Analyzing and Optimizing Your Digital Marketing Performance

19 Digital Marketing Analytics and Calculations

Learning Objectives

By the end of this chapter, you should be able to:

  • Describe several common digital marketing KPIs and their purpose
  • Calculate return on investment (ROI) and return on ad spend (ROAS)
  • Explain ways to track your digital marketing activities
  • List several analytics tools for tracking marketing activities

Common Digital Marketing KPIs

Customer Analytics Icon

In the Lead Generation chapter, we discussed the importance of setting your goals and objectives, for example:

  • Primary conversions
    • Purchase
    • Donate
  • Secondary conversions
    • Sign up / provide contact information for:
      • Free or Limited Trial
      • Webinar / Demo
      • Newsletter
      • Downloadable content, e.g., whitepapers, research, etc.
  • Tertiary goal (not a conversion!)
    • Brand awareness and exposure
  • Specific KPIs and Targets
    Setting specific and measurable key performance indicators (KPIs) and targets for your marketing activities. For example, how many purchases do you want to get? Or how many people do you want to sign up for your newsletter or to attend your webinar?

When it comes to digital marketing analytics, the most frequently asked question by marketers is: which KPIs, analytics, metrics should I be monitoring? While this chapter will review several common digital marketing KPIs, each organization will have different goals and objectives. So, the most important analytics to monitor and capture will be those that help measure, meet, and exceed your organizational goals and objectives. That said, in this chapter, we will review:

  • The purpose of several common marketing KPIs,
  • How these metrics are calculated, and
  • What these marketing KPIs signify.

However, before diving into what marketers may want to monitor or track, let’s briefly discuss vanity metrics. Vanity metrics are those metrics that do NOT:

  • Impact your bottom line
  • Increase revenues
  • Decrease costs

In other words, vanity metrics are metrics that you cannot act on or affect. Often marketers will track metrics because they are easy to capture or are simply available. But if an organization cannot connect those metrics, directly or indirectly, to increases in the organization’s overall performance, those analytics should not be followed. In some marketing cases, like brand awareness, the connection may be indirect, e.g., by increasing brand awareness, the likelihood of conversion also increases; but there may be difficulty in tying brand awareness directly to increased revenues or decreased costs. Indirect connections are fine; they simply need to be understood and explained.

Ideally, digital marketers will want to quantify how an increase in brand awareness translates to better performance. For example, for every X number of people who become aware of our product and/or services, Y number of new customers convert. Most organizations are not at this stage, but once marketers start closely tracking their data and analytics, these connections and models can be developed over time.

Now that we know which KPIs not to monitor, which KPIs do most marketers track? Here are some of the most common KPIs split into a few categories:

General Marketing & Revenue KPIs

General marketing KPIs are KPIs that should be tracked by all marketers. These analytics provide valuable customer and revenue feedback that influence marketing budgets, activities, and performance.

  • Customer Acquisition Cost (CAC)
    Customer acquisition cost represents how much is spent to acquire a new customer. This KPI is important in comparison to how much revenue is being generated by new customer. For example, if an organization knows that it receives, on average, $150 from a new customer and marketing / sales is spending, on average, $175 to advertise, promote, and convert a new customer, the organization is losing $25 on that new customer when the customer initially signs up. For the sake of this example, we have only looked at the marketing / sales costs, but to fully calculate the total Customer Acquisition Cost, an organization might add in other costs. However, for marketing and sales, here is the most common way to calculate this number:

    • Customer Acquisition Cost – Calculation
      = (All Sales Expenses + All Marketing Expenses in the Period, e.g., month, quarter, etc.) / Number of New Customers in the Period
  • Customer Lifetime Value (LTV or CLTV)
    While an organization may lose money when a customer initially signs up, that may be marginally okay if an organization calculates this next metric, the customer lifetime value. The customer lifetime value calculates, on average, the total amount of revenue an organization will generate from a customer over time. Returning to our previous example, if the organization recognizes that the average customer lifetime value is $275, it can make up that initial $25 loss in subsequent months, years, etc.
  • A simple way to calculate this is to take the average monthly revenue per user (customer) and divide that by the average monthly churn rate. The monthly churn rate is the number of customers who have “left” by the end of the month divided by the number of customers at the beginning of the month. Suppose you had 200 customers at the beginning of the month and 150 customers at the end of the month. Your churn rate would be: churn rate (%) = (200 – 150) / 200 = 50 / 200 = 0.25, or 25%. And, if your Average Monthly Revenue per User was $125, your estimated customer lifetime value would be $125 / 0.25 = $500. There are some more detailed ways to calculate this metric and if you are interested, here is an article that outlines 5 Simple Ways to Calculate Customer Lifetime Value.[1]
    • Customer Lifetime Value – Simple Calculation
      = Average Revenue per User (ARPU) in the Period / Churn Rate in the Period
  • LTV to CAC Ratio (Return on CAC)
    Now that we have calculated the customer acquisition cost and customer lifetime value, it can be helpful to look the ratio of the two. This helps an organization understand their return on customer acquisition costs. In other words, how much revenue will an organization generate from a customer for every $1 spent to acquire them. For example, software-as-a-service (SaaS) companies generally aim to have an LTV to CAC ration that is higher than three (3), meaning the customer lifetime value of a customer is at least three times (3x) that of the cost to acquire them. Another way to look at this is that for every dollar spent on customer acquisition those companies receive $3 in revenues (3:1 LTV to CAC ratio).

