Analytics category includes general business analytics and marketing analytics topics and tools to help you make better business decisions.

Audio Version: Facebook Ad KPIs — 15:27

Measuring Marketing Performance

Marketing has come a long way from the days of being known as the arts and crafts department. Once considered an art form rather than a science, the key to today’s marketing success hinges on the marketing manager’s ability to measure marketing performance using marketing metrics. Marketing success also stems from the marketing manager’s accountability for delivering data-driven results.

Estimates indicate that by the end of 2020, we will produce more than 44 zettabytes of data. By 2025, we will have produced over 180 zettabytes (or 180 million gigabytes) of data. Data is like the “new” oil. How we measure that data is like how we process the oil, making it efficient and useful to fuel our marketing initiatives toward better return on marketing investments (ROMI) and improving marketing competitiveness. 

However, few marketing managers can appreciate the range of metrics used to measure the data. Nor do they understand the pros and cons of using one metric over the other. Their lack of understanding metrics leads to measuring data that provides little to no viable information for their marketing needs or direction their organizations should take. Marketers must measure what matters and not necessarily all of the data available to them. 

While measuring what matters is critical to marketing success, what is essential to one firm may not matter to another. For this reason, I have identified several marketing metrics worth measuring that have a universal appeal for almost any marketing process. The metrics below are a good start for measuring marketing performance. However, additional metrics are necessary to measure the essential things that matter to your business goals.

Marketing MEtrics - Hand Sketch of Business man leaning against a question mark.What Are Metrics and Why Do You Need Them?

Metrics are quantifiable measures used to track trends, changes in activity, progress, or characteristics. In almost every discipline — government, business, and science — metrics are used to explain occurrences, determine cause and effect, share findings, and make projections of future events. Metrics require objectivity and make it possible to compare observations across sectors and time horizons. They help promote understanding and collaboration among team members and departments. 

Marketing Metrics

If metrics are quantifiable, then marketing metrics are the measurable touchstones used to communicate marketing activities. In other words, they are the quantifiable values used to demonstrate marketing effectiveness across all marketing initiatives. To better understand marketing metrics, we can split them into four types:

  1. Milestones
  2. Inputs
  3. Outputs
  4. Ratios

Milestones measure performance against a stated goal and apply to almost any marketing initiative. Milestones list and categorize what’s supposed to happen and when it’s supposed to happen. For example, let’s say that your marketing department is in the process of redesigning the company website to improve user experience (UX). Developing the wireframe for the website’s homepage and the due date for the task may be one milestone out of the many on the redesign project.

Inputs  or marketing inputs — are the levels of resources you are putting into your marketing strategy. Inputs are measured to determine if the marketing process is working and at what level. For example, how much money are you allocating to pay-per-click advertising? Are you generating your desired ROMI from your input amount? Hence, money is a resource. A resource can also include personnel, time, and equipment, to name a few.

Outputs measure the results of your marketing initiatives. For example, market share, channel performance, and brand equity are a few measurable outputs.

Ratios are a comparison of two numbers or metric values. In other words, they express the amount of one thing over the other one. The numerator represents ratios over the denominator, expressed as fractions or — more commonly — percentages. For example, a typical marketing metrics ratio is the return on marketing investment or ROMI. 

To calculate the ROMI of a specific marketing campaign, you will need to know the baseline level of business activity. You measure the baseline against the business activity during the time the marketing campaign is running. The result is the profit earned above the regular business activity minus the cost of the marketing campaign.

 

The formula for ROMI:

Baseline Profit = Baseline revenue – Baseline Cost of Goods Sold

Marketing Campaign Profit = Revenue – Cost of Goods Sold

Profit with Marketing Campaign Cost = Profit – Marketing Cost

Campaign Uplift = Profit with Marketing Cost – Baseline Profit

Return on Marketing Investment = (Campaign Uplift / Marketing Cost) x 100%

 

ROMI Example:

Baseline Profit = $50,000 – $45,000 = $5,000

Marketing Campaign Profit = $75,000 – $60,000 = $15,000

Profit with Marketing Campaign Cost = $15,000 – 6,000 = $9,000

Campaign Uplift = $9,000 – $5,000 = $4,000

Return on Marketing Investment = ($4,000 / $5,000) x 100% = 0.8 x 100% = 80%

With the marketing campaign in our example, the firm received an 80% ROMI.

