An Introduction to KPI

8/12/2019 An Introduction to KPI

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AN INTRODUCTION TO KPI

(KEY PERFORMANCE INDICATORS)

Key Performance Indicator as the namesuggests is an indicator particular to a firm,organization or institution that gives them the

performance (qualitative/quantitative) over a setgoal, that goal being the key priority to that firm.


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Choosing the right set of KPIs for a organization is veryimportant. This is because if the people running the

company dont know what their primary goal is and have

no defined standard to measure the same, they will lagbehind and their focus would be too divided.

In order to identify the right KPI, one must be clear offuture targets and stratezise accordingly. Like for a

particular firm, revenue growth rate may be the focuswhile for some other firm, customer satisfaction in terms

of quality of goods may be the focus.

In following slides, I present to you KPIs related tomarketing.


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KPI FOR MARKETING Market Growth Rate

Market Share

Brand Equity

Cost per lead

Conversion Rate

Search Engine Rankings (by keyword) and click-through rate

Page Views and Bounce Rate

Customer Online Engagement Level

Online Share of Voice (OSOV) Social Networking Footprint

Klout Score


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Market Growth Rate

Understanding the size of the market in which acompany is operating and the rate at which this marketis shrinking or growing is a key indicator to assess

future revenue growth potential.Market Growth Rate is usually measured on an annualbasis but reports for the same may be submitted on aquarterly basis .

Formula for Market Growth Rate:

Market Growth Rate(%) = (Total sale in the market inthis year/

Total sale in the market inlast year) *100


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Example of Market Growth Rate Analysis

The market growth rate is also a keyindication of the product's stage in theproduct life cycle (the product life cycle will

be discussed in an upcoming section). A highgrowth rate will usually indicate the market isin the growth phase, where growth is high

and saturation is low. A lower, more-stablegrowth rate indicates product maturation and,of course, a negative market growth rate

indicates the product decline stage.


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Smartphones and their Growth Rate

Market growth Rate also gives prediction about the fututre and thecompanies may set their targets accordingly.

For example, for a smartphone-

According to a new market research report, World Mobile phone &Smartphone Market (20102015), the total global mobile handset marketis expected to reach US$341.4 billion by 2015 while smartphone sales willaccount for 75.8% of the overall mobile handset revenue at US$258.9 billionin the same year. Apple is expected to lead the growth till 2015 commandinglargest share of the overall mobile handset revenue with 25.8% marketshare while Nokia will be at the second place with 21% market share. Theglobal smartphone market is expected to register higher CAGR (24.9%) ascompared to overall mobile handset market (14.7%) during 2010 and 2015.

So, if a company like Samsung emphasises on market growth rateas its KPI, it may well focus into smartphones


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Market Share

Market shareis the percentage of a market(defined in terms of either unitsor revenue) accounted for by a specific entity.

Increasing market share is one of the most important objectives

of business. The main advantage of using market share as a measure ofbusiness performance is that it is less dependent uponmacroenvironmentalvariablessuch as the state of the economy or changes in tax policy.

Market share is a key indicator of market competitivenessthat is, how well

a firm is doing against its competitors. "This metric, supplemented bychanges in sales revenue, helps managers evaluate both primary andselective demand in their market. That is, it enables them to judge not onlytotal market growth or decline but also trends in customers selections

among competitors.
http://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Tax_policyhttp://en.wikipedia.org/wiki/Tax_policyhttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Environmental_scanninghttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Market


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FIGURE 1 MARKET GROWTH RATE: MARKET SHARE MEASUREMENT

Company

AnnualSales(USD

Million)

MarketShare

(%)

Growthfrom

Previo

usYear(%)

Weighted

Growth (%)

A 742 48.6 11 5.3

B 617 40.4 13 5.2

C 105 6.8 24 1.6

D 60 3.9 75 2.0

Total 1,524

Weighted Average Growth: 15%


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Calculating Market Share

"Market share:The percentage of a market accounted for by a specific entity.

"Unit market share:The units sold by a particular company as a percentage oftotal market sales, measured in the same units.

Unit market share (%) = 100 * Unit sales (#) / Total Market Unit Sales (#)"This

formula, of course, can be rearranged to derive either unit sales or total marketunit sales from the other two variables, as illustrated in the following:

Unit sales (#) = Unit market share (%) * Total Market Unit Sales (#) / 100TotalMarket Unit Sales (#) = 100 * Unit sales (#) / Unit market share (%)

"Revenue market share:Revenue market share differs from unit market share inthat it reflects the prices at which goods are sold. In fact, a relatively simple way tocalculate relative price is to divide revenue market share by unit market share.

