Key Performance Indicator (KPI) frameworks: part 2 of 3

Thursday, March 06, 2014
dougholmes

In the previous post in this series, I outlined what KPI frameworks are, and why exactly we need them. To summarise, KPI Frameworks are an antidote to what Avinash Kaushik refers to as “the root cause of failure” for many digital marketing campaigns, namely “the lack of structured thinking about what the real purpose of [a] campaign is and a lack of an objective set of measures with which to identify success or failure.”.

In this post, I outline a structured process for generating a Top Down KPI framework (one of the several varieties available), borrowing heavily from Avinash’s article on the subject (http://www.kaushik.net/avinash/digital-marketing-and-measurement-model/), and input from the great guys at Lynchpin (http://www.lynchpin.com/). The different stages involved in generating such a framework are as follows: 1. Identification of business objectives.

2. Identification of goals for each objective.

3. Identification of Key Performance Indicators (KPIs) for each goal.

4. Identification of targets for each KPI.

5. Identification of important segments to help interpret progress towards targets.

6. Identification of Critical Success Factors (CSFs).

7. Achieving final approval.

The example used to illustrate each of these stages are for a website-based freemium game which monetises through subscriptions. This is motivated by Ambergreen’s work with various gaming clients. Step 1

1. Identification of business objectives

What are business objectives?

Business objectives are the answer to the question, “Why does this website/marketing campaign exist?”. Often, the answer to this question is surprisingly difficult to discern, varying significantly from stakeholder to stakeholder.

Why is setting business objectives important?

Formally specifying business objectives is important to make sure there is true buy-in from decision makers into the purpose of the website/marketing campaign, and that the overall focus is correct. It provides a foundation for the rest of the framework which makes it easier to quickly interpret why particular goals/KPIs exist. It is also an early check on unrealistic expectations so long as the objectives are “DUMB”, or:

  • Doable

The objectives should be within the realm of possibility.

  • Understandable

The objectives should require little explanation, even to those with a cursory understanding of the website/marketing campaign.

  • Manageable

The objectives should be achievable given the constraints on resource.

  • Beneficial

The completion of the objectives should genuinely help the organization that is intended to profit from the website/marketing campaign. How do you go about determining business objectives?

We recommend going through the following steps when determining business objectives:

1. Explore the context of the website/marketing campaign

It is important to understand the challenges being faced by the organisation in charge of the website/marketing campaign in order to make sure that the most promising opportunities are considered.

2. Identify key stakeholders

It is important to make sure that the people who are most involved in the website/campaign are formally identified so that the right people are asked the crucial questions as to what the website/campaign is there to do.

3. Solicit business objectives from key stakeholders

Once they have been identified, the next stage is to hold discussions with key stakeholders in order to extract what they think the business objectives should be. This is not always easy, as it is often difficult to get a hold of senior decision makers, but is very important for discovering true success criteria.

4. Interrogate the business objectives

It is often useful for whomever is leading the KPI framework generation to identify additional opportunities based on the previous steps. This helps ensure that marketing gets the full credit for what it is responsible for.

5. Gather business objectives and get sign off from key stakeholders.

Once the business objectives have been collected together into a formal document, getting signoff from the key stakeholders is useful to make sure that subsequent work is not misspent on objectives there is a lack of buy-in to.

While going through this process, it is helpful to ignore anything to do with how these objectives are to be achieved. It may be that you want to run a PPC campaign targeting generic search terms, but this can be a distraction from the fundamental questions regarding why activity should be done in the first place. What are some examples of business objectives?

Sample business objectives could be:

  • Grow brand.
  • Generate paying players.
  • Increase Customer Lifetime Value (CLV)

Step 2 2. Identification of goals for each objective What are goals?

Goals are “specific strategies that are necessary to accomplish business objectives” (http://www.kaushik.net/avinash/web-analytics-101-definitions-goals-metrics-kpis-dimensions-targets/#goals). These are the next level breakdown from the top-level business objectives. It is not possible to implement business objectives directly – they are too general. For example, “Generating more awareness” might translate to something like “Reinforce online/offline advertising”.

 Why is setting goals important?

Formally identifying goals helps make sure you can see all your options for achieving business objectives. Often people will focus on reducing spend for example, rather than improving conversion rates. Having goals as part of your KPI framework acts as a constant reminder of the different approaches you can take, and thus makes it more likely that resource will be allocated efficiently.

How do you go about determining goals?

The process for generating goals is very similar to that for business objectives, involving discussions with key stakeholders as well as independent research by the analyst generating the KPI framework.

It is important that you focus here on “micro goals” (“the relationship building activities that lead up to a macro conversion” – https://analyticsacademy.withgoogle.com/assets/pdf/DigitalAnalyticsFundamentals-Lesson4.4SettingupgoalsandecommerceText.pdf) as well as “macro goals” (goals that lead directly to your primary business objectives). For example, from a gaming perspective, instead of only thinking about getting players to give money (a macro goal), think in terms of getting players to intermediary stages on the way to giving money, for example, achieving a certain level of social engagement with other players (an example of a micro conversion). this is useful for identifying all opportunities for improvement. Sometimes, the value of these micro-conversions can be multiples of the macro-conversion For an excellent article on how to determine the value of these micro-conversions, including how to put a value on Youtube views, see http://www.kaushik.net/avinash/web-analytics-tips-identify-website-goal-values/. What are some examples of goals?

