Getting Started with KPIs
Setting KPIs for your goals is a matter of asking good questions. Keep asking the questions until you hit clarity and measurement that works.
Step #1: Identifying the Primary Goal
What is the goal that matters beyond all the others? For most HealthTech companies like yours, that goal is revenue. Other important goals might include brand awareness, customer retention, new employee recruitment, or the initial reception after a product launch.
For example, let’s say your goal is the total number of new customers attributed to marketing sources. The goal is not the KPI. We’ll get there in a minute, but work along with me to practice the process of determining the KPI.
Remember, most HealthTech companies have at least four sources of revenue:
- Revenue under contract from the previous term
- New revenue from existing customers
- New revenue from new customers generated by sales
- New revenue from new customers generated by marketing
Do you have any other sources? Add them to your list.
Let’s examine a series of hypothetical questions and answers to understand the revenue picture.
A Look at Revenue*
| Total Revenue from All Sources | $20,000,000 |
| Under Contract from Existing Customers | $16,000,000 |
| Expected New Revenue from Existing Customers | $2,000,000 |
| Total New Revenue Needed | $2,000,000 |
| Contribution by Sales to New Revenue | $1,000,000 |
| Contribution needed to New Revenue by Marketing | $1,000,000 |
| Average value of a new client | $500,000 |
| New Clients Needed from Marketing to Reach Goal | 2 |
*This is simplified for the sake of example. To do this more accurately, you would need to consider at what point in the year you signed a client. If you sign them midyear, for example, that would only net $250,000 in revenue in that fiscal year. If you have fewer, larger clients, I recommend using quarters. For SaaS companies with a higher volume of clients, use months (MRR).
A word about the average value of a customer: assuming there have been no major changes to your pricing model, the last 24 months give you a solid basis to form your calculations. Look at each client’s average month and average year to get a picture of how much a new client is worth over a 12-month period. If you don’t have enough historical data, analyze the revenue from clients that best fit your target persona. From there, hand the numbers to your finance department to review. They’ll help you determine the timing and finalize the targets.
In our example, we need two new clients attributable to marketing to reach our overall goal. You and I both know that the derivation of this number is not as simplistic as 9 lines of a table in an online article, but you can see the progression.
Before we determine the KPI to track to reach the goal, there’s one more question to ask.
How many customers were attributed to marketing last year? One.
From this information, we can determine that the marketing effort expended last year produced one new client attributable to marketing. What was performed last year, in essence, must be doubled to reach two clients attributed to marketing.
For the sake of the example, we have a goal. We will move from goal to KPI over the next few steps.
Step #2: Highlight the Critical Step to Reach the Goal
Work backward from success to set KPIs. We’ll start with the smallest number and work backward to the largest. The smallest number is one additional client from marketing channels during the last year.
What is the most important conversion tool to close sales? For most HealthTech companies, it is the demo—the transition point from the marketing funnel to the sales funnel. Become as granular as possible in your sales analysis because there are fewer variables. For many clients, the sales funnel is demo > proposal > contract > negotiation > signature. Marketing’s goal is to get that demo scheduled. This secures the transition from marketing qualified lead (MQL) to sales qualified lead (SQL) and, thus, from the marketing team to the sales team.
Important Note: One of the biggest mistakes we see companies make is to grade marketing success based on deals closed. If marketing generates MQLs, they have done their job. It is then the sales team’s job to close the deal. If the quality of MQLs are low, you can tweak the campaigns, or you can adjust your conversion rates to show that you need more MQLs to reach your goal. Don’t say, “Marketing isn’t working because we didn’t close those deals.”
How many demos from marketing efforts were performed last year that resulted in one client? For the sake of our example: 10 full demos.
Now we have our crux. In order to convert two new customers from marketing, we will need to provide 20 full demos.
What does it take to get to twenty demos?
Step #3: Research the Right KPIs and Statistics
We’ve zoomed in closely on our example business. Let’s pull back and look at some overall hypothetical numbers.
