Performance Marketing is one of the most advantageous promotional methods for sellers, but it is not widely known, so many businesses often use less effective and more expensive methods.
In this article, we will explore what performance marketing is in the field of digital marketing. We will examine how it differs from traditional promotional systems and discover its advantages and disadvantages. By doing so, we aim to provide you with a comprehensive overview and all the necessary information to make use of this method.
Table of contents
- Introduction to Performance Marketing
- What is Performance Marketing?
- How Does Performance Marketing Work
- Benefits of Performance Marketing for Businesses
- Performance marketing metrics
- Effective Strategies in Performance Marketing
Introduction to Performance Marketing
Before delving into what is performance marketing, let’s recall how traditional marketing efforts work. Typically, the client who’s looking to advertise their business pays for a specific period of time or a certain level of visibility, this applies to almost all forms of media.
In television and radio, for example, the advertiser pays to have their commercial displayed or played during a specific time slot, with the hope of reaching as much of their target audiences as possible.
The advertisements vary significantly depending on the time of day. For instance, during the period immediately after lunch when most children and teenagers are watching TV, commercials will focus on advertising campaigns designed for them.
The same applies to digital advertising: although it is much easier to target a specific audience, the payment is still based on the mere exposure of the ad. Whether it’s on a social network, a blog, or a YouTube video, advertisers pay a fee regardless of the results that this promotion brings.
This type of investment is often done blindly, as it is not always possible to determine or predict the results it will bring. In many cases, the goal is to create familiarity with one’s company and make it known to the general public, without having the certainty that this effort will increase revenue. In some cases, this is even more important, as brand awareness is essential for a brand, but sellers often seek more precise results.
But how is performance marketing different?
What is Performance Marketing?
Performance marketing is a type of business approach that focuses on actions that can yield measurable and tangible results. Instead of simply putting up a sign in the middle of a crowd, hoping passersby will see it, performance marketing seeks out solutions that can generate specific actions.
In some cases, these actions correspond to sales as calculating the conversion rate is indeed one of the factors that is given considerable attention. However, it is not the only one:
- Immediate values – A campaign can be based not on the number of people reached but on their actions, paying a cost associated with them such as CPC (Cost per Click), CPL (Cost per Lead), CPM (Cost per Thousand Impressions), or CPA (Cost per Action/Acquisition).
- Registrations and sign-ups – Another easily measurable result is the number of individuals who register on a website, subscribe to a newsletter, join a social network (often referred to as Social Media Metrics), and much more.
- Views and plays – The number of visits to a page on a site, the number of views on a video or a post, and so on.
Technically speaking, affiliate marketing (where users can generate sales by promoting your products in exchange for a percentage commission) falls under the techniques used in Performance Marketing, as you would be paying for a specific and measurable result.
The aspects we have seen earlier are all related to the final stage of the campaign, which is its payment. However, before that, there are other steps that need to be followed, which we will discuss later on in this article.
How Does Performance Marketing Work
To create a performance-based advertising campaign, it’s important to understand the result you want to achieve as this will determine the channels and methodology you will use.
Therefore, the first step is the same for every type of marketing strategy: setting clear goals to evaluate their effectiveness over time. In the case of a Performance Marketing campaign, analysis and expectation of results are essential.
So you should not only have a specific result in mind, such as generating leads, sales, or else but also have the tools at hand to monitor the results in real time, period by period.
Through these analyses, you will learn about the typical behavior of your users, as well as determine the cost per acquisition (CPA) and return on investment (ROI) of your digital performance marketing campaign.
Once you have defined your goals and analysis tools, it is important to decide on the communication channels you will use. A digital marketing strategy may involve the use of multiple channels, but it is crucial to understand your target audience to determine which one is most suitable for your specific case. This includes not only social media platforms but also search engines through Google Ads.
Last, it is crucial to be able to modify a campaign in real time based on the results. That’s why it is ideal to have full control over the campaign management or rely on a performance marketing manager who have a fast and transparent communication channel.
All of this will help you decide on the payment model, among the variables we saw above, based on what best suits your needs.
As you can see, there are several aspects to consider. It is no wonder that there are outsourced program management organizations that specialize precisely in this marketing model such as the PMA, or Performance Marketing Association.
Benefits of Performance Marketing for Businesses
As one might expect from such an advanced promotional strategy, performance marketing brings a number of benefits with it. These include:
- Cost efficiency, ROI, and variable expenses
- Real-time measurement of results
- Precision targeting
- Immediate optimization
Let’s take a closer look at each of these aspects.
Cost efficiency and ROI
Getting the budget for a traditional advertising campaign can be a complex issue to address (and propose to a board of directors) because there may not be a direct correlation between the money invested and the return in terms of sales.
Of course, as we have seen up to this point, this is where performance marketing truly shines. Since it is possible to determine the potential cost per acquisition (CPA) right from the start, the overall picture becomes immediately clearer.
Along the same lines, paying only for results with a performance-based payment model eliminates the risk of an absolute lack of return. It is evident that CPA tends to be higher, generally, compared to CPM, but this is justified by a significantly higher conversion rate.
