What if instead of spending your hard-earned digital ad dollars on impressions and clicks, you could focus on the key performance metrics (KPIs) that generate real business results – leads, conversions, and sales?
That’s the goal of performance marketing.
It’s letting go (although not completely) of awareness-focused metrics and shifting toward action-focused metrics. With senior leadership today extremely focused on digital return on ad spend (ROAS), performance marketing is a business model that guarantees an agency or partner must meet client-defined metrics to fulfill their contract. Simply put, performance marketers must perform or they don’t get paid.
Performance marketing is predicted to grow at a 10 percent rate through 2020.
An average of 62 percent of brand marketing budget goes to performance marketing.
Fifty-seven percent of performance marketers use social media as their main marketing platform.
Performance marketing continues to grow at a lightning pace, and throughout this post, we’ll delve into the different types of performance marketing, the benefits of leveraging this business model, and new trends that will bring you success.
According to the Performance Marketing Association, “Performance marketing is a comprehensive term that refers to online marketing and advertising programs in which advertisers and marketing companies are paid when a specific action is completed; such as a sale, lead, or click.”
The cost of this performance-based business model is dictated by the advertiser and the agency on a cost-per-acquisition (CPA) or cost-per-lead (CPL) basis. This can include any number of actions including leads, registrations, demos, or sales.
It’s a flexible form of inbound marketing that can be used on a number of platforms, like CPA networks, social media platforms, blogs, and mobile sites.
In addition to platform flexibility, performance marketing can be used by third parties, like influencers and affiliate marketing bloggers, to promote brands and products.
Researchers say $237 billion – 44 percent of all marketing dollars – will be spent on digital advertising this year, and that number is growing dramatically. Half of all global advertising dollars will be spent online by 2020, matching and surpassing dollars spent on traditional advertising, such as television and print.
With performance marketing becoming the constantly-optimized and fast-paced marketing tactic that agencies and clients are looking for, expect spend to continue increasing dramatically over time.
How does performance marketing work?
Performance marketing helps create a partnership between two parties: the advertisers (merchants or clients) and the publishers (affiliates or agencies). This marketing method calls for the advertiser to pay the publishers when a specific action is completed.
Here’s how it looks in an imaginary scenario:
Veronica runs the marketing department for software as a service (SaaS) startup ShipperBox, providing shipping services for merchants using ecommerce platforms. She wants to get started in performance marketing and generate more paying customers for her startup.
Chris runs a CPA network comprised of B2B blogs, software review sites, online course platforms, and media sites that promote digital brands. Chris’s CPA network has a large number of websites, and he routinely engages his sub-affiliates to get their input on the products and services they like to promote – ShipperBox falls right in line.
Veronica can enlist Chris’s help directly or through an affiliate network. Based on internal business goals and negotiations with Chris, Veronica will spend $150 per new paying customer on a cost-per-acquisition (CPA) basis. This relationship is mutually beneficial for both parties – it’s a good return on investment (ROI) for Veronica’s startup and offers a lucrative commission for Chris’s CPA network.
Next, Chris’s CPA network promotes ShipperBox with banner advertisements and contextual text links in its ShipperBox reviews. When web visitors click on these banner ads and affiliate links, they head right to the ShipperBox website.
Finally, any user who signs up for a paid plan from these links generates a $150 commission for Chris.
Performance marketing payment model
It’s worth noting that advertisers and publishers can set up different commissions for each of their individual campaigns, following any of the performance marketing payment models listed below.
Pay per sale
Advertisers favor the pay per sale model, as they only pay the affiliate when a sale is generated from the affiliate’s referral traffic.
What it looks like: Chris sends a visitor to ShipperBox’s website. The visitor signs up for a paid plan – Chris gets a commission rate. The visitor checks out ShipperBox’s site, signs up for a trial, but never pays – Chris gets nothing.
Pay per lead
A pay per lead method allows the affiliate to earn a commission when the referred visitors perform a specific lead action (free trial, newsletter, survey form, etc.). No payment is made for visitors who don’t sign up.
Publishers prefer this model, as they only have to generate a lead to get paid, and don’t have to worry about a paid plan upgrade.
What it looks like: Chris sends a visitor to ShipperBox’s website. The visitor clicks around and signs up for a free trial – Chris gets a commission rate.
Pay per click
Payment is dependent on a qualified click through from the publisher’s site to a specific page on the advertiser’s website. A predetermined payment for each click is set prior to launching the campaign.
What it looks like: Veronica is simply interested in generating traffic for ShipperBox. Chris promotes the line with banner ads and contextual text links. Chris earns a commission for each qualified click through to ShipperBox’s website.
Types of performance marketing
Performance marketing is a parent marketing method that encompasses a number of performance-based marketing styles. The most common performance marketing methods are below:
A revenue-sharing method, affiliate marketing is where a retailer pays a commission to the affiliate when the affiliate’s referral traffic leads to a purchase or completion of a specific action. Eighty-one percent of brands use affiliate programs.
Native ads are specifically designed to resemble a website’s color, layout, and theme. The ad is placed amongst regular content to produce a higher conversion rate. eMarketer predicts native advertising will make up nearly 60 percent of display spending this year in the U.S.
Online publications and other sites embed content that closely resembles their own editorial content but is paid for by advertisers. The content is typically identified as “paid” or “sponsored” in some way.
Social media marketing
The effort of marketing a brand or products on social media to gain traffic and engagement through likes, shares, and clicks. Social media marketing is a major driver for eCommerce, as 71 percent of small businesses say they’ll use social media to attract new customers this year.
