I was reading a paper by a respected industry group that started with flagging Head fake KPII love that nickname, head fake.
How nice. sentiment/comment. stock. Yata, Yata, Yata.
This is fantastic.Can be used by everyone head fake indicator Invoking useless activity metrics.
[I would add other head fake KPIs to the list: Impressions. Reach. CPM. Cost Per View. Others of the same ilk. None of them are KPIs, most barely qualify to be a metric because of the profoundly questionable measurement behind them.]
A respected industry group found that 8 of the top 12 KPIs used to measure media effectiveness Exposure count KPI.
It’s a very good lament.
But then they quickly pivoted and Most important KPIs for media ROAS, Displayed ROAS, “Direct Online Sales Conversions from Site Visits” (What?!), Conversion Rates, IVT Rates (Invalid Traffic Rates), etc.
Wait a second.
ROAS?
What are the most important KPIs?
No bob! No way.
Take IVT as an example. It’s such a niche obsession.
Think of display ads as a small portion of your budget.A small part of that small part is probably invalidIt’s not a leap to suggest that anointing this is a big distraction from what’s important. barely a metric as KPIs.Oh, if your display was full of traffic invalid traffic It’s a burning out platform that needs management attention… The resulting KPIs you’re measuring (even basic ones like conversion rates) should already tell you that. !
Conversion rate is clearly a good metric. Sometimes called a KPI, but I never specified it as a KPI. KPIs that matter most.
In my experience, The most important KPIs are those related to deposits into bank accounts.
A paper from a respected institution prompted me to open PowerPoint and create a visual, arguing not to identify conversion rate or ROAS as the most important KPIs in company/analytic practice.
We expect great results from our work. Focus on good KPIs.
Continuum of money in and out | Intro.
When I think of importance, I have five factors in mind.
Let’s identify them first.
To make money, you have to spend money. law of God.
It’s the red box on the left.
Earnings The amount a customer pays for a product or service. The range above is because some products and services we sell will sell for more and some will sell for less.
media cost is the amount of money you have to spend on advertising (Owned and Earned efforts are also included in this category; SEO, email, and organic social all cost money).
We want you to spend less money on acquiring orders than you earn. Hopefully. 🙂
Obviously, anything you sell isn’t free.
Cost of Goods Sold (CoGS) The amount of money it costs to manufacture a product or service.
As an example, revenue from iPhone sales is approximately $100. At $1,099, CoGS is approx. $490. (Source: Investpedia)
However. wait. $609 is not all profit. There is more to explain.
Fully loaded cost (FLCo) Costs associated with human and robot employee salaries, agency fees, building-related depreciation, free donuts on Fridays for all employees, credit card processing fees, discounts, and product/service production Includes a long laundry list of things spent on. sold for profit.
I have represented FLCo (I pronounce it like this) herdwhat do you think?) As a small bar above, there is no need to emphasize how big it can be.
$$$ – close to profit – This is the remaining money in your bank account.
Finally money. Finally money. Thank God Almighty, we finally got the money!
🙂
Continuum of money in and out | KPI.
Gained a shared understanding of the elements that make up the money in and out continuum, so what you understand when measuring your daily metrics, and was named the most important KPI by a respected industry group You can overlap indicators.
Let’s line up the depth of each KPIs Measures of our continuum.
conversion speed is a good indicator. Junior analysts need to monitor even the budding, report-heavy recruits.
However. As shown above:
1. Very, very, very far from the green 2. It means nothing price for you to get that transformation!
You can literally drive your conversion rate up and bankrupt.
(So, at a minimum, combine conversion rate and average order value to get the first hint of doom.)
Conversion rate is not the most important KPI.
return on ad spend (ROAS) is a good indicator.
This is usually calculated by dividing advertising revenue by advertising costs (also known as media costs). Multiply this by 100 to get your ROAS %.
ROAS isn’t that bad. It remains very, very, very far from the green. Additionally, aggregating products/services into disjointed groups can give a misleading sense of success.
[Disclosure: I profoundly dislike ROAS — even hate it — for, among other reasons, driving a disproportionate amount of obsession with ONLY Paid Media by CMOs when Paid Media typically delivers a minority of the incremental business revenue. Bonus Read: Attribution is not incrementality.]
gross profit Revenue minus media costs minus CoGS.
Now you have your KPIs. Not the most important KPI yet, but still a KPI.
In the past, we’ve recommended using custom metrics in tools like google analytics Calculate total profit. This can be done using the aggregated % numbers that can be cut off in CoGS. At the very least, the traffic sources report doesn’t have to end with revenue (Misleading a lot?).
When Google’s Data Studioyou can actually pull in the item-level CoGS to easily calculate the total profit for all the orders you get.
this. intent. Change. your. life.