Measuring What Matters

marketing metrics - illustration of business man looking at analytics dashboardMany executives — including marketing managers — tend to measure all the data available to them. The belief is that “if we have the data, then we need to measure it.” Measuring all available data at your disposal is often a waste of time and unnecessary.

Your metric strategy should be focused and not broad. In other words, the secret to selecting the best way and what to measure is what matters most to your business goals. Measuring too much leads to data fatigue; you become distracted from the daily marketing functions, which leads to unexpected or unwanted results. 

I will stress the point one more time; the key to measuring metrics is to measure what matters most to your business goals. To help you determine the right marketing metrics to measure, the three criteria below can serve as a guide.

  1. Align the metrics you measure with your marketing strategies
  2. Act on the data. Establish a high and low number for your key performance indicators (KPIs) and execute a contingency plan once the low or high number hit.
  3. Select metrics that allow you to detect and diagnose problems before they occur. Also, choose metrics for evaluating marketing performance after the fact.

Below are five marketing metrics that every marketing manager should consider when measuring their firm’s marketing performance. Again, the metrics you measure are the metrics that matter most to your business objectives and marketing strategies. The following metrics serve as a general starting point to help you begin taking accountability for your data-driven marketing initiatives. 

  • Market Share
  • Customer profitability
  • Customer lifetime value (CLV)
  • Channel performance

Measuring Market Share

Market share is a metric that communicates how well a business or brand is doing against the competition. Market share analysis helps marketing managers judge their company’s market growth and decline and trends about customers’ competitor selection.

The market share metric can either lead to meaningful or meaningless information for your company or brand. That is, if you are in a market where three or four firms own 90% of the market, you are in a concentrated market. In this scenario, it helps if you track market share. However, if the top three or four firms owned only 5% of the market, tracking market share in the highly fragmented market is a waste of time.

The same holds if you are a small business in a local market. As an example, let’s assume that you are a local bakery. If you calculate your market share nationally, then the market share analysis is meaningless as thousands of bakeries exist across the country. Your market definition is too broad of an area, or it’s a fragmented market. However, suppose you define your market within a 10-mile radius. In that case, calculating market share makes more sense in determining where you stand in the market than your competitors within that same 10-mile radius market.

The three market share formulas worth using are unit share, revenue share, and relative market share.

Unit Market Share Formula

Unit market share compares the units of a product or service sold by one firm compared to all the units sold by competitors in the same market. We express unit market share as a percentage. The unit market share formula is:

Unit Market Share Formula

 

Revenue Market Share

Revenue market share analysis reflects the unit sold prices of one firm to the same units sold by their competitors. Expressed as a percentage, the revenue market share formula is:

revenue market share formula

Relative Market Share

Suppose your business is in a market where the top three or four competitors maintain a large portion (75% or higher) of the market. In that case, using the relative market share analysis is a better marketing performance metric. It’s a better metric because the top competitors are in a concentrated market, meaning there’s better customer loyalty and repeat business from those customers.

However, if the top three or four competitors in a given market share, only 5% of the market share, relative markets share becomes meaningless. 

With a market share so low among the top competitors, the market is fragmented.

A fragmented market indicates no big players in the market. Thus customer loyalty is non-existent. Without customer loyalty, it makes it difficult for marketing managers to grow market share with existing customers. Expressed as an index (I) number, the relative market share formula is:

relative market share formula

Customer Profitability

Marketing MEtrics - man watering money tree illustrationCustomer profitability is the profit your firm earns from serving a customer or customer group over a specific period. It’s important to track customer profitability to understand which customer relationships generate more revenue than others. 

Customer profitability is the difference between the revenues earned and the customer relationship costs for a specific period.

Many executives and marketing managers fall into a pitfall by lumping all customers into one group and calculating customer profitability from that group. Not all customers are equal; therefore, your customer profitability metrics need to reflect the different levels (or tiers) of customers that purchase from you.

For example, in a three-tiered customer system, your top tier is the most valuable customer group to your business. They bring you the most profit.

The second tier of customers is the group’s middle. They are low to middle-profit producers for your company. Most customers within this middle category can increase their spending and move up a tier with more nurturing. Thus they are worth keeping. 

