How to Choose the Right Primary Metric For your Business – And How These Metrics Apply to PPC
When you start a company, you generally have a vision of where you want it to go, or how you want it to be. Having this vision allows you to make decisions quickly, knowing that it will either move you towards your vision or away from it.
A primary metric is your Polaris (North Star) – the one single metric that will move your business towards your vision. Sometimes you’ll choose revenue, sometimes profit. Or, maybe you will find that cost-per-acquisition is more relevant. Or, in some cases, focusing on the number of sales as opposed to the value behind them can be more beneficial.
But we’re getting a bit ahead of ourselves here. Let’s back up a bit.
What Is A Business Metric?
A business metric is a way to track and measure the status of different areas of your business and should be employed to address key audiences surrounding your business, such as:
- Middle managers
In fact, every area of your business has specific performance metrics that need to be monitored. For example, your marketing team would track marketing and social media metrics, such as campaign and program statistics. Meanwhile, your sales team monitors sales performance metrics such as new opportunities and leads, and executives keep track of big picture financial metrics.
What’s the Difference Between Business Metrics and KPI?
Business metrics are used to track all areas of a business, while Key Performance Indicators (KPIs) target critical areas of performance.
For example, a particular metric may monitor your website traffic, but a KPI would monitor how website traffic contributed to incremental sales.
Why It’s Crucial to Choose the Right Metric
When you focus on one metric, the others will be less in your control. So, choosing the right metric at the right time can optimize your spend on marketing efforts (PPC).
Furthermore, understanding your primary metric will help you and your marketing team or agency make better decisions.
But how do you know what to choose?
Tips for Choosing the Right Metric
Determine the Context and Your Governing Objective
A clear objective is an essential component of the success of any business as it helps guide the distribution of capital.
Creating economic value is a common governing objective for businesses operating in a free market system. However, other companies may choose a different objective, such as increasing longevity.
Identify Both Lagging and Leading Performance Indicators
The key difference between lagging and leading indicators essentially all comes down to knowing how well you did, compared to how well you are doing.
And while one isn’t necessarily better than the other, you have to be aware of the differences between the two.
Consider Your Company’s Stage of Growth
Depending on what stage your company is in and how quickly it’s growing, certain metrics will have more importance to you than others.
Companies still in the early stages often focus on metrics that relate to business model validation. Meanwhile, more established businesses will focus on metrics such as cost per acquisition and customer lifetime value.
It’s important to regularly re-evaluate what measures you are using to connect employee activities with your governing objective.
The drivers of value inevitably change over time. Therefore, your statistics have changed, as well.
Companies often have an endless amount of statistics at their disposal that can be used to help improve their performance. So why not take advantage of this?
In the past, companies could get away with not capitalizing on this resource. But nowadays, identifying them and using them to your advantage is absolutely necessary in order to get a leg up on the competition.
Types of Metrics to Consider
It’s only natural to have the desire to look at and track everything, however, this isn’t always the best idea. More does not always equate to better, and one of the biggest dilemmas businesses face is deciding what to keep and what to toss.
To help you narrow down your decision, here are some of the most significant metrics you will want to consider keeping your eye on.
Sales revenue data should be constantly mined to help uncover deeper meanings and trends.
This data should be correlated to advertising campaigns, price changes, seasonal forces, competitive actions, and other cost of sales.
Similar, more sophisticated metrics such as Asset Turnover Ratio, Return on Sales, and Return on Assets, can give you a good idea of how your company’s performance compares to competitors.
Your gross margin is your business’s total net sales revenue minus the cost of goods sold/services provided.
In other words, this is the amount of sales revenue you retain, taking into account the costs associated with producing goods sold or services provided.
This metric is important to track, particularly for recent start-ups, as it allows you to reflect on improved processes and production. In simpler terms – it’s the equivalent of your company’s productivity, but in numerical form.
Net Profit Margin
Net profit margin demonstrates how efficient your business is when it comes to generating profit, compared to your total revenue.
Essentially, this figure will tell you what percentage of each dollar you have earned translates into profits.
Keeping an eye on this metric is a good way to predict long-term business growth and can help indicate whether your income exceeds the costs of running your business.
Sales Growth Year-To-Date
Sales Growth Year-to-date allows you to see your company growing from month to month as it indicates the pace at which sales revenue increases or decreases.
Monitoring this is vital, as it will give you a better understanding of where your company stands.
Customer Loyalty and Retention
Customer loyalty and retention will tell you how many repeat customers are consistently using your products/services over an extended period of time.
This can be measured by customer surveys, direct feedback at point of purchase, and purchase analysis.
Cost of Customer Acquisition
Cost of customer acquisition measures how much money your business spends in order to acquire a new customer, including your marketing and sales costs.