Revenue market share (%) = 100 * Sales Revenue ($) / Total Market SalesRevenue($)


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Brand Equity as KPI

Brand equityis a phraseused in the marketingindustry which describes the valueof having a well-known brand name, based on the idea that the owner of a well-known brand name can generate more money from products with that brand namethan from products with a less well known name, as consumers believe that aproduct with a well-known name is better than products with less well-known names.

Some marketing researchers have concluded that brands are one of the mostvaluable assets a company has,[5]as brand equity is one of the factors which canincrease the financial value of a brand to the brand owner, although not the only one.Elements that can be included in the valuation of brand equity include (but not limitedto): changing market share, profit margins, consumer recognition of logos andother visual elements, brand languageassociations made by consumers, consumers'perceptions of quality and other relevant brand values.

Elements that can be included in the valuation of brand equity include (but not limitedto): changing market share, profit margins, consumer recognition of logos andother visual elements, brand languageassociations made by consumers, consumers'perceptions of quality and other relevant brand values.
http://en.wikipedia.org/wiki/Phrasehttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Brand_namehttp://en.wikipedia.org/wiki/Brand_equityhttp://en.wikipedia.org/wiki/Visual_brand_languagehttp://en.wikipedia.org/wiki/Brand_languagehttp://en.wikipedia.org/wiki/Visual_brand_languagehttp://en.wikipedia.org/wiki/Brand_languagehttp://en.wikipedia.org/wiki/Brand_languagehttp://en.wikipedia.org/wiki/Visual_brand_languagehttp://en.wikipedia.org/wiki/Brand_languagehttp://en.wikipedia.org/wiki/Visual_brand_languagehttp://en.wikipedia.org/wiki/Brand_equityhttp://en.wikipedia.org/wiki/Brand_namehttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Phrase


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Measuring Brand Equity

Brand Equity is supposed to be an important KPI anda lot of companies rely on a brand name more thananything else.

Brand Equity Index (Moran)Marketing executive BillMoran has derived an index of brand equity as theproduct of three factors:

Effective Market Shareis a weighted average. Itrepresents the sum of a brand's market shares inall segments in which it competes, weighted byeach segment's proportion of that brand's total

sales.

Relative Priceis a ratio. It represents the price ofgoods sold under a given brand, divided by theaverage price of comparable goods in themarket.

Durabilityis a measure of customer retention or

loyalty. It represents the percentage of a brand'scustomers who will continue to buy goods under

Brand Equity tree:


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Examples of Brand Equity (India)

Coke v/s Pepsi

COKE PEPSI

By looking at thePicture, we realize

That coke has

Maintained

Familiarity

More

Than

pepsi

But also, we see that pepsih has changed a lot which

one may say is a way

to keep up with

the changing

times.

So, it depends a lot onwhich consumers you targetin the way you shape up yourbrand.


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Analysis of a B2B companys CPL

Marketo defines a lead how mostcompanies might identify a marketing-qualified lead, so at Marketo prospects arein effect its traditionally defined leads.Confused yet?

Virtual beats traditional in trade shows

Virtual trade shows stand out in this list

because they create the most prospects atthe lowest cost-per-lead. In fact, the figure onthe far right of this chart, lead-to-opportunityindex, is calibrated to the virtual trade showstatistics.

For us, virtual trade shows work great, Jonsays. You get the database really cheap andthey become leads, too.

He adds that pay-per-click advertising has afairly high cost-per-lead, but they also convertto opportunities at a high level at the highestvelocity (in terms of least days), and theyalmost double the closest conversion-to-leadfigure. It is worth it to Marketo to spend theextra cost-per-lead money on PPC ads

This chart takes a look at Marketosprospectgeneration metrics for the last two quarters of2010. You will notice above the line are effortsJon pays some marginal cost for and eachincludes its cost-per-lead. Below the line areMarketosnon-marginal-cost inboundmarketing efforts.