Example Funnel
| How many organic user sessions within the last 12 months? | 100,000 |
| How many website sessions lasted longer than two minutes? | 5,000 |
| How much was spent on display ads and PPC? | $100,000 |
| How many impressions were received? | 500,000 |
| How many clicks from paid? | 25,000 |
| Total user sessions (organic + PPC) | 125,000 |
| Landing page sessions | 60,000 |
| Downloads (conversions on landing pages) | 24,000 |
| Unique contacts who downloaded | 3 |
| Average number of downloads per contact | 24,000 |
| Non-demo form completions | 2,500 |
| Net new subscribers added to email list | 400 |
All of those numbers produced one customer. To figure out how much activity is needed to sign two new customers from marketing, we must understand what your funnel looks like.
Step #4: Map Indicators and Statistics to Your Funnel
A typical marketing funnel leads to the sales funnel, as you see here. You could have a master funnel plus a funnel for each major marketing tactic (e.g., webinars). Let’s identify these terms and fill in some numbers from our example.
Funnel Stage 01: Interest and Awareness
This is a picture of overall traffic that’s getting to your actual site. This includes all traffic from SEM—organic and paid, email, and referral traffic.
100,000 visits from organic searches plus 25,000 from paid advertising for 125,000 visitors. Any traffic driven to the site through her PR and trade show efforts would also be reflected here.
Funnel Stage 02: Leads
This ring shows potential customers who’ve indicated an interest in your business. These individuals have filled out a form or offered answers to qualifying questions.
Our example has 60,000 landing page sessions which resulted in 8,000 unique leads.
The lead ratios for HealthTech are complicated:
Traffic (01) to Interest (02) ratio: 6.4%
[Unique leads (8,000) / Traffic (125,000)]
According to Marketing Sherpa, Healthcare conversions hover around 8%. Software and SaaS conversions come in at 7%. Set your beginning organic HealthTech benchmark at 7.5%.
In our hypothetical example, 100,000 leads converting at 7.5% would render 7,500 leads.
WordStream has tracked Google ad conversion rates by category.
- Healthcare: 3.27% search ads; 0.59% display
- Technology: 2.09%; 0.39
- B2B: 2.41%; 0.46%
- 2.59% is an average of all three.
In our hypothetical example, 25,000 PPC leads converting at 2.59% would render 647 leads.
That’s a total of 8,147 leads at industry rates. Close to the overall projection of 8,000.
In addition to those linked above, check out these helpful articles on conversion rates by industry. Determine your own conversion rate table based on how your solution fits into all the categories.
- Jumpfactor
- Wordstream
- First Page Sage
- Kalungi
- Keyscouts (helpful but outdated)
Funnel Stage 03: Marketing Qualified Leads (MQLs)
These potential customers meet basic requirements (i.e., good fit for industry focus, budget to spend, etc.). There are dozens of ways to qualify leads.
Many companies use a form that asks questions before the user can download a piece of rich content. Based on the user’s answers a score is assigned. The higher the score, the more qualified the lead.
Other companies assign research to members of the marketing team to look into the website and company’s public file.
For our example, let’s say of the 8,000 contacts downloaded resources, a total of 1,000 met the requirements to become MQLs.
Lead (02) to MQL (03) ratio: 12.5%
[MQLs (1,000) / Leads (8,000)]
According to Unbounce, the industry benchmark lead-to-MQL ratio is 12%.
First Page Sage shows B2B SaaS, of which HealthTech is a segment, converting at a much higher rate, 44%.
Why such a large discrepancy between numbers? One theory holds that organizations that handoff early marketing leads to Sales Development Reports (SDRs) instead of nurturing them through online and email means reduce the conversion rate. However, most believe that the wide variety of definitions of these terms is what leads to confusion.
We encourage you to use the smaller number for your benchmark. If you get better results, fantastic. Pushing toward a harder objective never hurt anyone.
Funnel Stage 04: Sales Qualified Leads (SQLs)
After nurturing and other forms of communication, the lead expresses a desire to partner—most likely requesting a demo—and becomes an SQL.
