Goals
    Finally, a KPI must always be a metric that clearly reflects the goals that your organisation is pursuing.

As you become more adept at conducting analytics on your marketing and advertising campaigns, you will be able to easily identify the most relevant metrics for every campaign that can serve as performance indicators for your goals. Mastering effective analytics with the right KPIs might take time and practice. Then again, that’s true for most things isn’t it?

Please feel free to contribute to the knowledge base of this community. We would love to hear your thoughts on which KPIs you use and why.