Search engine marketing
SEM is a paid effort to gain brand awareness through search engines. The unpaid version of search marketing is known as SEO (Search Engine Optimization), where a brand naturally incorporates keywords and phrases often searched by the target audience into its website. With SEM, brands use search advertising software to choose target keywords and build ads that appear at the top of search engines above the organic results.
Benefits of performance marketing
There are many benefits to running performance marketing campaigns, including:
Performance marketing is 100 percent measurable. The affiliate software or network you use logs your campaign metrics and allows you to determine when traffic is converting or if your affiliates are sending low-quality traffic.
In addition to better tracking, online performance marketing is a low-risk option, as payment isn’t made until after the sale or conversion.
The marketing tactic also offers a high ROI, which, again, is less risk for the merchant. By setting the commission rate for affiliates, the merchant is able to determine the exact profit margin without any surprises.
While a merchant may only have the budget or time to concentrate on particular forms of marketing, an affiliate will use a variety of methods to promote products.
Performance marketing allows the merchant to take advantage of extended marketing methods like:
It’s always better to have someone else say how great your brand is, rather than you claiming it yourself. Performance marketing is an effective way of incorporating third-party validation when influencers and affiliates promote and praise your products.
Influencer marketing is a huge factor, as 60 percent of consumers have been influenced by a blog review or social media post.
Nearly 95 percent of shoppers read online reviews before making a purchase.
Seventy percent of millennial consumers are influenced by the recommendations of their peers in buying decisions.
Improved tracking and attribution
One of the reasons digital marketers utilize performance marketing is the ability to easily track performance and give credit to the appropriate referring source. The industry is expected to see advancement in these areas as technology evolves.
Some of the most common methods of attribution include:
Under the first click attribution web analytics model, the first click that refers a visitor to a website is credited for any purchase or conversion made on the site.
Under the multi-touch attribution method, all avenues that pointed the buyer to a purchase or conversion receive a commission.
For example, if the buyer is influenced by a blog, marketing email, and YouTube video, all avenues are credited with the sale. The multi-touch method is more difficult to track, but it gives a more accurate look at the buyer’s journey.
Multi-touch attribution can be tracked through Position Based Allocation, Time Decay, and Linear.
Position based: Under the position-based allocation model, 20 percent of credit is typically distributed to email and social platforms, and the first and last touch point each receive 40 percent of the credit. It’s up to each business to determine how these percentages are distributed, so following analytics closely will help determine which sources should be credited more or less.
Time decay: The time decay model gives more credit to the last touch points compared to the first. Credit is distributed at an escalated value and is typically used for longer sales cycles, which is why the last touch points are more valuable.
Linear: Linear is arguably the simplest multi-touch attribution model to apply, linear attribution credits all touch points equally. Some businesses avoid this method under the belief that some touch points should be weighted more heavily than others.
Because organic and paid campaigns complement one another and drive higher conversion rates when used in tandem, approximately 68 percent of performance marketers always or often plan performance campaigns to run simultaneously with organic efforts.
Affiliate marketing vs. performance marketing
While they may seem similar, affiliate marketing and performance marketing are not one and the same. Affiliate marketing is a type of performance marketing, like a subset of the larger picture.
Affiliate marketing is the practice of using an affiliate program to promote a retailer’s products for a commission of the sales or set payment for the lead conversions.
Performance marketing, however, is the larger idea that marketing can be paid for and tracked based on the performance of the campaign.
To optimize your conversion rate, you need to know what users are more likely to click on. Use the A/B test method to tweak your marketing and create an effective campaign.
The idea of the A/B test is to create two very similar marketing campaigns, like a marketing email, and change only one variable between the two (subject line, image, headline, etc.). Measure which email is opened more, has a higher click-through rate, and ultimately drives your audience further down the sales funnel.
Don’t just track your traffic numbers. Know the source of your site traffic to ensure visitors are coming from a reputable source and are your targeted customers.
Analyze the data
Performance marketing is based on data – how well campaigns perform and how to optimize them.
Tracking as many elements of a campaign as you can – mobile visitors vs. desktop, click-through-rate, time on site, bounce rate, traffic sources – will help you develop a highly effective marketing plan that specifically reaches your desired audience with the right message at the right time.
Some performance marketing trends
The performance marketing industry is experiencing a 10 percent compound annual growth rate. A 2018 survey completed by 2,300 performance marketers in the U.S. and U.K. revealed five reasons why performance marketing is outpacing brand marketing:
Performance marketing is more flexible.
There’s an increased marketing reach.
Pay is performance based.
Transparency with spend and revenue.
It’s low-risk marketing.
Performance marketing is growing so exponentially that many digital marketers are seeking career opportunities in the industry.
Performance marketing management calls for specialized capabilities including:
Staying ahead of digital marketing trends.
Creating online creatives like videos, graphics, web design, and social media content.
Interpersonal skills that allow you to connect with affiliates, influencers, and affiliate managers.
Interpreting data and making strategic changes based on customer trends.
Performance marketing teams are responsible for driving major revenue for their businesses. Twenty-five percent of teams with more than 100 members drive over $50 million in annual performance marketing revenue.
Next steps with performance marketing
Performance marketing is the next big step in digital marketing. It’s a collaborative, fast-paced, constantly-optimized tactic that keeps real business impact at the heart of its strategy. Performance marketing is a way to expand your marketing’s scale and distribution while building mutually beneficial relationships with affiliates and agencies alike.
As more money is poured into digital marketing, the demand for more accurate data and a higher return on investment (ROI) is also growing.
If you want to expand your customer base, maintain a strong ROI, and get real business results at a rate that you determine, incorporate performance marketing into your strategic plans.
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