One of the first things we discuss with our clients in developing a marketing strategy for their small business is identifying and tracking Key Performance Indicators – KPI’s. It doesn’t matter how good or slick or stylishly current your strategy is, if you have no way of measuring its success.
For every small business, there will be multiple KPI’s to keep track of – everything from income and financial goals to employee and customer satisfaction. But for this article, I’m going to focus on the KPI’s that affect your marketing strategy and expenditures.
If there’s any pushback in the strategies that we develop for our clients, this is where it happens. We’re busy, we’ve never tracked these before, this doesn’t really impact our day to day. But if you don’t track and measure the effectiveness of your marketing, there’s no way to know how or where to target improvements.
A 2016 study in the UK found that small businesses that DO identify and track KPI’s are at least twice as likely to hit their targets and grow. It also showed that companies that neglect these indicators aren’t just growing slowly. They’re stagnating, moving backwards, and even causing undue stress on their employees – whether the employees were aware of it or not.
Before I get into the seven questions from the headline, let’s define Key Performance Indicators.
Keys to the Kingdom
According to the Oxford Dictionary, KPI’s are quantifiable measures used to evaluate the success of an organization, employee, etc. in meeting objectives for performance. I specifically chose the Oxford definition because it included the phrase “quantifiable measures.”
As I alluded to earlier, if you can’t quantify it, it’s impossible to track it. It’s like taking a road trip. Say you’re going to drive from Sarasota, Florida to San Diego, California. It’s a new adventure for all of you. Everyone meets at Everglades University and piles into the rented SUV. You know, at the very least, you can take I-10 all the way across the country. Sure, you can get out of the parking lot, and maybe even to I-75.
But without a map, how will you know when to get off of 75? How will you know if you’re making good time? When you hit Mobile, do you continue on towards New Orleans, or reroute North through Dallas? And what if you hit a detour that takes you off the Interstate and you end up in Oklahoma or Colorado? Are you closer to your goal of San Diego, or farther away? And which way is it to course correct?
Without signposts, you could be stuck anywhere along the 2600-mile journey without a clue where to go or what to do next. If your goal is to be more successful in your business than you have been in the past, that’s uncharted territory. Key Performance Indicators do just that – indicate where to go and where you’ve gotten off track.
The best KPI’s:
- Can be Measured
- Are Actionable
- Are Relevant & Timely
- Easy to Understand & Share
- And usually, Impact Your Bottom Line (Income)
Bearing that in mind, let’s look at the questions you should be asking:
Where are your customers coming from?
This may seem like a simple question, and, on the surface, it is. However, getting to a fully fleshed-out answer is going to take some hard work. And time. Strategy requires more work up front, but offers a down-the-line payoff in excess of the effort.
Picture it like Evel Knievel, only instead of going up the ramp, he accelerates down the ramp, so when he hits the pavement, he continues to gain momentum, flying back up the ramp and into space. Strategy work is the high end of the starting ramp – continuous lead generation begins when the daredevil launches up and out.
We need to look at who your best customers are and what questions they’re asking. What terms and phrases – especially long-tail searches that your customers execute on Google – lead them to you? What of your existing advertising and marketing brings in customers? And how, of course, are you tracking it?
What are the psychographics of your ideal customer – age, finances, attitudes, opinions? The more details, the more comprehensive a picture and the easier it is to target and track.
This can also include minutiae like what website were your customers on before they came to you. How often did they come to your page? What other competitors did they visit, and how many? How much research did they do before visiting. Where did they linger – on your site and on each page.
How are they finding you?
Some of this dove-tails with the previous question, and answering question #1 more fully makes the resulting questions easier to decipher. Again, more work at the top.
In this case, we’re digging deeper – did they find you on Google? Where on the results page? Was it another search engine? Was it related to their location, regardless of whether or not your business is location-dependent.
Did they drive past your brick and mortar store? Find you in the yellow pages? See an ad on Google, Facebook or Yelp? Find you on social media first? Did they go to social media to investigate you?
Did they see your billboard, cab topper, bus wrapper? Your newspaper ad? Your on-screen ad at the AMC or Regal? The article that mentioned you in Smart Business – or Field and Stream?
To fully answer this question, we also want to look at what was the deciding factor. Out of all the Coca Cola advertising, what was the tipping point that made them buy a soda – the thing you sell. And is the refreshing cold carbonated beverage the thing you’re really selling? Or is it the freedom and lifestyle that come with it?
How often does finding you lead to a transaction?
Great! They’ve found you. But they didn’t buy. Or they did. What makes the difference? What causes them to choose you over your competitors? Why is today different than any other day?