      • LTV to CAC Ratio – Calculation
        = LTV / CAC

        Example

        In the following example, an organization split up the LTV and CAC values by paid advertising channel.

        At first glance, it might appear that LinkedIn is the best marketing channel given that it has the highest customer lifetime value (LTV). However, when considering the customer acquisition costs (CAC) and calculating the LTV to CAC ratio, marketers can quickly see that, in fact, Retargeting provides the highest ROI because the LTV to CAC ratio is 3.69:

        Customer Lifetime Value (LTV) to Customer Acquisition Costs (CAC) Ratio for Different Channels
        Channel LTV CAC Ratio
         Paid LinkedIn  $1,267  $491  2.58
         Paid Facebook  $831  $534  1.56
         Paid Google  $1,154  $397  2.91
         Retargeting  $886  $240  3.69

        As a result of this analysis, marketers can adapt future paid advertising activities and allocate their budgets accordingly.

  • Conversion Rate
    As alluded to in the Email chapter, conversion rate refers to the number of people who complete a desired conversion (primary or secondary) out of the “total audience” that was exposed to that opportunity / possible action. For example, for email, the audience could be the total number of delivered or opened emails; for a website, the audience would be the total number of website visitors over a specified time. On social media, the total audience could be the reach or total views for a specific post. Using the website example, conversion rate would be calculated as follows:

    • Conversion Rate – Calculation
      = Number of Visitors Who Converted in the Period / Total Website Visitors in the Period x 100
  • Revenue per Visitor (RPV)
    Revenue per visitor represents the average amount of revenue generated for every visitor. This KPIs is interesting because it ties visitor traffic directly to revenues. So, if a marketer can show that a specific campaign increased website traffic by 5%, they should be able to calculate a specific $-increase related to that additional traffic.

    Example

    Suppose an organization had a revenue per visitor value of $1.50 in Month 1. Then, after a marketing campaign, the website saw an increase of 10,000 additional website visitors (compared to the previous month). Based on these two numbers, the marketer could argue that the campaign brought in 10,000 x $1.50 = $15,000 in additional revenues, provided the revenues per visitor remained the same for Month 2. If the RPV in Month 2 increased to $1.75, this increase in traffic would represent 10,000 x $1.75 = $17,500. In addition to the increase in traffic and revenues, a marketer might also argue that the additional, new visitors helped and contributed to the raise in the Month 2 RPV value from $1.50 to $1.75.

    Another reason RPV is significant is because it represents the most a marketer should spend to acquire a visitor, without losing money. In other words, if a marketer were bidding on paid advertising, the RPV value would represent the maximum CPC they would be willing to pay to avoid an initial customer acquisition cost (CAC) loss. Once again, if the organization believes that it can recover a loss based on the customer lifetime value, marketers may be able to bid higher. However, as a rule of thumb, it is recommended to use RPV as a bidding ceiling.

    • Revenue per Visitor (RPV) – Calculation
      = Revenue in the Period / Visitors in the Period
  • Monthly Recurring Revenue (MRR) Churn Rate
    With more companies offering monthly subscription payment plans, there is a lot of discussion about monthly recurring revenue (MRR) and similarly the MRR churn rate. The MRR churn rate highlights the percentage decrease in MRR from one month to the next. In other words, compared to the previous month’s MRR, what percentage of MRR was lost due to customers leaving in the current month?

    • Monthly Recurring Revenue (MRR) Churn Rate – Calculation
      = Churned (or lost) MRR / Previous Month’s MRR x 100
  • Customer Churn Rate
    Similar to the previous calculation, this one tracks the percentage of lost customers.