For the Grow brand objective, sample goals might include

  • Macro – Increase the number of people who come to the website

  • Macro – Increase the extent to which people come back to the site

  • Micro – Increase owned channel (e.g. Youtube) reach

Step 3

3. Identification of Key Performance Indicators (KPIs) for each goal

What are KPIs?

KPIs are the measures used to determine performance toward goals. It is important to determine the most relevant KPIs for your goals to make sure that a change in those metrics is truly significant in terms of the goal with which it is associated.

Why is setting KPIs important?

Setting KPIs is important because they enable measurement towards goal completion in an objective fashion.

How do you go about determining KPIs?

In order to determine what KPIs to use for a particular goal, answer the following question: “what metrics would give a complete, and specific representation of progress towards my goal?”. This often leads to a series of important questions. For example, are you really interested in pageviews? If someone went to your site to find a particular piece of information, multiple pageviews could be a bad sign, as it required visitors to go through irrelevant content before they found the information they needed. Depending on the scope of your project, you may not be able to use the most appropriate KPIs due to tracking limitations.

What are some examples of KPIs?

For the “Increase the number of people who come to the website” goal, a sample KPI could be:

  • Increase the number of visitors

Step 4 4. Identification of targets for each KPI What are targets?

To borrow from Avinash: “targets are numerical values you’ve pre-determined as indicators of success or failure”.

Why is setting targets important?

Setting targets help enforce discipline with the way marketing plans are carried out. We all have far too little time to do everything we want to do in marketing – setting targets makes us carry out cost/benefit analyses on a regular basis, helping us to ensure our time is well spent. For example, if we have to choose between spending time trying to get more visitors from organic search, or improving conversion rates, the knowledge that there is very little incremental traffic available would certainly influence that decision – as would be revealed by the process of generating targets. It also lets everyone know instantly whether marketing is on track or not, which makes it easier for people to buy into this data-driven approach.

How do you determine targets?

There are several sources of information to help set targets.

These include:

  • Historical performance.

  • Estimates based on research tools (e.g. using the Adwords keyword planner tool to forecast PPC traffic).

  • Consulting other parties within the organisation (e.g. Finance, people who have run similar websites/campaigns previously).

If there is insufficient data available to create reliable number-based targets, it is best practice to go through the process of trying to set targets regardless until the first batch of actual data comes in to focus marketing effort. What are some examples of targets?

For the “Increase the number of visitors” KPI, the target could be

  • 10% increase in visitors per month within 6 months.

Step 5

5. Identification of important segments to help interpret progress towards the set targets

What are segments?

A segment is a group united by some set of shared characteristics.

Why is setting them important?

Quoting from Avinash (again): ”all data in aggregate is crap”. Fluctuations in business metrics are caused by groups of certain people doing things. It is important to break down overall numbers to help identify precisely where opportunity lies.

How do you determine which segments to use?

Again, consulting key stakeholders will provide valuable insight into which segments to choose for each goal. To help stimulate this conversation, try asking the following questions:

  • Who are we trying to attract?

  • Should we have different outcomes based on the different types of people coming to the website?

  • What are the key traffic drivers?

  • Do we expect traffic behaviour to be different by device?

What are some examples of segments?

For the number of visitors KPI, segments could include:

  • New/returning visitors

  • Traffic source

  • Specific referrers

  • Landing page

Step 6 6. Identification of Critical Success Factors (CSFs) What are CSFs?

A critical success factor is an element of a marketing campaign which is necessary (but not sufficient) to complete its goals.

Why is setting them important?

Without understanding what is necessary to complete marketing goals, these crucial elements may not be dealt with properly, which in turn can critically affect the ability of marketing teams to execute on goals.

How do you determine what your CSFs are?

To identify CSFs, try brainstorming around the following key types of CSFs, as presented by Rockart and Bullen:

  • Industry

  • Competitive strategy and industry position.

  • Environmental factors

  • Temporal factors

  • Managerial position (if considered from an individual’s point of view).

See http://rapidbi.com/how-to-write-a-critical-success-factor-csf/ for more information. What are some examples of CSFs?

An example of a CSF which applies to the “10% increase in visitors per month goal” could be:

  • Implementation of click tracking (e.g. Bit.ly) to assess traffic sources.

Step 7

7. Achieving final approval

Once the full plan has been created, make sure the key stakeholders provide the final sign off on the document. Producing a KPI framework is not an easy thing to do, and will certainly take  substantial time to produce, but it is time that you would be hard pressed to find a better use for; a KPI framework acts as the beating heart for well managed digital campaigns.  In terms of estimating how much time to put aside for this process, this is generally proportional to the number of conflicting views/business models in the organisation and how many iterations are required to bring out the common ground. Commonly this in the range of 1-3 days. Also,  as a general rule, if you can’t fit the KPI framework on a single side of A4 then it has become too complex to manage.

It is also worth noting that CSFs can change over time whereas ideally the rest of the framework is reasonably static. We like to connect CSFs to the KPI framework in order to emphasize that in order for targets to be met, certain things need to happen, but due to the volatility of CSFs this requires regular review. Sample KPI Framework

In part 3 of this blog post series we will look at real life examples of and sample models for making the most of analytics and KPIs.