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Understanding the Link Between ROI and KPI

Galileo Galilei said it best, “Count what is countable, measure what is measurable, and what is not measurable, make measurable” He probably wasn’t thinking about Return on Investment (ROI) and Key Performance Indicators (KPI) when he said that, but we are!

We live in a digital world. From website analytics to social media metrics, nearly everything can be measured. There are a lot of numbers and metrics to look at in the world of business. But, it is essential to keep the whole picture in mind, but also to focus in on certain measurements that align with your current efforts. If you are investing your time and resources in something, you want to make sure that it’s paying off. But how can you track that if your efforts are actually working? That’s where ROI and KPI come in. When used together, ROI and KPI’s help to provide meaning to your metrics and provide a better snapshot on the progress of your efforts.

Let’s start with a brief summary of ROI and KPIs.

Return on Investment is a measurement that compares what you put in to what comes out. When you invest, you probably want to check in to see how it’s doing. If you make a financial investment spending money on a marketing campaign for example, of course, you want to make sure it’s giving you the desired financial return. This number can provide insights showing the success of your efforts but can also reveal that you are not getting any return on your investment.

Since ROI is a way to measure your investment, it can also be valuable to look at when deciding how much to spend on an investment. You can use simple formulas to see if spending a little more will create a significant difference in the results or maybe spending less will put you where you want to be.

While looking at ROI tends to be more useful to measure the results of bigger financial goals, KPIs can help you get there. KPIs are helpful performance indicators that are linked more to the strategic aspect of your efforts. ROI is the big picture goal, and KPIs are the strategic steps to get there and allow you to evaluate if you’re moving in the right direction.

KPIs help to measure the effectiveness of your efforts. Key Performance Indicators are numerical and measurable values that help assess your progress toward a clearly defined goal. There are a lot of moving parts in marketing, from optimizing your SEO to social media growth; KPIs should be used to set performance indicators specific to what you are measuring while being linked to your overall organizational goals.

Some commonly important metrics to consider include website traffic, social media traffic, organic traffic, sales revenue, and cost per lead. However, these metrics will not provide significant value if you do not have something to compare them to. Here are a few examples of questions you can ask yourself to help define your specific KPIs:

  • How was your website traffic compared to last month?
  • Compared to your website traffic goal?
  • Are your consumers coming back?
  • Are consumers taking action after consuming your content?

Create specific goals and then start asking questions like the ones above. Ask yourself what you want to see an improvement in, set a quantifiable goal, and then determine the specific metrics to track success. If you’re not hitting your goal, analyze your results and make adjustments accordingly.

We all want to set ourselves up for success. Make sure you’re doing that when you set your goals. It’s important to understand that outside influences can impact your results, both positively and negatively. To best explain this, and further see the link between ROIs and KPIs, let’s talk about retail.  

We have the numbers to prove that retail is not dead after all. In 2017, holiday retail sales reached $598 billion which is $33 billion more than last year. We even see Amazon branched out of their e-commerce success and made moves into retail. Retail businesses, for example, are typically concerned with how much people spend when they leave their store. Although they want people to come into their store, often a bigger goal is to make sure they leave after making a purchase. Some examples of goals they would set might be:

  • Increase sales volumes: having customers purchase more items or items of high value
  • Increase sales amount: have more people come in and make a purchase

Retail businesses are very aware of outside influences that can impact these goals. Many apply to e-commerce businesses as well. Holidays and high traveling seasons, for example, are external events influencing the success of these goals. During high traffic seasons, make sure your business is ready for higher demand and set a realistic financial goal taking the appropriate steps to hit your goal. On the other side, also prepare for seasons of lower demand and set appropriate goals so you can reach them. It’s important to note these influences for you to create goals that are realistic and achievable.

Here are some trends to keep in mind, according to Gallop Polls:

  • Spending tends to slow down in January, August, and September
  • Spending tends to peak in December, April, and July
  • Events happening in the nearby community
  • Holidays seasons
  • Popular travel seasons in your location

There tends to be a unifying goal in businesses to have customers and continually improve to become the best organization you can be. Understanding and implementing ROIs and KPIs can be beneficial to improve your organization. ROI is a big picture goal for your organization and KPIs are strategic indicators to help measure if your steps are in the right direction. Make sure to think ahead and plan for any outside circumstances that could impede your success.

A goal without a plan is just a wish - set some goals, take strategic steps toward them, and never stop moving forward.

About the Author: Samantha Anderson

Samantha Anderson

Samantha is the COO and co-founder of 41 Orange, inc, a marketing agency. She is also currently a member of the Board of Directors for San Diego Civic Youth Ballet, Balboa Park’s resident classical ballet school since 1945. Hailing from the agency world, Sam has worked with Fortune 500 tech, financial, and consumer brands, including Intel, Petco and LPL Financial, to shape their online presence and reach their target audiences more effectively through social media and beyond. She holds a Bachelor’s degree in Journalism, emphasis in public relations from San Diego State University.