The bottom tier is the set of customers that lose your company money. If you can devise a strategy to get them to spend more money and move them up a tier, great. If not, you may consider charging them more for the products or services or “firing” them all together.  

A useful marketing metric for customer profitability metric is to track repeat customers. Repeat customers can be followed by monitoring the purchase recency rate, the length of time the customer last purchased from you to their next purchase. 

Another metric that is useful with the customer profitability rate is the retention rate of current customers. Both of these metrics can apply to any of your established customer tiers. Suppose there are changes in customer numbers over time. It could signal a problem if the customer numbers drop or success if they increase.

customer profitability formula

customer retention formula

Customer Lifetime Value (CLV)

The customer lifetime value metric is what the customer is worth to the company — in cash — for the customer’s lifetime in today’s dollar. The CLV is a vital marketing measurement because it encourages companies to focus on their customers’ long-term health and not quarterly profits. In other words, it helps marketing managers focus on higher potential customers over customers with a lower value in terms of profitability.

There are many formulas to calculate customer lifetime value. The following calculation is a simplified version for calculating CLV. 

CLV formula

Channel Performance

Illustration of thumbs up and down for channel partner formulaFor firms that work with channel partners, measuring your partners’ success is crucial to your continued relationship. After all, channel partners are an investment that you make with a third-party seller.

A channel partner is a company that partners with a manufacturer or producer to market and sell the manufacturer’s products, services, or technologies. More often than not, channel partners operate as a co-branding relationship with their suppliers, the manufacturer. 

Monitoring their performance is essential to your own firms’ survival. It helps the channel partner find areas of weakness in their marketing or areas of success. If a channel partner consistently underperforms, it may be time to replace them.

To determine channel partner effectiveness, calculate the ROI or the output divided by the input. In other words, divide what you gain from the channel partner by what you spend. Examples include:

 

Total sales/ active accounts

Total sales/sales calls

Gross profit/number of sales reps

 

Takeaway

Marketing has come a long way from the days where one message fits all. Today’s marketing department personnel need to be data-driven to help navigate their firms toward success. The challenge is that data is abundant. Many marketing managers and executives do not know how to use that data or use too much data to render itself useless and a waste of time. Suppose marketing professionals want to be effective and help companies reach their financial and market share goals. In that case, they need to measure what matters. They need first to know their companies’ business objectives, then ask the necessary questions about what types of metrics they need to measure to reach those objectives. The four metrics discussed above are just a start. Perhaps the most common metrics used, but others are equally important to the marketer’s success.

Audio Version — 13:27

Measuring Facebook Ad KPIs

facebook ad KPI hand drawn illustrationIf you have ever spent money advertising and promoting your product or service on Facebook, you undoubtedly had an objective in mind. For example, maybe your goal was to generate $10,000 in sales from a specific campaign or that you wanted to sell 500 units of your product or, perhaps, sign up ten new clients.

Whatever your goal was, have you ever measured your ad campaign performance relative to your objectives? That is, did you establish key performance indicators (KPIs) to determine if you are on track toward reaching your goals? Don’t worry; if you have not, you’re not alone.

As social media advertising spend amongst business owners and marketers increases yearly (see eMarketer.com chart below), so does the competition. To give you a competitive advertising edge, I discuss several Facebook ad KPIs to monitor when advertising on the social media platform. I also discuss why they are essential to your sales success.

FAcebook ad KPIs social media spend chart

What Are Key Performance Indicators (KPIs)?

Before I dive into the Facebook sales KPIs, allow me to provide an overview of what a KPI is; for those that need a refresher explanation, of course.

A KPI is a strategic objective that targets where you want your company to be by a specific date. It helps you monitor where you are at the present moment with where you want to be in the future.

One example of a KPI may state, 

 

“We will increase revenue for product “A” by 10% by the end of the second quarter.”

 

Notice that the stated objective is to increase revenue for a specific product. The target is a 10% increase by a particular date. The more specific you write your KPIs, the easier it is to measure them.

Facebook Ad KPIs

As part of an ongoing ad campaign management process, I recommend two essential metrics for your Facebook advertising success. The first metric is the Cost-Per-Action (CPA) metric.

Cost-Per-Action (CPA)

Cost-Per-action, sometimes referred to as cost-per-acquisition, is perhaps one of the critical KPIs that you want to track for ad spending. CPA allows the advertiser to pay for only the actions a user makes due to your ad.

