When KPIs are Red Herrings

I’m revisiting a blog post form our co-founder: When KPIs are Blinders. This is a favorite of mine, and when we transitioned our entire website to a new platform, I wanted this post to come along for the ride (RIP to all the blog posts that didn’t make the cut). I like it so much, I’m doing my own version. “Better” is a strong word; I think it’s just “different,” but Soren Ryherd… your move.

The Problem with Pretty Numbers

What would you think if you heard one company’s marketing goal was to maximize lead volume at a $100 cost-per-lead (CPL)? You’d probably be preparing for a word problem to follow. 100 is a suspiciously even base, from which incremental calculations are pretty easy. A $100 CPL is surely a sample from which a learning experience will follow and be made much easier to understand because you used base 100. You’d be wrong, but that feeling in your gut that something’s off is not wrong. This is an actual target given to me by a client…

To this kind of target, I ascribe the status “suspiciously round.” At Working Planet, we calculate segmented targets based on down-funnel value, and rarely, if ever, do they come out to be so nice, round, and easy to plug into budgeting formulas. Even those that are more precise are questionable if they don’t change over time. Digital marketing is a dynamic realm - if you’re using average targets, you’re overpaying for some audiences and not competitive enough on others. If your targets are static, you’re not adjusting to changes in your data accordingly. And if your targets are suspiciously round, there’s a better chance they’re derived from a dart board than from data.

Misleading KPIs, Missed Opportunities

Instead of blinders, I like to think of interim KPIs as distractions; they’re the red herrings of data-driven marketing. I’ve seen companies get so distracted by an expected conversion rate that they miss out on huge profits, because they disregard the opportunity presented in a low-converting, but appropriately low-cost channel. I’ve seen teams leave money on the table because, even though a lead from a new audience may be worth a lot more, the cost of the leads exceeds the average target, so it feels like a failure.

Here are some examples to paint a clearer picture of how a single marketing KPI can be a distraction. 

You can optimize to a flat cost-per-lead across two different audiences, but if the value is different (unless by some massive coincidence, it isn’t), your target is wrong for at least one audience.

Scenario C has 5X the conversion rate of Scenario D, so Scenario D may seem like a bad investment. You won't know unless you look at other parts of the picture. In this case, the cost-per-click is so much lower in scenario D that it's actually producing leads at a significantly lower cost than Scenario C. At this point, if you're wondering "but what about the lead value?" you get a gold star! The point is, top-level marketing metrics might tell part of the story, but they can’t show you the full path to profitable growth. For that, you need to dig deeper and let actual value guide your strategy.

All This to Say…

Don’t get me wrong. Marketing metrics aren’t useless. They’re each a piece in the marketing puzzle, and provide useful insight into optimization opportunities. They’re just not intended to be the whole ball game. Instead, focus on the only KPI that really matters: profit.