If you are running digital marketing campaigns on Facebook, Google Ads, LinkedIn, you are probably aware that there are a zillion digital marketing metrics and ways to measure the performance of your campaigns.
Take Facebook for instance. You can break down your campaign performance to impressions, clicks, click through rate (CTR), frequency, cost per click. And that’s just a fraction of the performance metrics.
Then move to engagement, you can see how many reactions, comments and your ads were generating.
Oh, and how your ad was delivered. To which device, in which city on what weekday and within what age group.
In a way it’s a good thing. With just a few clicks we are able to define the whys, wheres, hows of each click. From the past two weeks. Or lifetime. Again, you get to select.
While all of this might sound really cool, at the same time, this is probably one of the reasons why digital marketers make their job sound more complicated than it actually is.
With these acronyms and buzzwords, your digital agency is able to justify their monthly retainer pulling different weekly reports of the most random key performance indicators.
But there is a bigger problem. You are drowning in data. And all this data is driving your attention to looking at wrong things.
Because, really..
None of these digital marketing metrics matter
Maybe the most common metric we talk about is clicks. Or traffic.
‘This campaign was generating X amount of traffic. And these two headlines generated twice as many clicks compared to the other two.’
But you and I both know that you can’t take clicks to the bank.
Regardless of your digital marketing activity – social media, SEO, PPC, email marketing – these are not essential metrics.
Sure, they do help you optimise your campaigns and help you find ways to improve them.
But they don’t tell you how your campaign is really performing.
A digital marketer showing reports with impressions, clicks and CTRs to a client is a bit like a Formula 1 driver telling his fans what tires they are using. Sure, it might be of interest for few but most of us want to know how many races he is going to win.
So here are the digital marketing metrics that really matter.
What You Really Want To Measure In Your Digital Marketing Campaign
If you want to justify your advertising activities, here are the three most important digital marketing metrics to look at. Only these three will tell you whether your marketing is generating leads or sales and if it’s directed at the right people.
Cost Per Lead (CPL):
In order to understand how your digital marketing campaigns are really performing, you need to calculate your CPL. This metric tells you how much does it cost you to get a lead based on your marketing spend? Your lead can be a marketing or a sales lead and it’s usually your prospects phone number or email address.
How To Calculate Your Cost Per Lead (CPL)?
CPL: Advertising Spend / Number Of Leads
Example:
if you spent $10.000 on marketing and got 250 leads, your cost per lead is $40.
Cost Per Acquisition/Cost Per Action (CPA)
The next metric to look at is CPA. This tells you how much it costs you to convert a lead into a paying customer? Without understanding your CPA, you will risk overpaying for your customers or you will pay more to acquire a customer than what they’re actually worth to your company.
How To Calculate your Cost Per Acquisition CPA?
CPA: Advertising Spend / Number Of Conversions
Example:
If you spent $10.000 on advertising and got 50 conversions, your Cost Per Acquisition is $200.
If the cost of your product/service is less than this, your advertising is actually costing you more money than it’s bringing in.
Customer Lifetime value: (LTV)
The third metric to look at is probably one of the most important digital marketing metrics, however, can sometimes be quite complex to calculate.
This tells you the total amount of money a customer is expected to spend in your business, or on your products, during the time they are your customer.
When you understand your LTV you can determine:
- How much can you afford to spend on sales and marketing?
- What revenue can you predict in the future?
- How can you optimise acquisition cost for the maximum value?
- How much money should you invest to acquire or retain that customer?
How to calculate the Customer Lifetime Value (LTV)?
There are several ways to calculate LTV and it largely depends on what kind of business you have. Here’s a simple formula to use. More formulas can be found here.
Average Order Value x Purchase Frequency x Customer Lifespan = Gross LTV
Example:
Let’s say you have a consulting business and your clients stay with you for an average 1,5 years. They pay for the service every quarter $1200.
$1.200 x 4 x 1,5 = $7.200
Gross Lifetime Value = 7.200$
Remember that Gross LTV doesn’t take into account the cost of acquiring the customer or other costs such as payroll and overheads. To see how much actual profit is left after all other expenses, let’s calculate the lifetime value provided that the cost of acquiring that customer is $200 and your profit margin after overheads and payroll is 20%
((Average Order Value – CPA) x % profit margin ) x purchase frequency x Customer Lifespan = Net LTV
(($1.200 – $200) x 0,2) x 4 x 1,5 = $1.200
Net Lifetime Value = $1.200
Conclusion
There are many digital marketing metrics to take into account in order to understand how your marketing campaigns could be improved. However, these three define how profitable your marketing efforts are.