    • Customer Churn Rate – Calculation
      = Number of Customers Lost in the Period / Number of Customers at the Start of the Period x 100
      Please note that a healthy churn rate is around 5-7% annually, which translates to between 0.45% and 0.55% monthly.
  • Revenue Renewal Rate
    For many organizations retention and renewal of subscriptions can be critical to growth. Therefore, looking at what percentage of recurring revenues get renewed is a valuable metric to monitor. The reason this is something that marketers will want to track is because many communications, e.g., email newsletters, promotions, etc., happen with existing customers and those communications should be promoting the value and benefits the organization is providing. If renewal rates go down, there may be room for improvement in the marketing messages to those existing customers.

    • Revenue Renewal Rate – Calculation
      = (MRR Up for the Renewal at Start of Period – MRR Not Renewed at the End of Period)/MRR Up for Renewal at Start of Period x 100

Return on Investment (ROI) KPIs

In addition to general marketing KPIs, there are a couple of specific return-on-investment calculations that every marketer should understand:

  • Return on Ad Spend (ROAS)
    Return on Ad Spend shows the marketing team how well their ad-specific spending is performing. This does not take into consideration any other marketing or organizational costs. So, this KPI highlights the impact of specific ad spending on the marketing budget and, from a paid advertising perspective, can provide important benchmarks as to what is working and what is not.

    • Return on Ad Spend (ROAS) – Calculation
      = Revenue Generated by Ad / Cost of Ad
  • Return on Investment (ROI)
    While similar, return on investment incorporates all expenses related to revenues and highlights the impact to the overall organizational costs.

    • Return on Investment (ROI) – Calculation
      = Total Revenues – Total Expenses Related to those Revenues (Net Profit) / Total Expenses Related to those Revenues

Example

Your company spends $100 on LinkedIn ads in a single month which generates $600 in revenue. But the following costs are also associated with these revenues:

  • Cost to create LinkedIn ad: $25
  • Salary and Overhead (pro-rated) for the marketing person: $225
  • Cost of Goods Sold: $50

ROAS = Revenue Generated by Ad / Cost of Ad = 600/100 = 6 = 6x, 6:1, 600%, or $6 in revenue for every $1 in spent on LinkedIn Ads

ROI = Total Revenues – Total Expenses Related to those Revenues (Net Profit) / Total Expenses Related to those Revenues = 600 – (100 + 25 + 225 + 50)/(100 + 25 + 225 + 50) = 600 – 400 / 400 = 200 / 400 = 1/2x, 0.5:1, 50%, or $0.50 for every $1 spent on expenses, which now represents a 50% loss to the organization.

The difference between ad centric ROAS and ROI is that ROI is a macro metric that measures how a specific ad affects the organization’s overall profits, while ROAS is a micro metric that evaluates the effectiveness of the ad itself regardless of the impact it has on an organization’s profits. As you can see, it is important to calculate both these returns since something that looks profitable at the micro (e.g., project or campaign) level may not be profitable at the macro (organizational) level.

Channel-Specific KPIs

In addition to the above categories, there are also many channel-specific KPIs. Most of these have been discussed in previous chapters, but make sure you are combining these with the appropriate general marketing KPIs and organizational KPIs, as well:

  • Search Engine Optimization / Website
    Many of the following were discussed in the SEO chapter:

    • Leads
    • Organic traffic (visitors)
    • Keyword ranking
    • Search visibility (also called organic market share, SEO visibility, organic visibility, etc.)
    • Referral links / backlinks
    • Domain authority / domain ranking
    • Organic CTR (from search engine results pages)
    • Bounce rates
    • Average session duration
    • Page load speed
    • Device type
  • Paid Advertising
    Many of the following were discussed above or in the Paid Advertising chapter:

    • Impressions and reach
    • Clicks
    • Click-through rates
    • Conversions and conversion rate
    • Customer Acquisition Cost (CAC) / Cost per Action (CPA)
    • ROAS
  • Social Media
    Many of the following KPIs can be tracked using built-in social media analytics tools, e.g., Facebook Insights, Twitter Analytics, etc.:

    • Impressions and reach
    • Active followers / connections, i.e., those who are engaging with your content
    • Audience growth rates
    • Reactions (likes, comments, mentions, shares)
    • Click-through rates
    • Conversions and conversion rates
  • Mobile
    For mobile websites, the metrics will primarily be similar to the website metrics, just filtered for mobile devices. That said, many of the following KPIs apply to mobile apps:

    • Downloads
    • Installs
    • Uninstalls
    • Load time
    • Crash rate
    • Screen resolutions
    • Operating systems
    • Daily active users (DAU)
    • Session length and frequency
    • Retention and churn rates
    • Reviews and ratings
  • Email
    Again, these were covered in the Email Marketing chapter:

    • Delivered (or bounced) emails
    • Opened emails
    • Click-through rates
    • Click-to-open rates
    • Unsubscribe rates
    • Spam rates
    • Conversion rates
    • Conversion-to-open rates

Tracking Digital Marketing Campaigns

Now that you know what KPIs to track, let’s briefly discuss preparing your digital marketing campaigns so that you can better track your results. One area many marketers neglect is creating customized URLs that can identify exactly where a click came from. Fortunately, there is way to easily create customized ad campaign parameters so that you can track campaigns using analytics tools like Google Analytics.

