Businesses across the world spent more than 520 billion U.S. dollars on digital advertising in 2021 and Statista projects this amount to exceed 870 billion dollars in 2026. What is performance marketing?Businesses across the world spent more than 520 billion U.S. dollars on digital advertising in 2021 and Statista projects this amount to exceed 870 billion dollars in 2026.
We have briefly introduced various types of marketing in “28 Different Types of Marketing and More but here we will talk about Performance Marketing in more details. In performance marketing often retailers team up with affiliates and create a high ROI strategy to reach and convert target audience, run advertising campaigns, and receive brand exposure.
What Is Performance Marketing?
Performance marketing is a combination of paid advertising and brand marketing in which affiliate or marketing agencies are get paid only if a certain objective such as sales, completed leads, downloads, or bookings are completed.
Performance marketing is an overarching type of marketing that include affiliate marketing, email marketing, influencer marketing, search marketing, and other types of marketing in which partners exchange performance for commission payouts.
An effective performance marketing team consist of retailers or merchants, affiliates or publishers, networks and tracking platforms, and managers. Each group is working towards completing the desired performance.
Merchants are the advertisers, looking to promote a product or service. Retailers partner with affiliates and devise campaign goals and pay if those goals are achieved. Given the significant impact of influencers on customers’ purchasing decisions, investing in performance marketing leads to increased sales and new customer acquisition.
Affiliates use their platform and influence to improve merchants’ performance and in return retailers support affiliates to be successful. Affiliates may use their blog posts, social groups, and social channels to promote a brand or specific product. Affiliates use their reputation to increase traffic and sales as well as to build trust around the product or service they are reviewing or promoting.
Merchants and affiliates keep track of leads, conversions, and, in general, the campaign performance through affiliate networks or tracking platforms. Tracking platforms provide useful tools to create strategic commission structure, handle payouts and promotions, and manage newsletters.
Either to manage their entire program or lead the in-house team, merchants need to hire affiliate managers. Depending on marketing budget, branding strategy, and specific goals merchants choose to outsource the affiliate manager position or use their in-house expertise.
Benefits of Performance Marketing
Performance marketing is most beneficial when businesses decide to scale up and expand. Investing in performance marketing enables businesses to:
Increase brand awareness and site traffic through working with affiliates and advertising agencies that have their own established audience.
Identify channels and partners that produce better results. Tracking and measuring the entire click-to-consume path of each buyer is easier through performance marketing methods.
Lower the risk of investment in particular growth strategies. In performance marketing, affiliates are paid after a certain goal is achieved. Therefore, the cost of acquiring new customers is low while return on investment is high, leaving room in budget for testing different strategies.
Most Common Performance Marketing Methods
Marketers choose to employ different performance marketing methods based on the business goals, brand, and the industry. Here, we outline different types of performance marketing. One may choose to stick with one or mix several methods in their performance strategies.
We talked about What is performance marketing and affiliate marketing above. Merchants and retailers pay the affiliates when customers complete a certain action. In the digital world, affiliate marketing normally happens based on a partnership with an influencer, blogger, or a YouTuber and involves promotions and coupon, loyalty payments, and incentive sites.
The goal of native advertising is to hide in plain sight. Unlike traditional ads, native advertising blends in the form of its hosting platform. It could look like a news article on a news site or an interview on a social site. On streaming platforms, a native advertising may show up as a suggestion to watch a sponsored video.
Retailers mostly use pay per impression and cost per click as payment models in native marketing.
Content marketing and sponsored content
Content marketing is the most affordable method of educating target audience. Through content marketing, businesses provide useful information to consumers while putting their brand in the context. Content marketing usually use channels like blog posts, white papers, case studies, and infographics.
Businesses normally post sponsored content on platforms that publish similar content. This way, the sponsored content blends well with the rest of the marketing materials.
Social media marketing
Instagram, Facebook, and LinkedIn are the most used social media platforms. So, performance marketers use these social networks to reach to new customers, increase site traffic, and boost brand awareness through “likes” and “shares.”
Banner (Display) Ads
Display ads pop up on Facebook, news pages, and almost every other online pages you visit. These ads were common before the popularity of ad blockers. However, some marketers still believe in the magic of an interactive banner ad, a video, or engaging graphic design that will show up on the corner or bottom of an online page.
Paid search marketing
In paid search marketing, an advertiser would pay each time viewers click on a sponsored ad on search engines like Google, Bing, or Yahoo.
Search Engine Optimization (SEO)
Unlike paid search marketing, SEO is unpaid method that relies on search algorithms to increase traffic. But the first step is to have a site that is optimized for search engine marketing (SEM).
Performance marketers either rely on Cost Per Click (CPS) for paid advertisement, or on content marketing and SEO-optimized landing pages for organic SEM.
How Do You Measure Performance Marketing?
