A lot has changed since businesses started to sell their offerings online. With this shift, businesses got inclined towards several online advertising campaigns such as PPC, CPM, etc. Do these terms sound familiar to you? Well, then you’ll easily understand what is performance marketing.
Performance marketing/advertising or performance-based marketing/advertising isn’t an out-of-the-blue concept in online marketing. In fact, it is exactly how everyday advertising bids are measured.
Performance marketing differs from brand promotion as the former is concerned with short-term goals and supports the latter, which is done to make a brand’s image more notable and acknowledged among the masses.
Let’s make it even simpler. Running ad campaigns is done day in and day out in the world of digital marketing. And, of course, to measure the performance of a campaign and see how effectively it works, it is imperative to know what is performance marketing.
What Is Performance Marketing?
Performance Marketing (or performance-based marketing) revolves around defining and tracking advertising metrics in internet marketing so that a business firm can make out how much it has invested in a campaign and what returns that particular campaign has generated. It helps in formulating plans for future ad campaigns.
Performance marketing is often regarded as paid marketing. In contrast, the former is a much more diverse concept, and the latter is its part. In performance marketing, a business firm only pays if the objective of a campaign is met. For instance, if someone clicks through a link. We’ll talk about that later in detail.
Why Is Performance Marketing Important?
You might not know when the internet was launched. But you must remember that more than half of the global population is utilizing the internet today. So as a business owner, you can’t leave the platforms with abundant opportunities for brand promotion.
Not to even mention that businesses have to well-manage their resources, especially financial ones. And performance based marketing is one such thing that will help you take a step forward in this direction. Undoubtedly, investment in online marketing is projected to be doubled in the coming four years.
Now that you know what is performance marketing and how imperative it is, it’s the right time to talk about how does performance based marketing works.
How Does Performance Based Marketing Work?
To understand how does performance based marketing works, imagine that you’re standing near a bridge with a board in your hands. Now you cross the bridge and find a group of people. When you entered that zone, the people eyed the board in your hand, and a few started gathering in a queue.
I know what you’ve been thinking so far- ‘what exactly was written on the board?’ Well, it read: ‘Here is the product/service you’ve been searching for, form a queue, I’ll tell you its benefits and price and discount, you can pay and have it’; some of you might have guessed it already. Good!
The point is when we talk of performance marketing, we talk of online marketing wherein three parties are involved:
- Advertiser/Business Owner: Who has an offering/s (product/service).
- Audience: To whom the advertiser or business owner wants to sell the offering/s.
- Platform: Who acts as a bridge between the two.
To make it more clear, assume that you run a gift shop and want to promote your business (so you’re an advertiser or business owner), and you invest in a Facebook Ads Campaign to promote your business to the people who use Facebook. Similarly, you can pick other platforms as well.
This is exactly what happens in performance-based marketing. Think it’s all done here? Nevertheless, the important aspect of performance-based marketing is that it gets on the benchmarks of measurable outcomes.
That means your paid marketing campaign would be considered a part of performance marketing only when the outcomes of the campaign are defined. And that calls for defining performance marketing metrics.
Performance Marketing Metrics
So far, we’ve been talking about what is performance marketing and how it works. An ad campaign comes under the umbrella of performance based marketing only if its potential outcomes can be measured. These outcomes are reckoned using some Metrics and Key Performance Indicators (KPIs).
Below is the list of key performance marketing metrics:
1. Pay-Per-Click (PPC)/Cost-Per-Click (CPC)
Also regarded as Pay-Per-Click (PPC), the CPC model ascertains the charge a business firm incurs as and when an individual clicks on a displayed ad.
One can invest in PPC ads based on either a fixed charge per click (also regarded as a flat rate) or based on the highest and lowest biddings (manually or automatically with tools such as Google AdWords, Google AdSense, etc.).
How Is The PPC/CPC Model Beneficial?
It is typically used in varied digital marketing ad campaigns. In fact, over half of the netizens click on pay-per-click ads without even noticing it. PPC campaigns, thus, are an exquisite way to redirect more and more people to your website and/or web page.
It has been found that a buyer is 50% more likely to make a purchase when they come across a paid ad, which indicates PPC rakes in qualified leads.
Formula:
CPC= Advertising Cost (in $)/Total Number Of Clicks on Ad
It is calculated by dividing the total amount spent on the campaign by the total number of clicks generated through an ad.
2. Cost Per Mille (CPM)
Cost Per Mille is interchangeably used as Cost Per Thousand (CPT) Impressions. This model charges a business firm for every thousand impressions (the number of times your ad appears in front of your audience). And thus, it is also known as Cost Per Impression (CPI).
How Is The CPM Model Beneficial?
The CPM model is used to run ads with the intent of boosting brand awareness. This model is widely used for E-Mail Marketing. It is also a great way to target an audience base in specific locations.