A clarification for this question also – a transaction does NOT always mean an exchange of money. Any time someone gives you something of theirs that has value in return for something of yours that they see or hope has value, that’s a transaction.
So giving you their email (even their business, almost always gets deleted, email) address in exchange for a Lead Magnet, that’s a transaction. Every time they open an email you send them, that’s a transaction (time for opportunity). Every time they click on another page on your website, that’s a transaction. And you’d best make it worth their time by making your site clear and easily navigable.
Of course, the final aspect of this question is the one we really want to know – how often does finding you lead to a cash exchange.
Are your customers looking for long term solutions, or quick fixes?
There’s no right or wrong answer to this question. It just depends on the type of business you’re in. And sometimes even the timing.
Mortgages used to be a long term purchase. A home certainly is. But when typical American finances changed in the mid-80’s, so did mortgages. Down payments may have been smaller, but mortgages began to be front-loaded with fees and points. You have always paid more interest at the beginning, but now banks and brokers wanted to make sure they got the most bang for your buck before you refi-ed a year or two down the line.
You have grocery stores and gas stations that sell you items that are, by their very nature, fleeting and about to expire or be consumed.
Then there’s WalMart and Target – providing short term solutions for a variety of scenarios.
Meanwhile, a business like Lowe’s and Home Depot started long-term. They catered mostly to builders and craftsmen. And then they slowly expanded to add the DIY-ers, giving them access to the same tools and parts as the professionals used, while not alienating those professionals.
The unspoken part of this question is how much money the average customer spends, and over what time period.
Again, there’s no right or wrong answer to this question. But knowing what your customer is looking for makes the next two questions far easier to calculate and manage.
What’s the cost to get a customer?
Again, this question both builds on and refers back to the previous questions. How much are you spending, on average, to get a customer? And is that cost worth the value you get from the customer?
Clearly, for companies like Anheuser-Busch and Pepsi, they are willing to spend countless millions of dollars to get attention and then sales. But you don’t have that kind of cash, I’m guessing.
You also must take into account all the money, time and marketing spent on the customers who DON’T make a purchase. You still spend those resources – so they must be accounted for.
Are your customers your customers for a single transaction? A monthly membership? An annual contract? Finally, is there a plan and potential for repeat business? What is the value of that?
What is the lifetime value of that customer?
This is tied irrevocably to the previous two questions. The calculations you do obviously must take into account what your customer is buying and for how long – or how long before they’re back. You must also consider the cost of getting the customer, spread over the life of their relationship with you.
Are they just hiring a nicer cab to get to the airport? Or are they looking to establish a long-term arrangement to take their gang of friends to the home team’s game every couple of weeks for 6-9 months. Wash, rinse and repeat.
So what is the worth of that long-term customer compared to the one off casual consumer you may never see again? You must know both costs and risks to properly plan your marketing strategy. Which leads us directly to…
What’s the threshold below which a potential customer would be better off left to competitors?
This is, inevitably, one of the hardest questions most small business owners have to ask. Because ultimately, we are people doing business with people. You can look at all the facts and figures, have your whole strategy worked out to a “T.” But a friend comes to you asking for help, or you’re staring at impending past-due notices, and all that can go out the window.
Salesmen are taught that emotions drive decisions. We teach that to our marketing clients too. And we’re by no means immune. So we let emotions or fear trump logic and reason. And we may take the client or customer we KNOW we shouldn’t.
And it almost always costs us.
Despite what I just said about emotions, I’m going to reiterate the Pareto Principle. At least then I can say that I gave you a life vest before you plunged into the deep end of the ocean.
The Pareto Principle explains the relationship in every business and transaction. 20% of our customers will bring in 80% of our business. They usually get 20-30% of our time, while we spend 80% of our time dealing with the bottom 20% of our client base.
I don’t know why it works, but it does, 99% of the time. You’ve been advised.
Unlocking Your Marketing
As you can see, these questions and the strategy they build mix and intermingle. They involve a lot of work, analysis and self-awareness. A lot of work, if done properly. Luckily, you’re not alone. For the next few weeks, I’ll be doing a deep dive into each of these questions.
I’ll give you more insight into how and why they need to be answered and how to best go about it. Some of us are DIY-ers to the core. And while there are limits to how much I can teach you in a weekly blog post, I know some of you will plow ahead, regardless of consequences.
Some of us know we need help. That doesn’t make us better or worse than the DIY-ers. We’re just different. Which is why Grow The Dream works with both. For some, reading these articles will be enough. For others, we offer partial through full solutions to create a strategy for your small business. And implement it. You decide where to draw the proverbial line. For more information on what we do and how we can help you, please reach out. We’re all about small businesses and we’re happy to help you grow your entrepreneurial dreams.