Regardless of performance marketing methods used, every action in performance marketing can be tracked and measured against key performance indicators (KPIs). We list some of the most used metrics and KPIs for our readers to have a better understanding of performance marketing pricing.
Cost Per Click (CPC)
Most common way of driving traffic to your site is to place clickable ads online and pay affiliates based on number of clicks. CPC is a good measure of viewers engagement since they act and click on the ad.
Higher CPC usually translates to higher conversion value, normally used for luxury brands. In these cases, though the cost per click is higher but the return is also higher.
It worth to note that in platforms like Google a click means a viewer clicks through the advertised website while in social media platform liking an ad post also counts as a click. Therefore, to be consistent, marketers measure clicks on the link in social media.
The more the business’s advertising is engaging the less the CPC because marketers value engaging ads more.
Cost Per Impression (CPM)
CPM is the payout to an affiliate per views on a specific advertisement. Therefore, it does not measure any actions by buyers. CPM is basically the price for a number of times each ad is shown.
Often measured as payment per 1000 views, it is also called Cost per thousand impressions. So, for instance, if people view an ad 50,000 times, the retailer will pay the base rate times 50.
Cost Per Sales (CPS)
With CPS, merchants only pay the affiliates when there is a sale driven by an ad. It is important to be able to track each sale and relate it to the specific ad run by the affiliate. For example, affiliates may provide a promotion code that buyers would use when ordering online.
Cost Per Leads (CPL)
Businesses need and love to collect data on their customers, sales, and industry. Having a voluntary registration or sign-up form for customers is a common practice in online platforms. Each of these forms create a “lead” and can be used in follow ups. Cost Per Leads (CPL) pertain to the payment per each lead.
Cost Per Acquisition (CPA)
CPA is like CPS and CPL but more general. CPA is when a retailer or merchant pays the affiliate for a certain completed action by each customer. Customers’ action includes a click, a completed form, or even a final sale. Cost Per Acquisition is the most common metric in ecommerce.
Lifetime Value (LTV)
The ideal situation for a business is to have loyal customers who spend on a brand. LTV helps predict the “lifetime value” of customers’ interaction with the brand.
Conversions require further actions by users that normally includes finalizing a purchase, subscribing to a newsletter, or following up with the business through direct contact. Tracking conversions are challenging. However, incorporating conversion into marketing strategy sheds light on the ROI of the advertising campaign in more details.
Clickthrough Rates (CTR)
CTR is a measure of efficiency because knowing CTR enables businesses to determine the total number of clicks per total number of impressions and ad gets. Therefore, CTR helps businesses with budget adjustment by identifying most efficient advertising campaigns.
How to Build a Successful Performance Marketing Strategy
In the fallowing of what is performance marketing we will discuss about how to build a successful performance marketing strategy. As you can see there are many different types of performance marketing. Choosing the correct approach or a mix of the best ones depends on the marketing strategy.
To have a successful performance marketing campaign, a business should:
Establish clear campaign goals
It is essential to the success of the campaign to set goals prior to launch. The goals are critical and determine where to show the ad and who is the target audience.
Choose a proper digital channel
Diversifying the channels, a business uses in performance marketing is also important. Performance marketers often look for specialized channels and platforms that most likely attract the right audience.
Craft the campaign with outmost care
A lot of work goes into understanding target audience and their pain points, designing ads and messages that address those issues, and grabbing their attention. Even technical details such as ad sizes, character limits, appealing images, and the relevance of the product to the hosting platform can determine whether a campaign is successful.
Measure and optimize the campaign
Performance marketing campaigns can generate a substantial amount of data. To optimize each campaign marketers measure and keep track of analytics and metrics. Smart marketers use these data not only to increase sales but also to identify the best channels, sources of traffic, and audiences.
Deal with challenges
There are potential pitfalls with performance marketing campaigns, including brand safety, compliance issues, privacy regulations, and fraud. The best way to avoid these issues is to work with reputable affiliates and social platforms with robust brand safety and data privacy policies.
The final word is that there is always room to improve and grow. Performance marketing has huge potential to engage and convert new buyers. If done correctly, working with affiliates and publishers can replace traditional marketing methods.
There are components in performance marketing that highly affect the success of any strategy. For instance, a good landing page can attract visitors and an enticing offer can increase conversion.
Advertisers should have appealing offers for their affiliates. Also, it is important to test the website for any problems that visitors may encounter, from landing pages to shopping cart. Businesses should also check every link on the website and update the content regularly.
Successful performance marketing requires trying of different methods and strategies. To optimize click-through and conversion rates and to determine which content or functionality is more successful with site visitors, businesses perform A / B testing.
It is essential to the authority of each brand to generate traffic from reputable sources in performance marketing. Businesses should disregard lots of low-quality traffic and instead partner with an affiliate that provides meaningful traffic to their site.
Tracking, collecting, and monitoring data points provides insights into what is working and what is not. Due to privacy concerns, businesses should remain updated on rules and regulations pertaining data collection and use.
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