Use historical data to set realistic CVR targets and understand the user journey to set meaningful KPIs.
Bonus: Return on ad spend (ROAS)
Formula:
ROAS = Return / Ad spend
ROAS is one of the most important KPIs for evaluating paid media success. It shows exactly how much revenue the business earns for every dollar spent on advertising.
While it may seem straightforward, ROAS is the most accurate way to answer the question, “Is this working?”
For ecommerce, tracking ROAS is simple – just use revenue and ad spend data from your advertising platforms. Set up a custom ROAS metric in Google Ads to monitor performance at every level.
For lead gen businesses, measuring ROAS is more complex, as you need to link offline conversion data, including revenue, back to your CRM. Once set up, ROAS can be tracked just like in ecommerce.
Dig deeper: How to set up an offline conversion import from Salesforce into Google Ads
Get the newsletter search marketers rely on.
5 KPIs to track for business success
Measuring marketing performance is important, but it’s just as crucial to set KPIs at the business level.
Ideally, your marketing KPIs should align with your business KPIs to ensure all efforts are working toward the same goals.
Some metrics may overlap, but they differ in how they’re calculated and used.
1. Conversion rate
At the business level, conversion rates go beyond just measuring paid media campaigns. They reflect the effectiveness of the overall sales process and how well your offerings meet customer needs.
By comparing conversion rates across different channels (e.g., paid media, outbound marketing, direct outreach) and at various stages of the user journey (e.g., first touch, first meeting, pricing conversations), you can identify opportunities for improvement.
For instance, if your paid media conversion rate is significantly higher than that of other channels, it may indicate inefficiencies or misalignments in your other customer generation efforts.
Understanding aggregate conversion rates and channel-specific rates is essential. To gain the clearest insights, set KPIs for both based on historical performance.
2. Customer acquisition cost (CAC)
Customer acquisition cost measures the total expenses of acquiring a customer, including ad spend, sales team costs and vendor expenses.
This KPI is crucial for setting budgets, forecasting revenue and assessing the long-term sustainability of your business model.
By monitoring CAC across all channels and initiatives, you can proactively adjust your marketing spend and optimize for the most cost-effective customer acquisition methods.
3. Return on investment (ROI)
While ROAS measures the revenue generated for every dollar spent on advertising, ROI offers a broader perspective on profitability across all business activities.
By using ROI as a top-level KPI, you can quantify the profitability of investments across various business lines and gain a comprehensive understanding of your initiatives’ financial impact.
When developing your ROI calculations and setting KPIs, ensure you account for all financial elements, including tool costs, staffing expenses and overhead. This approach will help you create a complete and accurate financial picture.
Dig deeper: 3 PPC KPIs to track and measure success
4. Customer lifetime value (LTV)
LTV represents the total revenue generated from a customer throughout their relationship with your business.
Establishing a KPI based on LTV enables accurate revenue projections and long-term profitability modeling. It provides justification for flexibility in your CAC KPIs when needed.
Track LTV both in aggregate and by individual channels to identify the best customer acquisition strategies. This will help you prioritize targeting your highest-value customers.
5. Payback period
The payback period measures the time required to recoup the investment costs associated with acquiring a customer.
Evaluating the payback period as a business-level KPI provides valuable insights that inform decisions about scaling efforts, optimizing efficiency and assessing potential profitability.
A shorter payback period supports more aggressive scaling, while a longer payback period indicates a need to optimize acquisition strategies or reduce costs.
To calculate your payback period KPI, align your CAC and LTV KPIs. If your LTV exceeds your CAC, your acquisition costs will be recouped over time.
Understanding this relationship – both holistically and at the channel level – will help you structure your efforts effectively and ensure long-term profitability.
Setting meaningful KPIs – and why you should stick to them
When setting KPIs, it’s crucial to base them on accurate historical data. Poor or misleading information can skew targets, leading to unattainable goals. Focus on KPIs that significantly impact profitability and long-term business success.
It’s also essential that everyone involved understands their role in achieving these KPIs. Each team member should know they are accountable for their contributions and how their performance will be assessed.
Consistency in KPIs fosters accountability and drives continuous improvement, ensuring that marketing and business objectives align.
Frequently changing KPIs can create confusion and lack of direction, leading to lower performance and reduced cohesion.
By strategically selecting KPIs at both the paid media and business levels, you can align marketing campaign performance with broader business objectives, promoting clarity, cohesion and measurable success.
Contributing authors are invited to create content for Search Engine Land and are chosen for their expertise and contribution to the search community. Our contributors work under the oversight of the editorial staff and contributions are checked for quality and relevance to our readers. The opinions they express are their own.