That’s why outlining an initial marketing budget is enough to kickstart your performance marketing strategy.
Measurement and analysis of results
One of the great advantages of online campaigns is the ability to immediately determine the results of an advertising campaign and, if necessary, take action to improve its performance or adjust course.
This directly contrasts with traditional campaigns, where results were only compiled at the end of the campaign, regardless of whether they were positive or negative.
Since performance marketing is all about getting a specific result, it is important to continually analyze your statistics so you can assess whether your campaign is moving on the right track.
Luckily, lots of tools can help you do this, including the very powerful Google Analytics.
The analysis should be accompanied by appropriate optimization actions, if necessary.
Every campaign requires knowing your target audience, including their needs and habits. Even the most advanced strategy and the largest budget will lead to mediocre results without a thorough analysis of your audience.
This needs to happen both in the product offerings and the channels used to promote them (even down to the language used in the ads themselves).
Nowadays, you can set rather specific parameters and apply your performance marketing campaign successfully on any kind of platform, from social advertising to search engine results, all the way to content produced and offered on your own eCommerce site.
You just have to choose the best channel for your business and create a tailored campaign.
Performance marketing metrics
We have repeatedly emphasized the importance of keeping track of the metrics of your digital marketing campaign, but what are these metrics? While different strategies may aim for different outcomes, the most commonly used metrics in performance marketing analysis are:
- Conversion rate – One of the most basic yet essential metrics. If your goal is to increase sales of a particular product, analyzing the conversion from user to customer is crucial to understand if you have optimized the landing page. It can often be used as a synonym for CTR (Click-Through Rate).
- Engagement rate – A useful metric for determining the effectiveness of an advertisement: if the majority of users who view it do not interact, you may have missed the target or content.
- CTR – This is the rate of people who click on an ad as opposed to the total number of views.
- CPA – This is the average cost of acquiring a customer, one of the most important metrics for an online store.
- ROI – Return on Investment, which is the ratio of the expenditure made on an advertising campaign to its return in terms of sales (if sales are the ultimate goal).
- LTV – This stands for Lifetime Value and it refers to the estimated value of a customer in relation to your online store, throughout their entire customer lifetime. This value contains an estimate of all the future purchases they will make.
Effective Strategies in Performance Marketing
Performance marketing can be applied to so many businesses and industries in the world. Let’s think of the restaurant industry, for example. Restaurant owners can use different channels, even workshops to share photos and videos that capture the attention of potential customers. They can even use social media targeting to reach those who might be interested in their products, all while keeping in mind the ultimate goal of restaurant reservations.
We can also think about affiliate marketing when it comes to effective performance marketing strategies. While in many cases you need to pay influencers upfront to promote a product or service, you can also achieve results by simply offering them an affiliate system that allows you to see results before making any kind of payment.
Clearly, in this case, you need to figure out which influencers to reach out to, as they should target an audience with suitable interests and ages to ensure the best results for your marketing campaign.
You can also do A/B testing strategies by creating different campaigns and testing them on different segments of your audience. This way, you can define which approach works best for your business.
- What is the difference between performance marketing and traditional marketing?Traditional marketing often aims to increase brand awareness or create a connection between the customer and the seller, while performance marketing focuses on clear and measurable results, such as sales, registrations, and specific actions.
- What are the main channels used in performance marketing?Search engines, social media advertising, YouTube advertising, and more.
- How do you measure the effectiveness of a performance marketing campaign?There are several metrics you can use to analyze effectiveness. The most commonly used ones are conversion rate, CPA (Cost per Acquisition), and ROI (Return on Investment).
- Can performance marketing be used for long-term goals?It certainly can, the key is to analyze the campaign over time and make adjustments if necessary.
- What are the risks associated with performance marketing?Costs tend to be more variable, although ROI is still higher, and there are often greater risks when one does not know their audience or the channel used.
- How do you set an appropriate budget for a performance marketing campaign?There are several factors to consider when creating a budget, including the duration of the campaign, the goal, analysis of the competition and past attempts, and the average value of each customer. It is advisable to start with lower-value campaigns and then expand after conducting some tests.
- How does performance marketing integrate with other digital marketing strategies?This type of marketing pairs particularly well with mobile marketing, affiliate marketing (which falls under this category), SEO content creation, and email marketing with a series of emails and landing pages.
- What are the best practices for optimizing performance marketing campaigns?It is recommended to analyze your audience, define clear and achievable goals, and update and optimize your campaign over time.
- How do you choose an appropriate performance marketing partner or platform?Make sure that this partner has a target audience that meets your needs, as well as alignment with your company’s mission and values. Also, request prompt and transparent communication to be able to implement potential changes in the future.
- What emerging trends are influencing the future of performance marketing?This type of marketing is influenced by trends that also impact other niches, such as artificial intelligence, influencer marketing, and sustainability.
A marketing campaign always means there’s an investment and a complex process, but by using performance marketing techniques, you can get fast, tangible, and measurable results.
Don’t settle for just spending money on campaigns solely for brand awareness. Instead, choose a specific goal and create a tailored strategy to achieve it.