Net income Then subtract media costs, CoGS, and FLCo from revenue.
Finally, there’s the super cool stuff.
You can work with your finance team to get your FLCo. Owned, earned and paid media strategies yield different numbers. You’ll get a number that corresponds to sales that may have been placed on your website, retail store, or website but occurred at a retail store, etc.
If you prefer, you can incorporate this into Google’s Data Studio. Or the business intelligence tools of your choice that your company uses.
Net profit fits perfectly with the most important KPI tags.
This will help you identify how much money you created is in your bank and what exactly you did to create that money.
yes. Understanding it can have a transformative impact on your business.
I’ll go out of my way to say it will shock your CMO as well.
Continuum of money in and out | Problem.
There are no reports on digital, very few reports on the business as a whole, and I can confidently say that today we report on one of the two most important KPIs above.
why?
Simple. You’re using Adobe Analytics, Google Analytics, or tools like that and they don’t have a built-in concept 1. media cost 2. cost of sales, and 3. FLCo.
Sure, connecting Google Analytics to your Google Ads account makes #1 easy. There are media costs. But we advertise on so many other channels besides Google that it’s difficult, if possible, to cover all of those costs.
Clearly, digital analytics tools have no notion of #2 (CoGS) or #3 (FLCo).
Best-case scenario, you’re stuck in the second stage of your business making bad business decisions. stage of knowledge.
This is not enough.
To build a strategy to address this gap in your analytics strategy… Break the boundaries of your digital analytics tools and move to business intelligence tools (features that Data Studio offers at exorbitant cost). start by running out). Zero Dollars – Lower FLCo!).
please recognize analysis ninja Live in Stage 3 and really hit your stride when you reach Stage 4.
Does this apply to you? Do the analysis results include net income?
As it happens, Analytical Ninjas living in Stages 3 and 4 have long, productive, and well-compensated careers! (always important when it comes to annual performance reviews!).
#liveinstage4
Money in and out continuum | Most important KPI.
Clearly, the most important KPIs are the ones you don’t measure.
Customer Lifetime Value (CLV) The total net profit earned from a customer during the time the customer was your customer.
Let’s say I buy a Pixel 1 phone from Google and Google makes a net profit of $50 from the sale.
Then buy a Pixel 2, Pixel 3a, and Pixel 4a. Google makes a net profit of $60, $60, $60 (higher profit due to savings in advertising costs).
Then, for innovation-related reasons, I switch to Samsung and buy the Z Flip 3 (it’s a great phone!).
My Google CLV is 50+60+60+60 = $230.
Switched to buying Pixel 1 after first entering best android phone into the Bing.
A Stage 4 analyst does the analysis and a properly configured analysis tool shows a net profit of $50 brought in by Bing.
But it’s $230.
is not it cool?
yes. Why not calculate CLV every day, every night, and more on the weekend?
Because it is difficult.
Go back and think about why you’re happy with your conversion rate or ROAS vs. gross profit.
Because it’s easy.
It’s very difficult to get to gross and net profit.
Then I want to be able to track the same person (me in the Pixel example above). Then wait for me to churn so I can get my girlfriend’s CLV. Oh, and don’t forget to interconnect your systems enough to keep track of all your touchpoints with me and accurately attribute them.
That’s hard.
Of course, you don’t have to do the calculations for every individual. You can do it by micro-segments (type of person, same region, age group, product, etc.). You can do it all together.
Unfortunately, none of these are easy.
therefore. you don’t do that
No matter what CLV enthusiasts tell you.
if they make you feel bad. Please don’t be offended.
I have two pieces of advice.
1. Continue the main quest to reach Stage 4 (Net Income) as the quality of your insights will improve by 10x.2. Create a long-term plan (if you don’t already have one) to understand the lifetime value of your company’s customers.
If you follow that advice in that order, you can quickly reach the global maximum.
While pondering the 2 strategies above, my dear friend David Hughes helped me write one of my favorite articles on this blog. Good Analytics Tip #17: Calculate Customer Lifetime Value.
Read it. Internalize recommendations. Download the detailed lifetime value model included in the post and start your journey today.
#CLVFTW!
bottom line.
If you’re reading this blog on advanced analytics, head fake metric. You are already aware of the waste.
I also believe that you and I can move forward beyond the first and second stages of the world. stage of knowledgeAnd I hope I encouraged you to do so today.
I believe that almost everyone can do more to embark on their CLV journey.
let’s start!
As always, now it’s your turn.
Via the comments, share your critiques, reflections, tips, and KPI lessons from the front lines seeking to drive significant business impact. Disagree with what above? What has been the most difficult thing in your career?
