Performance marketing is a digital marketing strategy that’s driven by results. It’s ideal for companies that are looking to reach their audience at scale, because payment is based on how users interact with the content.Performance marketing refers to a form of digital marketing in which brands only pay marketing service providers after their business objectives have been met or when specific actions have been taken, such as a click, sale, or lead. In other words, it is performance-based marketing.Performance marketing works when advertisers connect with either agencies or publishers to design and place advertisements for their company on any number of performance marketing channels — social media, search engines, videos, embedded web content, and more. Instead of paying for an advertisement in the traditional way, these advertisers pay based on how well their ad performs, by measuring number of clicks, impressions, shares, or sales.
What is performance marketing?
Performance marketing is a results-driven approach to digital marketing, where advertisers pay only when specific actions or outcomes are achieved. These actions can include clicks, leads, sales, or other desired customer behaviors. Performance marketing relies on various channels, such as affiliate marketing, pay-per-click (PPC) advertising, social media advertising, and search engine marketing (SEM).
The term performance marketing was coined shortly after the advent of pay-per-click (PPC) advertising, starting with banner (display) ads and Google AdWords (now Google Search Ads).
How Does Performance Marketing Work?
Performance marketing is among the popular promotional marketing strategies that have gained immense popularity in the digital world. It is a method of advertising that pays affiliates or publishers for the conversions they generate through various channels, such as SEO marketing. This sounds interesting for businesses, but here is how it works:
1. Identification of Target Audience: The very first thing is to select the target audience of the business. This is critical as it helps to understand how businesses can reach your potential customers. Once you have identified your target audience, you need to create a compelling offer that will entice them to take the desired action.
2. Personalized Campaigns: It’s important to note that performance marketing is not a one-size-fits-all approach. You need to tailor your campaigns to suit your specific business needs. This means that you need to create multiple campaigns, each with a different objective, target audience, and offer.
3. Collaboration: The next step is to find affiliates or publishers who are willing to promote your offer. These affiliates or publishers could be bloggers, influencers, email marketers, or any other person who has a substantial following in your target audience. The key to finding the right affiliates is to identify those who have a genuine interest in your offer and are willing to promote it to their audience.
4. Effective Strategy: Once you have identified your affiliates, you need to provide them with all the necessary tools to promote your offer. This includes creatives, landing pages, tracking links, and any other material they may need to promote your offer effectively.
5. Track and Optimize: The final step is to track your campaign’s performance and optimize it accordingly. This involves analyzing your data, identifying what works and what doesn’t, and making the necessary changes to improve your campaign’s performance. It’s essential to conduct regular A/B testing to determine which elements of your campaign are performing well and which ones need improvement. Implementing a well-crafted marketing strategy, such as B2B marketing strategy, is crucial for driving performance and maximizing results in performance marketing campaigns.
4 main types of performance marketing
Social media advertising-Social media advertising includes running ads on Facebook, Instagram, Twitter, LinkedIn, and more. Typically, these campaigns are set up with a funnel structure: at least one campaign to reach new people (called prospecting) and at least one to reach people who have visited their site but not yet converted (retargeting). Not all social media advertising is performance marketing—when not used to drive conversions, it can also be used for brand marketing or market validation.
Search engine marketing (SEM)- Search engine marketing refers to running advertising campaigns to drive traffic from search engines such as Google or Bing. These campaigns are usually structured based on the types of searches they target. For example, a business might have campaigns for the type of product they sell, competitor brands, and their own brand.Search engine marketing is almost always performance marketing by nature. It is also entirely separate from SEO.
Influencer marketing-Historically, people haven’t always considered influencer marketing to be “performance” marketing. But in recent years, that’s changed. Influencers have gotten more business savvy, and the growth in both influencer management tools like Gatsby and influencer partnership platforms has allowed brands to properly track and iterate on their influencer partnerships, making it truly performance driven.
Native advertising/sponsored content- Similar to influencer marketing, but instead of paying an influencer to speak about your brand, you pay a publication to write about it. As the marketer, you get a high degree of creative control over what they publish for you. Some publications call it native advertising, others sponsored content, but the strategy is the same. Note that in most countries, publications have a regulatory requirement to disclose that the content is sponsored.
Performance marketing examples
- Pay-per-click (PPC) advertising: This is a form of performance marketing where advertisers pay a fee each time their ad is clicked.
