KPI’s
Search Engine Marketing
Chapter 2
Instructor: Dawn Rauscher
Key Performance Indicators
Metrics that guide and measure your progress
toward your business goals.
Helps you manage your marketing campaigns
for maximum profitability
1. Set goals.
2. Measure the progress toward these goals.
KPI-Driven Business Process
1.
Define goals.
You want to get more _________. (leads, sales, subscriptions, downloads, etc.)
2. Establish the target KPI’s.
How much can you spend to still make a profit?
3. Launch Marketing Campaigns
SEO, PPC, radio, TV. Set budgets based on KPI’s.
4. Measure actual KPI’s
Collect the results.
5. Optimize your marketing channels.
Improve the successful campaigns. Reduce the unsuccessful campaigns.
6. Communicate results to team.
Average Order Value (AOV)
This is the average value (in dollars) of your
order.
This assumes the items in a sale are in the same
price range.
If your orders include items with a wide range
in price, you may need to develop KPI’s for
different amount of sales.
How to calculate your AOV
• Divide your revenues by the number of orders
Total Revenue / Number of Orders = AOV
Example:
In the last month, Jittery Joe’s had a total
revenue of $48,240. The number of orders
was 9140. What is the AOV?
Customer Lifetime Value (CLV)
The value of the revenue from the average
customer over the lifetime of that
customer.
How to calculate the CLV
• Multiply the AOV by the average number of
orders by customers and the average lifetime
of a customer.
AOV * Number of Orders by a Customer per Year * Number of Years for Customer = CLV
Example: The average number of orders by a
customer per year is ten. An average number
of years for a Jittery Joe’s customer is six.
What is her customer lifetime value?
Remember the AOV is $5.28.
CLV (Customer Lifetime Value)
• CLV for Jittery Joe’s is $316.80
• As a general rule of thumb says you should
invest 10% of your customer lifetime value in
acquiring a new customer.
• How much should Jittery Joe’s invest to
acquire a new customer?
Relationships
• CLV for Jittery Joe’s is $316.80
• If a customer refers one customer per
year over a six year period, then the
customer is worth $1900.00
Project Rate of Return (PRR)
A marketing project can use a PRR value
(usually 25%)
This is how much your company must earn on
its marketing to be profitable.
With a 25% PRR, the revenue will be four times
the investment.
If you spent $1 in marketing, you should expect
$4 in revenues.
PRR Varies
• Established company
– Spend less and get more results
– 10%
• New company
– Wants to grow aggressively, they will spend
more to acquire new customers.
– 50%, 70%, or higher
Cost-per-Action (CPA)
An action is the successful completion of a
goal.
How to calculate the CPA
Multiply the CLV by the PRR
CLV * PRR = CPA
Example: Jittery Joe’s PRR is 25% and
the CLV is $316.80 What is the CPA?
Close Rate (CR)
Ratio of how many leads turn into customers.
Aim f0r a 30% to 50% close rate
Number of Customers / Number of Leads * 100
Example: Jittery Joe’s can expect 12 customers
for every 25 leads. What is the Close Rate?
Cost-per-Lead
How much a lead may cost
A lead is a prospect or a contact that you
then convert into a customer.
How to calculate the CPL
Multiply the CPA by the Close Rate (CR)
CPA * CR = CPL
Example: Jittery Joe’s CR is 48% and the
CPA $79.20. What is the CPL?
Jittery Joe’s
Can spend up to $38 per lead and still be
profitable. The close rate is 48% which is
pretty high.
Close Rate increases, the CPL increases.
Close Rate decreases, the CPL decreases.
The higher the CR, the more money a business
can spend on a lead and still be profitable.
KPI Worksheet
Maximize your Cost Per Lead (CPL)
• Advertising should be an investment and
NOT a cost.
• If the KPI model shows that you can spend
$15/lead - SPEND IT!
• Goal: Acquire customers to maximize your
revenue
Manage Campaigns with CPL
• Multiple Channels
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Google
Yahoo
Facebook
Radio
TV
Print
Bulk email
SEO
Link Building
Direct Mail
Billboards
• Each Channel will have
a different close rate
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Quality of ads
Quality of competitors
Unique Selling Point
Sales Team
Go After your Competitors’
Customers
• Establish KPI’s
• Aggressive bidding campaigns to target
your competitors’ customers
• Help customers get to better products
(yours)
Set your Baseline
• Use a time period
• Time period should be at least 1000 orders
• With 1000 events, there is a 3% margin of
error.
• 3% error allows for making decisions with
confidence
Setting a Pay-Per-Click
Budget for a New Product
1.
2.
3.
4.
5.
6.
Estimate # of Sales you expect to make in one month to stay
in business
Guess at your Close Rate (CR). For every 100 leads, how
many will become customers?
Use the CR to estimate how many leads you’ll need to be able
to make minimum number of sales.
Calculate your CPL. Make best conservative guess.
Multiply leads by CPL to get $ you can spend per month.
Divide the monthly budget by 30 days to get daily budget for
Google AdWords
Example
• Sell -- 100 koi per month
• 50% close rate
• Target CPL $10
How much will I need to spend a day for
marketing?
Need 200 leads to sell 100 koi
$2000 per month on marketing
$66 per day
Setting a Budget for an
Existing Product
•
1.
2.
3.
If you do not have any data, follow these steps.
Set the target for monthly sales
Use the KPI worksheet to calculate CPL
Multiply the number of target sales by the
target CPL (monthly campaign budget)
4. Divide monthly budget by 30 days to get daily
budget for PPC
Conclusion
• Analytics, SEO, and PPC are the heart of your
business.
• Establish business goals
• Define KPI’s
• Set budgets & manage bids to get sales that
produce the best profits.