This metric tells you whether your marketing and advertising investments are paying off, and if you need to make some adjustments.
Measuring staff productivity is important, and productivity ratios can be applied to almost any area of your business.
For example, to determine sales productivity, divide actual revenue by the number of salespeople on your team. Then compare productivity to industry norms by looking at industry statistics or checking for continuous improvement by gathering and monitoring your own statistics.
This process also works for manufacturing productivity, marketing productivity, and support productivity.
Monthly Profit or Loss
While it goes without saying that tracking your profits and losses is crucial, determining these figures involves more than just calculating the difference between the cost of producing your products/offering your services and the price they are sold for.
This calculation must include the fixed and variable costs of operation that are paid regularly each month. This can include:
- Mortgage payments
In any business, overhead costs must be carefully tracked to prevent them from creeping up and spiralling out of control.
Tracking them on a monthly basis will help you to see more clearly where your money is being spent within your business and can be helpful when updating your business plan or preparing your annual budget.
Variable Cost Percentage
Variable costs are business expenses that fluctuate in proportion to your business activities.
Tracking these as a metric will tell you whether or not they are decreasing as your volume is growing, and if they are consistent with industry standards.
Your inventory is arguably the most significant assets your company owns, as this represents the primary source of revenue and subsequent earnings for your business.
For less established businesses, this is a particularly key area to track.
Hours Worked Per Process
Beyond just ratios, it’s crucial that you have metrics on total labour hours expended for a variety of different functions.
The reason for this is that labour is often a business’s most critical – and most expensive – raw input, especially in manufacturing, assembly, and support operations. Therefore, tracking this can help you see which areas could possibly be replaced with automation to save on costs.
How Your Business Metrics Apply To PPC
In PPC (Pay-Per-Click), metrics play a major role as they enable you to track the performance of your paid ads and make improvements.
The PPC metrics you should be tracking depends on both your industry benchmarks and your specific marketing goals.
Choosing the right metrics is crucial, as vanity metrics can end up becoming a distraction and prevent you from reaching your desired campaign results.
Therefore, it’s important to set clear goals when planning your campaign and choose the PPC metrics that match these goals to ensure you end up with solid campaign results and are able to increase your return on investment (ROI).
7 Key Metrics That Depict the Level of Success from PPC Efforts
PPC is driven by data. But some data is more important than others. So, if you are unsure of which PPC metrics to track, here are some examples.
Quality Score is Google’s way of measuring the relevance of your keywords and is used in order to make sure that searchers are seeing relevant ads and have a positive experience.
Your Quality Score is determined by several factors, including:
- The click-through rate (CTR) of the keyword and its corresponding ad
- The relevance of the keyword and ad to the search query
- The relevance of the keyword to its ad group
- The CTR of the display URLs in the ad group
- The quality of your landing page
Tracking and maintaining strong Quality Scores is important, as Google uses them to determine your ad rankings along with how much you are paying per click.
Clicks are a key indicator of the success of your PPC campaign’s success and can influence whether or not important actions need to be made regarding your campaign.
But tracking clicks alone will not give you a complete overview of your campaign’s performance.
Therefore, you should be focusing on measuring your click-through rate to see how many users clicked on your ad after seeing it.
This is one of the most significant metrics to track, as it tells you how many site visitors have actually been converted into paying customers.
However, this PPC metrics depends on a wide variety of factors, such as whether:
- Your ad stands out and grabs people’s attention
- Your ad copy is informative and relevant to your target audience
- Your landing page is user-friendly and optimized to deliver an amazing user experience
Cost Per Conversion
Your cost per conversion indicates how successful your PPC campaigns have been and gives you an idea of whether they are actually profitable.
According to Google, the average cost per action is determined based on how much you pay for each customer you acquire via your ad and is also measured by your Quality Score.
Impression share is one of the simplest, yet most effective, PPC metrics, as it tells you how many people saw your ad.
While impression share is not a good indicator of your campaign’s overall success, measuring your impressions does add value and context to your PPC campaign, telling you where you stand compared to competitors.
Wasted spend is another highly important metric, as it tells you how much money is being wasted on ineffective campaigns that are resulting in a high number of clicks, but low conversions.
Tracking your wasted spend can help you to find ways to optimize certain areas to help improve your campaign’s chances of success.
One example is to refine your keywords by creating negative ones that will prevent your ad from appearing in search engine results pages (SERPs) when unrelated keywords have been used in a search query.
Having the right metrics at your disposal is especially useful to help you make strategic, data-driven decisions that will help you to grow your business and map out your next steps.
Because it’s true what they say – knowledge is power. But with large amounts of actionable data to sift through and analyze, you can supercharge your business along with your PPC campaigns.