- Email marketing: This is a performance-based marketing tactic in which advertisers send emails to their target audience with the goal of driving sales or leads.
- Social media marketing: This is a performance marketing strategy that uses social media platforms to reach potential customers and deliver marketing messages.
- Search engine marketing (SEM): This is a performance marketing strategy involves running advertising campaigns to drive traffic to websites from search engines.
How to measure performance marketing
Performance marketing is about chasing the best results. Since we’re spending money, it’s all about your cost-pers. There are four key cost-per metrics that matter for your performance marketing campaigns:
Cost per thousand impressions (CPM)- Cost per thousand impressions refers to the cost for an advertiser to generate 1,000 views of their ad. The acronym CPM’s origin is cost per mille, with “mille” being the French word for thousand. Advertisers and marketers use 1,000 instead of just cost per 1 impression because the cost for a single impression can fluctuate wildly up and down, but is steadier over a thousand people.This metric primarily tells you how expensive it is to advertise on this platform, and it’s related to how competitive it is to reach the people you want to reach. For example, the CPM to reach people who search “buy natural soap online” will likely be higher than the CPM for “personal hygiene tips,” because the former searcher is more likely to buy, so more advertisers will bid on the keyword.
Cost per click (CPC)– Cost per click (CPC) refers to the cost to get someone from your ad to your website. This metric has a couple of gotchas to be aware of: On Google, a click refers to someone clicking through to your site, but on Facebook, it refers to any click on your ad, even clicking Like. To compare apples to apples across platforms, performance marketers will typically track link clicks on Facebook. CPC has an inverse relationship with an ad’s click-through rate (CTR). Advertising platforms want to show ads that people actually want to click, so if your ad is engaging, they will effectively “reward” you with a lower CPC. That’s why monitoring CPC can help tell you which ads are best engaging your audience.
Cost per conversion – Your cost-per-conversion metric is going to be specific to your business. For e-commerce stores, it’s typically a sale, often reported as cost per sale (CPS). Or, you may focus specifically on sales to new customers, which is typically referred to as a customer acquisition cost (CAC). In B2B marketing, you might use cost per lead (CPL) instead. This is the most important number for your performance marketing program. If you hit the right CPS or CAC, then your campaign is ready to scale and you can reliably drive more sales. If you can’t hit your number, then you’ll lose money.
How do you do that (very important) math? Simple:
CPS model: CPS < gross margin. If you are spending to generate individual sales (including returning customers), then your cost per sale needs to be less than your average gross margin from that sale. If it’s more, then you’re essentially paying to lose money. If you’re unsure what your gross margin is, use a profit margin calculator.
CAC model: CAC < CLTV (customer lifetime value). If you are spending to acquire new customers, and you know those customers will return to buy more products without ads in the future, then you can spend up to the total value of the customer over time (average gross margin per order * average number of orders). This is a more sophisticated model, but it’s important for stores that have long-term relationships with their customers.
How Does Performance Marketing Benefit Businesses?
Performance marketing has a lot of benefits for businesses of all sizes & categories. One of the primary benefits that it has is its ability to track and measure the results of the campaigns accurately. Performance marketers use various tools such as SEO marketing and technologies to track user behavior and campaign performance. These tools allow marketers to identify which campaigns, channels, and tactics are driving the best results and adjust their social marketing campaign accordingly.
Another benefit of performance marketing is its cost-effectiveness. Performance marketing campaigns are often based on a pay-for-performance model, where businesses only pay when the desired action is taken. This approach eliminates the risk of spending money on ineffective campaigns and allows businesses to allocate their marketing budget more efficiently.
As the digital landscape continues to evolve, performance marketing is becoming increasingly important for businesses looking to grow their online presence. With its focus on measurable results, data-driven approach, cost-effectiveness, and more, performance marketing works as one of the most powerful marketing strategies for businesses of all sizes.
FAQs
Which factor helps to measure the success of performance marketing campaigns?
The success of performance marketing campaigns is typically measured by key performance indicators (KPIs) aligned with the campaign objectives.
Explain about A/B testing in performance marketing?
A/B testing, also known as split testing, is a method used in performance marketing to compare two or more variations of an ad, landing page, or campaign element.
Is performance marketing suitable for all businesses?
Performance marketing can be beneficial for various types of businesses, but its suitability depends on factors such as business goals, target audience, and available resources.
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