Formula:
CPM= [Total Ad Spend (in $)/Total number Of Impressions Generated] X1000
It is computed in two parts; firstly, we calculate the total advertising cost divided by the total number of impressions. Then we multiply the result by 1000. This way, we draw out the cost per thousand impressions.
3. Cost Per Lead (CPL)/ Pay Per Lead (PPL)
In this model, a business firm pays a predetermined amount for fetching an interested lead regardless of the occurrence of the sale.
Now, what does this mean in accordance with performance marketing metrics? Let’s say you invested in a campaign with this model; then you’ll pay for getting the basic contact information of an interested lead, like asking a subscriber to submit their Email-ID. The amount you pay is predetermined.
How Is The CPL/PPL Model Beneficial?
Businesses use this model for getting a direction to move onto by addressing the very pain point/s or interest point/s of the consumer. It’s a pretty good way of targeting a specific audience.
Businesses that don’t want to pay for mere impressions and clicks prefer this model. In fact, the majority of marketers use lead generation as the only metric to determine the positive performance of their content.
Formula:
CPL= Total Amount Spent For Lead Generation (in $)/Number Of Unique Leads Generated
It is ascertained by dividing the total spending on lead generation in a campaign by the total number of unique leads generated by the campaign.
In order to get an idea about how much you should be spending on a CPL campaign, you must look at average spending in your industry. Remember that every industry’s average ad spend on a CPL campaign differs. For instance, it would be relatively higher for the IT industry than that for the tourism industry.
4. Customer Acquisition Cost (CAC)
When a customer buys something (with a payment method) after coming across an online ad, the acquisition cost is generated at that very moment and has to be paid by the business firm.
When a business finally acquires a customer via e-marketing, it’s a moment to celebrate, but first things first! It also needs to ascertain the advertising costs it has spent on acquiring that, such as fees of a web designer, cost of software employed, etc.
How Is The CAC Model Beneficial?
CAC is an indispensable performance marketing metric. It gives a correlation between the advertising spend, and profit realized from a customer. For this purpose, Customer Lifetime Value (CLV) or Lifetime Customer Value (LCV) has to be taken into consideration. CLV represents the estimated/projected revenue that a business expects to generate from a customer during the normal course of a business relationship.
That’s why CAC should not exceed CLV. Otherwise, your money is burning for nothing in an e-marketing campaign.
Formula:
CAC= Total Marketing & Advertising Spend/Total Number Of Customers Acquired from the campaign
NOTE: Here, Total Marketing & Advertising Spend would be computed after taking into account the advertising-related wages, consultation fees, software costs and other related overheads. CAC must be less than the Customer Lifetime Value (CLV). Otherwise, a business will incur losses.
Other Performance Marketing Metrics:
Cost Per Order (CPO):
As clear from the name, cost per order is the advertising amount spent by the business firm to acquire an order. {CPO= Amount Spent On Advertising/Total Number Of Orders Generated By The Ad}
Cost Per Action (CPA):
When the visitor/viewer or customer takes the desired action after watching an advertisement, the business firm/advertiser bears the cost of that action, for example, subscriptions, add to cart, sales, etc. Cost Per Sale (CPS)/Pay Per Sale (PPS), which is used in affiliate promotion, is a quintessential example of CPA. {CPA= Total Amount Spent On Advertising/Number Of Times The Desired Action Is Taken}
HAVE A LOOK AT RELEVANT KEY PERFORMANCE INDICATORS (KPIs):
Okay, wait! You’ve read about the performance marketing metrics and the related KPIs. But what benefits will you get from these pricing models? Scroll down a little to discover the benefits of performance marketing…..
Benefits Of Performance Marketing
‘Why should I use performance marketing?’ This question pops up in every digital marketer’s mind. If you also have two minds about it then you must be aware of the benefits of performance marketing.
Easy To Comprehend Data
Data analysis isn’t a cinch to crack, especially when it comes to looking at long piled-up numbers. Thanks to performance-based marketing, which has eased the process of data analysis by breaking it down into easy to comprehend metrics.
Analysts and business firms with practical knowledge of performance marketing metrics can easily assess them and interpret the results.
Reduces Risk Factor
Risk is always present in a business, but performance-based marketing dwindles these adverse effects. How? Firstly, it gives a clear picture of how effective campaigns are actually performing. Thus, it becomes easy to analyze and pull out money from the area that isn’t generating adequate ROI.
Moreover, data-driven assessments help in better forecasting upcoming trends. Thus, pay-for-performance marketing generates reliable results upon which the future plan of action can be made.
Result-Oriented Investment
This is the most cherished benefit of performance marketing. This form of advertising is focused on a predetermined goal in the forms of clicks, ad views, app installs, etc. This is how not a single penny invested gets without specifying whether it did hit the target or not.
