The Crucial Difference Between KPI and ROI Metrics
November 17, 2019
Editor's Note: This blog post is based on a recent LinkedIn research report, "The Long and Short of ROI." For a deep dive into this research, register now for the Tuesday, November 19, "Live With Marketers," when an all-star panel will discuss ROI, KPIs, and more.
When digital marketers begin to think about ROI measurement, it can feel natural to gravitate towards commonly used marketing metrics, such as traffic and clicks. While these metrics might be more readily available, they aren’t really measuring ROI. Instead, they are actually key performance indicators (KPIs), which should be primarily used to optimize their campaigns.
These KPI metrics may be, as the name implies, indicators of a potentially strong return on investment, but they fall short of measuring the true impact and value of one’s advertising investment. KPIs allow marketers to assess the short-term impact of their campaigns, but likely do not tell the full story of the value a campaign (or campaigns) are driving.
The book on KPIs
Consider the use cases of KPI metrics vs. ROI measurement in terms of reading a book. KPIs tell you what happens after each chapter, whereas ROI tells you what happened after the conclusion of the entire story. KPIs are a forward-looking predictor of end performance, whereas ROI is used as a backward-looking informer of future budget allocation decisions.
Let’s walk through one example of what this looks like in practice. In our survey, A recent study conducted by LinkedIn, "The Long and Short of ROI," found that 42% of marketers with a lead generation objective claimed to use CPC (Cost-Per-Click) as their metric for measuring ROI. Why is this a problem?
- First, digital marketers are using KPIs and communicating it as if it were ROI. In this case, CPC is a KPI and does not show impact of advertising dollars spent.
- Second, in their rush to prove impact, digital marketers are often leveraging the wrong metric itself. In this case, digital marketers would be better served to use CPL (Cost-Per-Lead) instead of CPC in order to measure Lead Generation success.
Going long doesn’t mean ignoring short-term signals
Marketers shouldn’t just set it and forget it and let their programs run, unoptimized, until they can report on ROI. Key Performance Indicators (KPIs) play a crucial role in the measurement landscape as directional metrics. For instance, throughout the sales life cycle, it is valuable for marketers to measure KPIs based on objectives. Marketers should share these KPIs with stakeholders, clarifying what they mean and how they should be interpreted and used. It is important to communicate that these KPIs are not telling the full ROI story. They are leading indicators of future ROI outcomes and should be used to make campaign optimization decisions.
ROI is a long-term game. While KPIs are incredibly important to help gauge short-term performance and optimization decisions, they shouldn’t be confused with ROI. ROI tells you the whole story, while KPIs reveal the chapters.
To hear a deep dive into the "The Long and Short of ROI" research, register for the next LinkedIn "Live With Marketers," which takes place Tuesday, November 19, at 2pm ET/11am PT. This episode, "Why Measuring ROI Quickly Poses Challenges for Marketers," features Mod Girl Marketing's Mandy McEwen and LinkedIn's Alex Rynne, Ami Trivedi, and Andrew Kaplan.
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