UTM Parameters

Urchin Tracking Module (UTM) parameters can be added to any URL without affecting where the person clicking on the link ends up. There are five URL parameters that marketers can customize to track the effectiveness of their digital marketing campaigns across a variety of media sources. These five parameters include:

  • UTM Medium
    This field is used to identify the top-level marketing channel being used in the campaign, e.g., social, organic, paid, email, mobile, referral / affiliate, etc.
    Example: utm_medium=social
  • UTM Source
    This identifies the specific site within the above channel. For example, “Facebook” could be a source within your “social” medium for any unpaid / organic links posted on Facebook. However, if you were running a paid Facebook ad or boosting a post, “Facebook” would be a source within your “paid” medium. And, if you were building a link for an email campaign, the source might be the specific email list you used.
    Example: utm_source=facebook
  • UTM Campaign
    This refers to a specific campaign name. Here marketers can enter any name or description they want, e.g, names that easily identify product launches, promotional campaigns, individual emails, social media posts, etc.
    Example: utm_campaign=halloween_2021_promotion
  • UTM Content
    This is an optional field. If you have multiple links in the same campaign, like two links in the same email, you can fill this in to differentiate between the two links. For many marketers, this field may be more detailed than needed, but it is available as an additional level of tracking detail.
    Example: utm_content=email_link_1
  • UTM Term
    This field is also optional and can track specific keywords used for paid campaigns. Since Google Ads has its own tracking methodology and is deeply integrated with Google Analytics, marketers tend to only use this field when creating paid campaigns on other systems, e.g., Facebook, LinkedIn, etc.
    Example: utm_term=digital+marketing

For optimal tracking purposes, all marketers should add UTM parameters to their URLs whenever embedding links on external sites or in emails. Then, when someone clicks on that link and lands on the destination page, marketers know exactly which campaign, post, or email the visitors came from, and that data automatically appears in their marketing and analytics tools.

How do UTM parameters work?

In this hypothetical example, we will be sending an email about a specific product to a group of active users. The campaign will not be sent to all email subscribers, but rather those the organization has defined / segmented out as “active.”

Within the email, there is a call-to-action link that sends people to the pricing page. Here’s the standard URL without any tracking:

  • www.companysite.com/pricing

If subscribers clicked on the above link, there would not be any information related to where they came from once they landed on the pricing page. However, here’s the same URL with four UTM parameters added:

  • www.companysite.com/pricing?utm_source=active%20users&utm_medium=email&utm_campaign=feature%20launch&utm_content=bottom%20cta%20button

Please note that by adding these additional UTM parameters, people will still end up on the same pricing page. These variables simply make it easier for marketers to track the specific source of traffic to the pricing page.

Let’s break down each individual element of this customized URL to really understand it: (colour-coded for illustrative purposes)

www.yoursite.com/pricing?utm_source=active%20users&utm_medium=email&utm_campaign=feature%20launch&utm_content=bottom%20cta%20button

  • yoursite.com/pricing – Same page as the standard URL
  • ? – this tells your browser that everything after this point is just data
  • utm_source=active%20users – we have defined “active users” as our UTM Source. Since spaces cannot be used in a URL, the space is replaced with “%20”. As a recommendation, use dashes (-) or underscores (_) instead for better readability.
  • & – this instructs our marketing analytics tools that the previous UTM parameter is complete and a new one is beginning
  • utm_medium=email – the UTM Medium is defined as “email”
  • utm_campaign=feature%20launch – the UTM Campaign is defined as “feature launch”
  • utm_content=bottom%20cta%20button – the UTM Content has “bottom cta button” so we can track specific links within the campaign

While you do not need to use all of the UTM fields, do get in the habit of using Medium, Source, and Campaign consistently. Many analytics tools assume these three will be used together. And by skipping one, you can create data gaps in your reporting. To easily create these customized URLs, Google has a free UTM Campaign Builder[2] that will automatically build these URLs based on the descriptions and information you type in.