Quick Traceable Results
Since performance marketing is based on measurable results, tracking the after-effects of a campaign becomes as easy as pie. It answers questions like whether a campaign is performing as expected or not, how a campaign impacted the business’ ROI, etc. Thus, it lays the basis for further planning, and nothing remains behind the curtains. It also fosters transparency.
Be Found On Different Formats
This is another benefit of performance marketing. There are a plethora of performance marketing channels that can be used to spread awareness about your brand name. In other words, performance-based marketing proffers avant-garde opportunities for promoting a brand name, offers, and other content.
Getting found on different performance marketing platforms escalates the chances of driving more sales. But what channels are we actually discussing? That’s exactly what we’re about to jump into. So let’s start…..
Performance Marketing Channels
We know performance based marketing is a new-age advertising plan that has plenty of opportunities and over-the-top benefits. But do you wonder where exactly you’ll put up your business ads? Of course, on performance marketing channels.
Simply put, performance marketing channels are digital spots where business owners place their ads to promote their business via advertising campaigns.
Here are the most used performance marketing channels:
1. Social Media
- Popular Ad Types: Display Ads, Banner Ads
- Popular Pricing Models Used: Cost Per Mille, Cost Per Click
Presently, over 4 billion people are on social media, wherein every user spends about 3 to 4 hours daily on these sites. If you still think about whether or not social media is the right performance marketing platform, think again.
Social media is equally used for business promotion as it is for connecting and entertainment. Around 55% of buyers turn to brands that are selling on social media. That’s why it is the most used performance marketing channel for implementing social media marketing strategy.
2. Native Ads/Sponsored Ads
- Popular Ad Types: Display Ads, Video Ads
- Popular Pricing Models Used: Cost Per Mille
You’ve come across native advertisements many times. What? You don’t think so? Okay, recall when you’ve seen ‘You might also like’ or ‘Recommendations’ on searching about a product. Now, you agree.
Well, that’s the magic of using native advertising. Unlike banner ads, the ad format blends with the platform’s flair. This is so because an advertiser/business firm doesn’t design it, the publisher/publishing platform does. No, no, they won’t change the whole creative provided by you; they’ll decide how they’ll outlay the ad with compelling and blending designs.
3. Affiliate Promotion
- Popular Ad Types: Video Ads, Mentions
- Popular Pricing Models Used: Cost Per Sales
Promotion through affiliate marketing is another alternative before business firms to advertise their products and/or services. When you opt for this performance marketing channel, you pay them a fixed percentage of commission to a THIRD PARTY (influencer) on every sale that comes in through their promotion.
Now, how will you know that a particular sale has occurred because of that influencer? Good Question. Answer: If you’ve noticed, influencers share a promo code or coupon code with their audience. That promo code/coupon code is the way to identify that a specific sale has occurred because of the link or advertisement shared by the influencer. And yes, such codes are unique and identifiable.
4. Search Engines Results Page
- Popular Ad Types: Banner Ads, Display Ads
- Popular Pricing Models Used: Pay-Per-Click
This performance marketing channel can’t be left out of a digital marketing strategy. In the digital age, every organization wants to get highlighted on the 1st page of search engines. Right? Especially Google because 92% of people use it for discovering products and fetching information online.
To attain this target, businesses use paid promotions. Many organizations join hands with digital marketing agencies for this purpose. Paid advertisements get displayed rankings based upon keyword bidding. For instance, Google enlists sponsored ads on the top of its search engine results page. Such ads appear with an ‘Ads’ tag on them.
5. Programmatic Ads
- Popular Ad Types: Display Ads, banner Ads, Video Ads
- Popular Pricing Models Used: Cost Per Mille
The impact of Artificial Intelligence (AI) is everywhere. It has spread its paws deep into digital advertising. Programmatic advertising utilizes automated systems to manage advertising budgets, biddings and ad placements.
Platforms that support programmatic ads, purchase and sell digital ad spots in real-time.
Simply put, it utilizes algorithms and data insights to allot digital ad space based on special characteristics of the audience, such as location, age, etc. The allotted space can be a search engine or a social networking site as well.
Still, need another reason to get started on performance marketing? Scroll down a little to know…..
Why Should I Use Performance Marketing?
- Performance-based marketing will give you easy-to-analyze data.
- It’ll scale down risk.
- This marketing technique is result-driven
- It gives trackable metrics.
- It is a great opportunity to be visible on different marketing platforms.
Tips For Making The Most Of Performance-Based Marketing
Something as tricky as performance marketing can’t be handled with closed eyes. You’ve to put in a little extra effort. But where exactly? Continue reading, as here are four tips for making the most of performance-based marketing.
Invest In Right Tools
Anyone who knows what is performance marketing will not underestimate the power of tools. Tools are crucial to performance based marketing as the very concept of this marketing technique revolves around data collection and analysis.