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Conversion Rate as KPI

Conversion marketingis an e-Commercephrase most commonly used to describe the act of

converting site visitors into paying customers. Although different sites may consider a "conversion"to be some sort of result other than a sale. One example of a conversion event other than a sale isif a customer were to abandon an online shopping cart, the company could market a special offer,e.g. free shipping, to convert the visitor into a paying customer. A company may also try to recoverthe abandoner through an online engagement method such as proactive chat in an attempt toassist the customer through the purchase process

Conversion rate = No. of Goal Achievements/ Visits

Methods of increasing conversion rates in e-commerce

Among the many actions taken to attempt to increase the conversion rate, these are the mostrelevant:

Generate user reviews of the product or service

clear distinction

of the website for a certain conversion goal (e.g. "increase sign-ins fornewsletter") Improve and focus the content of the website (which may include text, pictures and video) to

target conversion Increase usabilityto reduce the barriers to conversion Improve site navigation structure so that users can find and browse without thinking too much

about where to click Improve credibility and trust by showing third-party trust logos and by good site design useAIDA(attention, interest, desire, action) to move the user through the conversion funnel
http://en.wikipedia.org/wiki/Electronic_commercehttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Usabilityhttp://en.wikipedia.org/wiki/AIDA_(marketing)http://en.wikipedia.org/wiki/Conversion_funnelhttp://en.wikipedia.org/wiki/Conversion_funnelhttp://en.wikipedia.org/wiki/AIDA_(marketing)http://en.wikipedia.org/wiki/Usabilityhttp://en.wikipedia.org/wiki/Customerhttp://en.wikipedia.org/wiki/Electronic_commercehttp://en.wikipedia.org/wiki/Electronic_commercehttp://en.wikipedia.org/wiki/Electronic_commerce


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An Example For Conversion Rate- FLIPKART

In August, Flipkart digital VP Sameer Nigam indicated that, Flipkart crossed Rs 1 billionin revenue in July. This is Rs 100 crore in revenue for the month, or in USD terms isabout USD 18 million (taking 1 USD = 55.1948 INR, average for the month).

Now popular site, Trafficestimate.com, gives traffic estimates for popular web-sites onthe net. The graph below shows traffic estimates for Flipkart.


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An Example For Conversion Rate- FLIPKARTWe see that Flipkart did approximately 33.11 million visitors in the month of July. Now most e-

commerce sites have a 1-2% conversion rate (traffic to customers). Assuming a 1.5%conversion rate we get the estimate that Flipkart had 33.11 million X 1.5% = 0.5 millioncustomers (approx), who bought something at the website.

So how much does the average customer at Flipkart spend ? According to the comScore-ASSOCHAM report on the State of E-Commerce in India (2012), this figure stands at $35per transaction. This means that the estimate for Flipkartsrevenue in the month of July isapproximately 0.5 million X $35 = 17.5 USD million

As we can see this is pretty close to reported revenues. Further, plotting revenue estimates bythis method for the last 12 months, we get the following graph
http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/http://techcircle.vccircle.com/500/apparel-e-com-fastest-growing-category-one-in-10-indians-logged-online-in-july-comscore/


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Search Engine Rankings And Click-Thru Rate

Click-through rate(CTR) is a way of measuring the success of an onlineadvertisingcampaign for a particular website as well as the effectiveness of anemail campaign by the number of users that clicked on a specific link.

The purpose of click-through rates is to capture customers' initial response towebsites. Most commercial websites are designed to elicit some sort of action,whether it be to buy a book, read a news article, watch a music video, or search fora flight. People generally don't visit a website with the intention of viewingadvertisements, just as people rarely watch TV with the purpose of consumingcommercials

CTR= Clicks/Impression

Click-through rates for banner adshave fallen over time. When banner ads firststarted to appear, it was not uncommon to have rates above five percent. Theyhave fallen since then, currently averaging closer to 0.2 or 0.3 percent.In mostcases, a 2% click-through rate would be considered very successful, though theexact number is hotly debated and would vary depending on the situation. Theaverage click-through rate of 3% in the 1990s declined to 2.4%-0.4% by 2002.
http://en.wikipedia.org/wiki/Online_advertisinghttp://en.wikipedia.org/wiki/Online_advertisinghttp://en.wikipedia.org/wiki/Banner_adshttp://en.wikipedia.org/wiki/Banner_adshttp://en.wikipedia.org/wiki/Online_advertisinghttp://en.wikipedia.org/wiki/Online_advertising


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Click Through Rate of Facebook Ads- An Example

Refer the link- http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/

The average click-through rate for Facebook Inc. ads for

Nanigans retailer clients stood at 0.20% in the third quarter

of 2013, up from 0.05% the same period a year earlier. However,

the cost-per-thousand (CPM) impressions for the ads increased

169.7% to 89 cents in the third quarter compared with 33 cents

a year earlier. But while CPM costs have risen, the cost per click

has decreased. The average cost per click fell to 45 cents in the

third quarter, down from 62 cents a year earlier.

Also refer to - http://www.smartinsights.com/internet-advertising/internet-advertising-analytics/display-advertising-clickthrough-rates/
http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/http://digiday.com/platforms/facebook-ads-are-killing-it-but-why/

An Introduction to KPI

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