What is a KPI? How to determine the right goal for your business
A KPI or, a Key Performance Indicator is the target you want to achieve. In other words, it’s how you measure the success of a campaign.
Like each business, each marketing campaign is unique. Every marketer has a different vision of success. And that’s why establishing key performance indicators (KPIs) is so important when you launch a new campaign.
You can start by asking a few core questions: what is the focus of the business? Are you selling merchandise, trying to generate leads, or drive subscriptions?
For Criteo campaigns, common KPIs are ROAS, COS, or CPO. Let’s break those down.
Return on Ad Spend (ROAS)
This KPI shows how much revenue you make for every dollar of ad spend. ROAS is expressed as a ratio, like 2:1.
If your KPI is a 2:1 ROAS, that means you want $2 in revenue for every $1 invested. In other words, if you spent $500 on an ad campaign, you want it to deliver $1000 in revenue.
Cost of Sale (COS)
This shows ad cost as a percentage of sales revenue and is calculated by dividing ad spend by revenue driven. COS is expressed as a percentage.
For example, a $1 ad spend divided by $2 of revenue equals a 50% COS.
Cost Per Order (CPO)
This measures the cost to generate a single sale. It’s calculated by dividing your ad spend by the total number of conversions or orders. CPO is expressed as a dollar amount.
If you spent $100 and the campaign drove 25 orders, your CPO would be 100 divided by 25, or $4.
After you’ve established your primary KPIs, you can consider some additional KPIs that marketers commonly use to measure campaign effectiveness. Some are used to measure awareness while others for performance:
- Reach: The percentage of your audience your campaign is influencing.
- Cost Per Thousand Impressions (CPM): A standard reporting metric and pricing model for digital advertising. If you buy 10,000 impressions at a $2.00 CPM, it would cost $20.
- Clicks: The number of clicks on your ad.
- Click-Through Rate (CTR): The percentage of users who clicked your ad from the total impressions. If you had 1000 impressions and 10 clicks, your CTR is 1%.
- Conversion Rate (CR): The rate at which buyers or leads convert to the next stage, whether through a purchase or a subscription.
- Click-Through Conversion Rate (CTC%): The percentage of users who see your ad, click, and convert.
- View-Through Conversion Rate (VTC%): The percentage of users that see your ad, do not click, but return later to your site to convert.
Efficiency vs. Scale
These KPIs shouldn’t be measured in a vacuum. Your number one focus as a digital marketer should be managing cost, but if your budget is too low, you may not see any results from your campaign.
That’s what we call “efficiency vs. scale.”
A campaign that walks the line between scale and efficiency is the best campaign you can run. You need to look at a variety of factors, including operational costs, margins, shipping costs, and many others, to come up with a realistic ROI goal — one that will enable you to get in front of as many high-value users as possible with the right ad at the right time.
By understanding how your business defines success, we can unlock the best strategies to grow your campaigns. Learn how to create a new campaign here.