With the right digital marketing tools, nothing would stop a business from growing. You’ll find a plethora of paid and free tools, to name a few, Google Analytics, SEMrush, etc., to get data insights about the performance of your campaign.
Tools aren’t just needed to evaluate performance-related data of a campaign but also for keyword research because they take you halfway through your journey. To figure out which one fits your business growth needs, take free trials and then pick the right one.
Design Eye-Catching Creatives
Digital advertising is all about designs. A creative must catch the viewers’ attention in a single go and make them tied to it.
This isn’t an easy task. Nevertheless, there are tools to master this art as well. A business firm must check the performance of 3 to 4 creatives for a single product/service or concept/idea. And that evaluation has to be done prior to actual publishing. That’s where A/B Testing helps. Top social media sites like Facebook, Instagram, LinkedIn, etc., utilize this technique to provide advertisers with an idea about which creative holds the chance to engage users more and better.
Research Well About Your Publishing Partner
For a business firm, researching about the publishing partner is crucial. Why? For one thing, there are fake people who pretend to be well-established names in the industry. Also, one needs to be careful of those who utilize illicit techniques for improved rankings and draw customer attraction to an advertisement. Otherwise, it’ll impact your business’ growth negatively in the long run.
Monitor Your Progress
This is the quintessential tip for making the most of performance-based marketing. After all, this marketing technique is all about the performance of your advertisements.
Whether you handle your performance marketing campaign single-handedly or you join hands with a seo agency, you need to monitor the progress. That is the sole factor that can assist you in getting the hang of where your invested money is worth spending. Tracking and assessing the performance also helps in identifying the areas that need attention. Moreover, you’ll be able to see what works best for a specific audience, and you should utilize it more often.
Cons Of Performance Marketing
Performance marketing is imperative for a business. There are no second thoughts on this discussion. However, its downsides can’t be neglected. There are two major areas of concern with respect to performance based marketing that we’re about to discuss. So read further.
Tackling Recession
Performance marketing has suffered a lot due to the recession. This is so because, with tight budgets, people become picky about their spending. In turn, businesses’ sales go down, and they cut their advertising budget to manage the other areas.
This is how the recession takes a toll on the marketing industry. As a matter of fact, businesses have cut off their advertising budget after the pandemic hit.
Fraudulent Activities
Handling performance based marketing requires technical understanding and proper time, which is why several business firms outsource it. But you can’t trust any advertising firm or digital marketing agency just like that.
A number of fake players who pretend to be legit and experienced have ditched their clients with fake results. They deploy AI Systems or bots to generate fake clicks and impressions to make their reports look good. And unfortunately, this is happening on a wide scale nowadays. Thus, it is quite a biting a bullet kind of task for firms to distinguish between fake and legit associations.
Performance Marketing V/s Digital Marketing
Performance marketing and digital marketing are regarded as one and the same thing. But this is so not right. For one thing, performance marketing is a part of digital marketing.
As a matter of fact, like every other element of digital marketing, performance marketing, too, utilizes similar ways to promote a business that revolves around pay-for-performance advertising. This is the reason that people get perplexed thinking about what is performance marketing and how it differs from digital marketing.
Performance based marketing is associated with the result of advertising campaigns. Thus, studying performance marketing, its metrics, channels, and benefits are important.
On the other hand, digital marketing is a broad area that comprises a number of activities, including SEO, content writing, link building, performance marketing, graphic designing, and website development.
It focuses on optimizing the overall online presence of a business through organic and paid promotions. Thus, performance marketing is a limited area in comparison to digital marketing.
Mind Mingles’ PPC Packages Can Skyrocket Your Business’ ROI
Whether you talk of social media platforms, e-mail marketing or video marketing, performance marketing is everywhere. Handling multiple performance marketing channels and managing other business operations simultaneously can be quite overwhelming. But worry not, as Mind Mingles is here for you.
Our PPC Packages include everything you need, from keyword optimization to A/B Testing to Bidding Set Up. You can trust us for your online marketing campaign because we have years of experience handling social media campaigns and SEO for different industries.
We’re ready to provide you with custom plans for your business because our goal is to make your brand name shine. Feel free to connect with us if you need help with account set-up, bidding strategy or landing page optimization.
We strictly follow white hat seo techniques, and our work is certified by Google Adwords, Google Analytics, and Bing Ads, among many others. We focus on minimizing your ad costs and increasing profits.
You can mail us your business requirements or call us.
Gurleen Kaur is a Content Writer at Mind Mingles. She has presented her work in International Conference On Guru Nanak Dev Ji: Life, Philosophy and Legacy held at Mata Sundri College For Women and was awarded by the title of “Best Paper Presenter” under College Student Category for the same (Dated: 27th and 28th September, 2019) Has a strong grip over creating interesting, unique and informative content pieces for a wide range of niches. Firm believer that words have an impact.