An action can be any one of the following:

  • Purchase from your E-Commerce site.
  • App download.
  • Newsletter Signup.
  • Registration for your webinar or conference.
  • Or just about any other activity that requires a visitor’s engagement.
facebook call to action image example for facebook ad kpis article

A sample ad from Facebook desktop news feed shows the advertiser using CPA advertising to increase downloads of their article.

 

For example, you can use CPA to monitor and control costs for visitors who click on your ad link versus paying for cost-per-impression (CPM). 

Note

Depending on your ad and desired action, CPA could cost you less than deploying a CPM ad strategy.

A high CPA cost can lead to higher costs and indicate that your Facebook ad is not performing well. However, the caveat is, you may experience a high CPA in the initial days that your ad is running. It is best to allow your ad to run for at least three days before checking the CPA. Suppose your ad CPA is still high after a few days from its initial launch. In that case, you need to make adjustments to your ad visuals or headline, target group, or Placement.

 

Example Facebook CPA Ad KPI

A written Facebook CPA ad KPI may read like the following:

 

Reduce Facebook CPA by 20% over the next three months.

 

The KPI assumes that you are past the initial ad launch by at least three days and that your CPA is higher than usual. Note that the KPI has a strategic objective to improve ad costs. It states a measurement strategy to reduce costs and has an explicit target within the next three months. 

 

CPA Calculation and Formula

To calculate CPA, divided the advertiser’s cost by the total conversions (or actions taken due to your ad). 

cost per action formula

As an example, let’s assume that the total cost to advertise is $1,000 for a campaign. You receive 25 actions for that $1,000 campaign. 

 

CPA= $1,000/25

 

Your CPA in this example is $40 per action. Some may regard this as expensive. However, compared to industry benchmarks, if you are in the auto, home improvement, or finance and insurance industry, the CPA is considered lower than average. If you are in the apparel industry, your CPA is high, and you must make adjustments to reduce your costs.

 

CTR Facebook ad KPI illustrationClickthrough Rate (CTR)

The clickthrough rate (CTR) metric is vital to monitor, especially for ads running two weeks or more. Although CTR is a simple metric, it is a telling one. 

A CTR drop may indicate that viewers are passing on looking at your ad in their Facebook feeds. Like products, ads have a shelf life too. For example, suppose you experience a 1.6% CTR for beauty products with a specific ad. In that case, your ad performs at the industry benchmark. If your CTR drops to below 1.6% and continues to decline over time, it may be necessary to change your ad’s visuals or the headline, or both.

Suppose your ad does not generate any clickthrough. In that case, it’s also an indication that there are possible issues with your ad’s visuals, headline, or target market. One suggestion is to turn your ad off and run several ad tests to determine which ad generates an increase in CTR.

Example Facebook CTR Ad KPI

An example Facebook CTR KPI may read something like the following:

 

“Increase our CTR on ad “X” from 0.8% to 1.4% over the next three weeks.”

 

CTR Calculation and Formula

To arrive at the CTR, divide the total number of clicks by the total number of impressions.

clickthrough rate formula

As an example, let’s assume that your ad received 200 clicks from a total of 1,000 ad impressions. That’s a 0.20% CTR rate; it’s low for almost all industries where on average, the CTR is 0.90%. In this example, you missed your 0.8% CTR (as noted in the above KPI example) and would need to adjust your KPI and tactics to reach the 0.8% CTR before trying to accomplish the 1.4% CTR. Your new KPI may read like the following:

 

“Establish a 0.8% CTR benchmark in the next two months.”

 

On the other hand, if you reach your KPI, you will want to set new goals.

Optimization

Facebook ad KPI success illustrationTo optimize is to make something as good as possible. Our goal is to consistently “tweak” the ad until it is as good as possible for Facebook ad optimization. When optimizing an ad, aside from changing the visuals and copy, headline, or call-to-action (CTA), there are five key optimization areas to focus on:

  • Age
  • Gender
  • Country/Region
  • Placement
  • Frequency 

Additionally, for new Facebook ads, it’s best to allow the ad to gather data for at least five days after launching the campaign before you begin the optimization process. For older advertisements that were once successful and are now showing a lower CTR, take a look at the visuals, copy, or headline before optimizing any of the above criteria. (See the section on CTR above.)