Example: MQL (03) to SQL (04) ratio: 1%
[Demos Requested (10) / MQLs (1,000)]
A B2B MQL-to-SQL conversion ranges from .9% to 43.75%, depending on the source of the lead, according to research from SnapApp and Kalungi. Website leads typically convert at around 30%; lead lists are around 2.5%.
Funnel Stage 05: Sales Accepted Leads (SALs)
Not all companies use this signifier, but it can be important. An SAL means the sales leadership agrees that the SQL is worth pursuing. For example, Golden Spiral had a recent lead which met our qualifications and was interested in our material. However, working with them would have been a conflict of interest with an existing client, so we agreed they were not a good candidate for us and referred them to another agency.
Example: SQL (04) to SAL(05) ratio: 100%
[Accepted potentials (10) / Demos requested (10)]
When a lead has progressed through the funnel to SAL, hand the customer off to sales.
Example: SAL to signed customer: 10% [New customers (1) / Demos (10)]
Do you have an idea of your conversion rate from SAL to signed customer?
This means that from top to bottom, our example success rate is:
Overall funnel conversion rate: 0.013% [New customers (1) / Leads (8,000)]
Example Conversion Rates
| Stage | Result | Conversion Rate |
| Traffic | 100,000 organic + 25,000 paid | |
| Conversions/MQLs | 8,000 | 6.4% |
| SQLs | 1,000 | 12.5% |
| SALs | 10 | 1.0% |
| Signed Contracts | 1 | 10.0% |
Like MQL-to-SQL conversion rates, overall lead-to-deal conversion rates vary. Website rates are around 1.5% while event conversion rates are very low at 0.04%.
Take a moment to look at your conversion rates for the last year. What do you extrapolate your traffic and other factors will need to be for the next year?
Compare them to your numbers for the previous 12 months. How much growth is required? Is the growth similar to your year-over-year growth in the past? Or do the numbers reveal goals that are out of reach? If they are out of reach, schedule a meeting with your leadership to adjust your goals. Otherwise, move on to the next step: Analysis.
Step #5: Determine Your Focus Areas for Future Growth
One of the things I often say to my team is, “It all comes down to smart people making smart decisions.”
At Ratio, we’ve hired well, and we trust our team to make the best suggestions and strategies.
That attitude comes front and center when analyzing numbers like the ones we’ve sketched for our example. What do the numbers mean? I strongly believe that these numbers are triggers for conversion and deeper analysis:
- If you are “on track” or “off track,” why?
- What should you do to get back “on track?”
- Are you “off track” on one metric but “on track” overall? Why?
- Should you adjust your funnel to reflect the newer data?
There is no obvious “if, then” solution to this—it again comes down to smart people looking at the numbers, understanding the factors at play, and adjusting accordingly.
I noted a couple of sources for industry benchmarks for conversion rates. If you do your own research, you’ll find what I have: many sources contradict others. The best indicator of whether your business is working is your business. Is it growing? Do you experience positive momentum? Let the benchmarks be your guide, but trust your team and trust your own metrics.
In the case of our example, the most important focus area is:
Increasing top-of-the-funnel traffic.
Notice that the focus area doesn’t sound like a goal. It’s not specific or tied to a metric. The specificity comes in the next phase.
Step #6: Outline Your Marketing Plays for Each Focus Area
When you have identified your focus areas, move on to creating your playbook. “Play” is a word Ratio uses for “specific application of a marketing tactic or tool.” At this point in the process, marketing comes down to your people making the best decisions they can with the information they possess. Trust yourself. Trust your experience. Trust your team’s collective wisdom.
There are hundreds of tactics and tools you can put to use to reach your goals. We will not go into great detail here in this article on which plays to choose. You can look over our blog posts to find articles where we’ve expanded on certain plays like:
- SEO
- Pay-per-Click
- Marketing Automation
- Inbound Marketing
- Content Marketing
- Public Relations
- Website
Determine which plays you believe will best reach each goal, then create KPIs to accomplish them. Your marketing is interconnected, so one play may affect multiple goals, but as a general rule, track each play as if it were independent. One person should be accountable for the application of the play and the reporting of progress.
