Which marketing KPIs matter?

What a KPI is, and how to choose them

A key performance indicator (KPI) is a number you track because it tells you whether you are moving toward a goal. If a number would not change a decision, it is a statistic, not a KPI.

Choose KPIs from your goal backward. Start with the outcome that pays, such as revenue or booked jobs, then pick one measure for each step in the path to it. That is usually five to eight numbers in total, reviewed on the same schedule as your growth roadmap.

Leading and lagging indicators

Lagging indicators measure results after the fact: revenue, closed deals, profit. They are what you care about but they arrive late, often weeks or months after the work that caused them.

A leading indicator moves first and predicts the result: quote requests, completed forms, phone calls, demo bookings, add-to-cart rate. In Google Analytics, you mark these actions as key events, which Google defines as events that measure an action particularly important to the success of your business.

Use leading indicators for weekly checks and lagging ones for monthly and quarterly reviews. A drop in form completions this week is a prompt to look at the page today, not to wait for next quarter’s revenue.

Leads, qualified leads and revenue

A lead is anyone who raises their hand. A qualified lead is a lead judged likely to buy. HubSpot’s documentation, as a vendor example, separates stages: a lead converts on your site, a marketing qualified lead is judged by marketing as ready for sales, and a sales qualified lead is one the sales team accepts as a potential customer.

You do not need that terminology, but you need a written rule for "qualified", such as "within our service area, budget above a minimum, and asking for a quote". Without it, a campaign that brings 100 unsuitable enquiries looks better than one that brings 20 good ones.

Ideally, feed outcomes back to your ad platform. Google Ads supports offline conversion imports, which let you report sales that happen after an ad click, such as a lead that became a customer. That helps optimisation aim at customers instead of form fills.

Conversion rate and cost per lead

Conversion rate is the share of people who take the action you want. Google Analytics defines session key event rate as sessions with a key event divided by total sessions, and user key event rate as users who completed a key event divided by total users. Google Ads defines conversion rate as conversions divided by eligible ad interactions such as clicks.

Cost per lead is spend divided by leads. Google Ads calls the paid version cost per conversion: total cost divided by conversions. Example: you spend 3,000 on ads, get 1,000 clicks and 60 leads. The conversion rate is 60 / 1,000 = 6 percent. Cost per lead is 3,000 / 60 = 50.

Now apply your rule for qualified leads. If 15 of the 60 qualify, cost per qualified lead is 3,000 / 15 = 200. That figure, not 50, is what you compare with the value of a customer.

CAC, LTV and payback

Customer acquisition cost is the total sales and marketing cost to win a customer: CAC = sales and marketing spend in a period / new customers in that period. Include ad spend, tools, agency fees and the time of the people who sell. In the example, 3,000 in ads plus 1,000 in other costs and 5 new customers gives a CAC of 800.

Customer lifetime value is what a customer is worth over the relationship. A simple version uses gross margin: average monthly gross margin per customer x average months retained. If each customer yields 100 a month in gross margin and stays 24 months, LTV is 2,400.

Payback period is how long it takes to earn back CAC: CAC / monthly gross margin per customer. Here, 800 / 100 = 8 months. LTV divided by CAC is 2,400 / 800 = 3.

David Skok, a venture investor, describes in his SaaS metrics guide a rule of thumb that good subscription businesses have an LTV:CAC ratio above 3 and recover CAC within 12 months, and says these are guidelines with exceptions. Treat them as a sanity check, not a target for every business. A shop with repeat orders or a law firm with large one-off fees needs its own version.

Harvard Business Review’s Amy Gallo (2014) reports that acquiring a customer can cost five to 25 times more than keeping one, depending on the study and industry. That is why repeat rate and retention belong beside CAC.

Vanity metrics to ignore, and what to use instead

A vanity metric looks good but does not guide action: page views, social followers, total email subscribers, impressions. The test is simple: if the number moved, would you know what to do differently? If not, it is vanity.

They are not useless, but they cannot be the goal. Replace raw traffic with qualified visits and conversion rate. Replace followers with enquiries from social. Replace impressions with share of visits that reach a key page.

Engagement rate is a middle case. Google Analytics defines it as engaged sessions divided by total sessions, where an engaged session lasts longer than 10 seconds, has a key event or has two or more page views. It is a useful health check, but a high rate does not mean revenue.

How to set up measurement and report

• Write a one-line definition for each KPI: what counts, what does not, and where the number comes from.
• Mark your key events in analytics and test them by completing each action yourself.
• Log lead source and outcome in your CRM or a spreadsheet, so you can calculate cost per qualified lead and CAC by channel.
• Review leading indicators weekly, a one-page report monthly, and LTV and payback quarterly.
• Report the number, the change from last period and one sentence on what you will do about it.