Understanding how to set up KPI's is crucial to measure results and the return of the investment in every marketing effort. If you can't see the hole marketing funnel, how is it made and how moves forward you won't hit the results and spend a lot of money. Learn how to set up KPI's for a sustainable marketing funnel.
Understanding the funnel
The funnel is a marketing concept where a lot of people get into the top of the funnel through trust and attention, at the bottom of the funnel you get as a result loyal customers and at the middle of the funnel you have losses, people that leaks and get out of it.
Those losses might be people who weren't a fit for you, or they got distracted, or they were not serious about solving a problem they might evaluate as not important, or they think you are not a good solution.
To understand how it performs and make a forecast of the final result you need to break it up into parts. To get people into the funnel costs money. So if you want to know if it is going to be profitable you need to make the math. It should cost you 1 dollar and have 1.X in return.
It seems pretty easy, but as long as we assess more clients, we realize they don't have this solved. Very few companies does the math correctly. They keep investing a lot of money on Google and Facebook ads without knowing how much of the investment returns as a sale and profit.
As an example:
- Spend in online advertising $1,000
- Reach 1 million people
- Clics 20
- Cost per click $50 dollars
- Orders 1 0ut of 10 clics
- Cost of order $500 dollars
If your customers lifetime value is more than $500 dollars you can keep doing it as many times you want and keep buying ads. This means you reached the advertising dream. You discover a method that gets you new clients at an even cost. It is profitable because on the next sale the margin is going to be positive.
The reality is that only 5% of advertisers measure the results. They don't know the math and where are the losses, so they can't make up the funnel. They end saying wrong assumptions that digital marketing does not works. Or before this era that direct mail advertising didn't work. Don't get into that position and lets start understanding the concepts so you can do the math.
Of course you want everyone to know your solution, brand, service or product. That makes you feel so proud. This is part of a great idea that is brand awareness. Through a great and appealing message, published in the right media, with a lot of exposure and repetitions you will be recognized and trusted. Even better, you will get to the advertising concept "TOP OF MIND". When someone think of a solution for a specific problem your brand pops into their mind.
As this might seem to be a great idea it is not completely truth and for everyone. Because you want to attract just the right people, not everybody. There are a lot of big brands that can do this, brand awareness without knowing if it is profitable. Their margins and sales volume are so high, that they can afford this waste or investment for the long term, depends on how you see it.
The reality of the majority of companies is that they need to get results from their marketing investments. So try to reach the right people, in the right channel, with the right message, at the right time. If you solve this equation you will lower your investment at the top of the funnel.
Reach is to get in front of the right people, but it might not be at the right time. What do I mean? People might not need your solution right now. They are passive customers. As an example think of Facebook ads that are shown to people not actively looking for a solution, but rather, the message will pop up into their newsfeed.
This is why I like to see reach and attraction as two separate KPI´s. Reach KPI's can get the name of Likes, shares, or reach.
Attract people is when some one realized they have a problem. They start to look for a solution. They search for the solution and gets into your digital strategy. By publishing answers to the questions they ask to search engines like Google on your blog, website is how you attract new leads to your funnel.
This is why you need to understand this new way to attract and how Google helps you through organic results (Not paying results or ads) to get leads to your funnel.
The KPI's of attraction get the name of visits or sessions into your website.
3 Growth by channel
You know your content is growing if you have more reach and sessions. That is a good thing. But you need to start to break it up into parts. The first thin you need to do is to do it by channel or traffic sources.
What channels you have in the funnel?
- Organic Search.- This is when a search engine like Google recommend the information (Content) you have in your website. By far this is one of the most profitable media.
- Direct traffic.- People who type directly your URL or visitors that have your site in their bookmarks. If you want to see it in a different way it is your loyalty rate or loyal customers that return to their trusted source of information "YOU".
- Social media.- They come from social media channels through the content you promote that redirects them to your website. Learn why you do this in this link.
- Referrals.- This are external sites that link to your website. This means your content is recommended and used by others. They are talking about you.
- Paid search.- Paid search campaigns from Google Ads, Facebook, Instagram, etc...
- Email campaigns.- First you need a database of real customers or leads to send them emails. This is part of the lead nurturing campaigns.
- Offline Sources.- Are the database you make from customers or lists.
- Networking.- All the offline efforts you do to know more people and impact on society.
- Prospecting.- Sales teams that are looking for people or companies that might need your solution. They make the research offline or through social media channels like LinkedIn. Before you gave your sales team the yellow pages to make cold calls to every page, of course this now seems something from the caves.
You need to separate the growth, cost and performance of each source to make reasonable choices for the money you invest on each one. Understand if it is for reach or attract.
The only way to go from the top of the funnel to the middle of the funnel is to make a lead generation or demand capture strategy. You need a real channel to connect to a real people not to an amorphous mass of data. How do you do that? Offer your lead content that will explain him how to solve their issue. Of course your solution does that.
If you don't have this strategy you will lose the sight of the funnel. This is where most digital campaigns fail. You want to have strangers that convert into visits, that convert into leads, that engage with your solution and become customers that will convert to loyal customers and will buy from you again.
5 Conversion rate to leads and to customers
To continue with the performance of each channel you need a conversion rate from visits to leads. If the conversion strategy is well implemented, this KPI will help you evaluate the real performance of your sources. You can compare one from each other.
In the image you can see the source, how many visits or sessions and the conversion rate to contact or leads. Then you should see the conversion rate from contact to customer.
Which gives you more attraction? What source is performing better on conversion rates? Which one is giving you more leads and clients? How much does each one cost?
6 Lead nurturing and engagement
You need to make a zoom in into the stage between lead capturing and the sale. WHY? Because here is where the leaks are. You need to do a nurturing campaign. This is part of the buyer's journey theory.
What is going on? People just showed some interest in your solution. They are not ready to buy, they have more questions, they don't trust you or know you enough. You help them go forward into their decision process through answering this questions, building trust and a relationship build on value.
This stage is where content marketing, marketing automation, lead intelligence and a crm start to play and do their magic. Also you can learn 3 stages you can add here that are MQL, SQL and opportunity.
7 Average ticket sale
You need to evaluate the return of the investment. So you need to know your average ticket. This will help you understand if the return is profitable right away. But most of the time you can't evaluate a campaign through just one sale.
What you really did is to have a new customer that will buy from you several times. You should evaluate the cost of having a new customer through his lifetime value to have a real and more objective KPI.
8 Lifetime value of the customer
Lifetime value of the customer is the amount of money a customer will give you in a period of time, or until he change you as a provider.
Imagine a supermarket in a suburb area. Each customer makes a purchase of an average ticket or sale of $200 dollar per week. He purchases twice a month. And the average person lives five years in the same suburb. This means $200 dollars X 2 per month= $400 dollars X 60 months = $24,000 dollars. So $24k dollars is the lifetime value of this customer. If your campaign cost $400 dollars per sale or customer acquisition, you are on the other side my friend.
Now you can see another way to evaluate a campaign. If you only evaluate it by the firs sale you can get to the conclusion that you lose money.
This way you can make the math to see and understand your funnel to make it sustainable. Also this exercise helps you make the forecast for your marketing efforts. And last but not least to understand where you can optimize the performance of your campaigns by source.
The next question should be: How do I move the needle of each part of the funnel to optimize its performance? I will talk about it in other content.
We can help you understand more about how to measure and get results from your marketing funnel through our experience making great strategies.
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