To highlight all of the plays and all of the tactics to accomplish our example’s goals would be impossible (or at least very tedious) in this post. Let’s look at just one play from our example.
Organic traffic was very strong. To bolster organic traffic, we could increase the frequency of their blogging from two to four times per month and offer six new pieces of gated content during the year. They will also refresh their existing white papers and eBook, giving them a total of 12 pieces of gated content.
Those are solid and time-tested tactics to increase organic traffic. How should they measure it?
Step #7: For Each Play, Create the Metric—KPI
The KPI is the measurement tool. Before we can set the KPI, there are a few other questions. Again, we will work backward through the funnel.
What do you need? 2 customers
How many demos will be required? 20 (10% conversion rate)
Last year, how many pieces of content did the average MQL download before requesting a demo? Three.
Last year, how many total MQLs did you have? 1,000.
8,000 downloads resulted in 10 demos. That means 16,000 downloads will be needed to result in 20.
Our KPI needs to measure the number of downloads. Roughly 300 downloads per week are needed to meet the goal. However, simple math isn’t how growth plays out. Two factors will alter these numbers. First, your product or service has seasons of stronger traffic. Secondly, growth happens exponentially. As you build content, traffic will increase and raise the number of downloads. Taking both into account, set a different overall KPI for each quarter and then extrapolate your weekly KPI.
For example —
Q1: 20% of goal
3,200 total downloads or 247 per week
Q2: 23% of goal
3,680 downloads or 283 per week
Q3: 27% of goal
4,320 downloads or 333 per week
Q4: 30% of goal
4,800 downloads or 370 per week
Note: setting KPIs for content marketing is notoriously tough, according to Databox, a digital KPI dashboard provider for businesses. “Content marketing is viewed as a long-term strategy;” says Elise Dopson, “It’s uncommon for a person to land on your blog post and purchase your product immediately.” They recommend certain KPIs for tracking your content strategy.
Step #8: Set Up a Scorecard to Track All of Your KPIs
A KPI is only good if you track it. A good scorecard helps you track every KPI. Scorecards can be simple spreadsheets or complicated, programmed dashboards. Don’t neglect to keep score just because you want a more elegant solution. Start with pen and paper if needed, and work up to your desired scorecard.
I am a fan of Traction by Gino Wickman and have built much of our operations model on his work. In his book, he offers three scorecard rules of thumb:
- The numbers in the scorecard should be weekly activity-based numbers.
- The scorecard is much more of a proactive tool, helping you to anticipate problems before they actually happen.
- When managing a scorecard, many clients find value in red-flagging categories that are off track.
For our Marketing and Sales Scorecard, we do all three. We meet weekly to go over our numbers and review the numbers associated with our respective KPIs. Each participant briefly explains why the number is on or off track. When activity dips in a certain area, we set action items to bring the area back up to the weekly measurement needed.
Our scorecard is color-coded for an “at a glance” look at tracking. It motivates the team to produce in the areas where we are not performing.
We are often off track on three or four KPIs each week, but that doesn’t mean we won’t hit our goals.
If a trend develops, it may be time for changes. For example, if in Q1, you are supposed to have 247 weekly downloads but regularly did not hit the goal, you would need to look deeper into your download strategy to discover what isn’t working. But take heart: If you hadn’t been tracking the number, you might have arrived at the end of the quarter in tough shape.
If you are consistently missing a target, one and/or two things are true:
- You are off-track.
- Your target for this KPI is not representative of your goal.
Anytime you are off track, you should seek to understand which of these things is true.
But let’s turn this example on its head. Suppose you need 247 weekly downloads and only hit 200 on average during the quarter, but the revenue from the closed deals exceeds the projections for the quarter. That’s a fantastic outcome. One KPI was missed, but the greater goal was achieved. KPIs are another way to tell the story and to know where you stand. Take all of them together as a whole.
Set Your Primary Goal
What is the most critical thing you must accomplish in the next fiscal year? If you have more time, scroll through the summary and questions below to map your entire KPI process.