To see more about UTM parameters, please feel free to watch the following video, Tracking Campaigns with URL Builder:

Analytics Tools

Now that we have created customized URLs, let’s briefly discuss the analytics tools that marketers use to analyze and review the results and KPIs from their marketing efforts. Most analytics tools track clicks, webpage visits, paid advertising clicks, email clicks, SEO performance, mobile app activities, and much more. However, the main reason marketers use analytics tools is to track and understand:

  • Who are our visitors and customers?
  • Where did they come from?
  • How do they behave?
  • What did they do?
  • What is their customer journey?
  • How relevant is our online content?
  • Which devices are they using?
  • Did they convert? And what prompted their conversion?

The data captured by these analytics tools feeds back into customer personas and customer journeys, allowing marketers to further hone and tweak their activities to better meet the needs and preferences of their target audiences. Analytics tools are critical in understanding how people behave online, how to connect with them, and how to deliver what they want. It is specifically these key insights that make digital marketing so powerful in meeting, and hopefully exceeding, the needs and demands of today’s customers.

Here is a list of several common analytics tools that marketers use:

  • Google Analytics[3]
    Google Analytics (GA) is, by far, the most popular analytics tool. It is used by most marketers primarily because it has a powerful, free version that usually covers more than most marketers need. However, since it covers so many areas, it can be overwhelming to learn. For beginners, Google offers a free course, Google Analytics for Beginners[4], that provides a nice overview of what Google Analytics can do and how to begin using it.
  • Statcounter[5]
    Statcounter is a simplified version of Google Analytics and can work well for individuals and small organizations. It offers a simple interface for basic site analytics and reports on web page views, sessions, site visitors, and new visitors. This basic dashboard is free for up to 500 page views. Statcounter also provides advanced paid features, which include reports for bounce rate, conversion rate, and paid traffic.
  • Clicky[6]
    Clicky is another simple, real-time analytics solution. While the tool offers all the basic analytics, such as site referrers and visitors, it also includes some surprising additional features, including heat mapping and uptime monitoring. They offer both free and paid plans.
  • Matomo[7]
    Matomo (formerly known as Piwik) is a downloadable, privacy-focused free analytics platform that provides detailed data on your website visitors, including the languages they speak, pages they visit, files they download, keywords they used to find your website, and the referral search engine. This open-source software can be downloaded and installed on your own web servers for free. And the installation process is fairly intuitive for users with no developer skills. For those without access to their own servers, Matomo does provide a paid Cloud solution.
  • Adobe Analytics[8]
    Adobe Analytics is part of the Adobe Experience Cloud suite designed for large, enterprise organizations. It is a robust marketing tool that tracks website and mobile app traffic and real-time user behavior. It uses this data to create product recommendations and customized landing pages. The platform also enables data across all Adobe Cloud products. Since Adobe Analytics is primarily an enterprise solution, it is expensive and may require specialists to use and harness its full potential.
  • Hubspot[9]
    From a marketing perspective, Hubspot needs to be included on this list. While some areas overlap between Hubspot and Google Analytics, many of Hubspot’s capabilities are best described as complementary to Google Analytics. Hubspot shines as an all-in-one customer lifecycle analytics tool. Hubspot has a lot of functionality, from landing page creation to social media mention tracking, email performance measurement, and lead nurturing. So, when it comes to managing your digital marketing activities across multiple channels, Hubspot can be a powerful analytics and automation tool.

This is a short list of the most popular analytics tools, primarily from a digital marketer’s perspective. There are many more and for a more comprehensive list, please check out this article, Google Analytics Alternatives. Measuring results is critical to the success of any digital marketing activity. Through measurement and iteration, marketers can improve and optimize their digital marketing efforts and build stronger relationships with their target audiences.

Key Takeaways

Digital marketing analytics are critical to understanding your marketing performance and the needs / interests of your target audiences:

  • Track KPIs that you can act on or affect
  • Monitor a combination of KPIs:
    • General marketing and revenue KPIs
      • CAC
      • LTV / CLTV
      • LTV to CAC Ratio
      • Conversion Rate
      • RPV
      • Monthly Recurring Revenue (MRR) Churn Rate
      • Customer Churn Rate
      • Revenue Renewal Rate
    • Return on Investment KPIs
      • ROAS
      • ROI
    • Channel-specific KPIs
      • SEO
      • Paid Advertising
      • Social Media
      • Mobile
      • Email
  • Setup custom campaign URLs using UTM parameters so that you can track the results in your analytics program
  • Analytics tools are critical to understanding how people behave, how to connect with them, and how to deliver what they want. They also support and facilitate campaign optimization and stronger relationships with target audiences.

License

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Foundations in Digital Marketing by Rochelle Grayson is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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