Age

You’ll launch your ad campaign targeting a specific age group. However, you may find that your highest converting age target group is something else. Facebook allows advertisers to target subscribers from the age of 13 to 65+.

As your ad matures, examine your best-converting age groups. Are they what you expected? Did you discover an entire age segment with a higher conversion rate than your initial age target group? The strategy with age is to move your entire budget to the highest converting age demographic. 

Two possible key performance indicators for age demographics may read like the following:

 

Increase CTR in the age demographic (ad your age range here for the best converting CTR) to 35% conversion within the next 30-days.”

or

Increase sales in the secondary age demographic by 5% in the next seven days.”

 

The first KPI addresses the highest performing CTR age demographic. In contrast, the second KPI addresses growing the second-highest age demographic to increase your revenue.
Once you have established your highest conversion age demographics, the focus should be on growing the second-highest demographic by optimizing your ad visuals, headline, color, or copy.

 

Gender

Facebook allows the advertiser to target a specific gender, men and women. Following the same guidelines as with the age demographics section above, examine which gender category is converting more. Suppose one gender demographic is higher in conversions. In that case, it may be wise to move your ad budget toward that gender category.

Your product may not be suited for both genders. If it does apply to both genders, optimizing the ad for the poorly performing gender demographic may be required.

An example KPI for this demographic may read like this: 

 

“Improve conversions for (gender with low conversions) by 25% of the higher-performing gender category within two weeks.”

 

Country/Region

Targeting different countries or regions can pose challenges for new advertisers. It can also pose challenges for advertisers entering into new markets. The more regions/countries you target, the more the ad can potentially cost you or not perform as well due to a variety of reasons.

It’s best to begin your ad campaign targeting one specific region, providing that your product or service is suitable for that region. Allow at least five days to pass before reviewing the CTR for the ad. If your ad is performing poorly, your options may include optimizing the ad image or headline. 

Once you have mastered and increased the Facebook ad CTR of a specific region, begin experimenting with other same language regions. If you target countries that are non-English speaking, your ad will need to reflect the native language.

Two possible key performance indicators for the country/region metric may read like the following:

 

To increase ad conversions in (name of country) by 25% in the next two weeks.”

or

To enter into new territory (name territory) and have sales earning $500/month by the end of February (or whichever time frame you decide to specify).”

 

Placement

The Placement KPI (or Place) is one of the 4P’s of marketing. Placement identifies where you promote your product or service. 

Facebook offers several ad placement locations on its desktop and mobile platforms. The key is to find the optimal Place on their platform that delivers the highest conversions for your ad. 

As a general rule, ads performing lower than 1% conversion may need further monitoring and continue to underperform, optimize the ad, or eliminate its Placement. 

Another good practice is swapping the low-performing ad spot with a higher-performing (converting) ad to see if the Placement is driving down conversions or the ad itself.

One possible KPI for Placement may read like this:

 

Increase ad conversions of the Facebook right column ad to 10 complete sales per week by the end of the month.”

 

The KPI assumes that you are running several ad placement spots and want conversion improvement on the right column ad.

Frequency

Frequency refers to the number of ad impressions shown to an individual. Frequency becomes essential when the ad shown continues to increase and your conversions begin to decrease. The cause is likely one or several of the following:

  • Your ad has been seen too many times by the same target group. 
  • Your audience size is too small. 
  • The ad’s image needs refreshing. 
  • Your offer is “tired,” and you need a new offer.

Frequency also correlates with increased ad costs. As your frequency number increases, so too does the cost of the ad.

A possible KPI for Frequency may read like this:

 

To reduce our ad Frequency from 8 impressions per person to 3 impressions per person by the end of the week.”

 

The KPI addresses the increased impressions the ad has and the goal of reducing the impressions per person to reduce ad expense and increase conversions per impression.

Frequency Calculation and Formula

Calculate Frequency by dividing the number of impressions by the ad Reach (how many ad exposures per unique individual).

ad frequency formula

Takeaway

Facebook advertising can be lucrative for your business if executed effectively. Setting useful KPIs, monitoring them, and making the necessary adjustments along the way to correct for low-performing ads is essential to your ad success. The key to successful optimization is to monitor and fine-tune your progress consistently. When something is not working, test and adjust until it does work.