What is Performance Marketing and why it's crucial in 2021?

What is Performance Marketing?

Performance marketing refers to a digital marketing strategy that is driven strictly by results. It is the perfect choice for companies who are wishing to reach their audiences on a larger scale but with minimum costs. This is because businesses are only required to pay based on the interactions made between customers and their content.

In 2021, it is important for businesses to strive for a maximum return on investment (ROI) at the lowest possible cost. When utilising performance marketing, businesses, particularly startups and smaller businesses with limited funds, are able to make use of an optimum digital marketing strategy that is tailored to their budget and specifications.

How does performance marketing differ from digital marketing?

Most prevalently, digital marketing utilises online channels whereas, performance marketing is a type of digital marketing that makes use of a payment model where businesses are charged only when a particular outcome occurs. As such, even though digital marketing does encompass several channels, strategies, and payment models, performance marketing is strictly defined by the form of payment model it uses. However, the latter can also involve multiple strategies and channels, as long as it is defined as per its payment model.

How does performance marketing work?

Essentially, performance marketing requires advertisers to connect with either publishers or agencies, in order to design, and then place, advertisements for their businesses on a number of channels dedicated to performance marketing. This is inclusive of search engines, embedded web content, social media, videos, and several others. Rather than paying for advertisements in a traditional manner, advertisers are only required to pay based on the performance of their ad. This is, in turn, measured by a number of factors, which are elaborated on below, based on which businesses are required to pay.

1. Cost per click (CPC): In CPC, the way your brand would pay an advertising agency is evaluated as per the number of times your ad has been clicked on. It is also an excellent way to drive and increase, traffic for a website. To put it simply, the more clicks your ad receives, the more you’ll pay the agency that created the ad for you.

2. Cost per impression (CPM): Impressions refer to the number of views on an ad. When opting for CPM, businesses are required to pay for every certain number of views the ad receives. For example, if you’re being charged for a thousand views each time, and your ad receives 25,000 views, you’d be paying 25 times your base rate. As such, businesses are only required to pay after crossing a certain threshold of views, which makes CPM an exceedingly cost-effective option.

3. Cost per sales (CPS): When utilising CPS, you’re only required to pay when your ad makes a sale. This is a very common system made use of when doing affiliate marketing. All in all, this essentially means businesses only pay when a conversion is made by a customer. This proves the ad is effective and has received results.

4. Cost per leads (CPL): This is exceedingly similar to CPS, however, with CPL, you’re required to pay when a customer signs up for an email newsletter, webinar, or other such offers. Regardless of the action, a business only pays for every ‘lead’ that they receive. This is essentially used to drive sales since CPL primarily generates leads across a variety of channels. Channels are in turn utilised to showcase advertisements. Therefore, with CPL, you’re basically paying when a customer performs a certain task.

5. Cost per acquisition (CPA): This is also quite similar to both CPS and CPL. However, it is less focused than the other two. When utilising this structure, businesses pay their advertising agency when a particular action has been completed. This covers a range of factors such as visiting your company’s blog, making a purchase, or sharing contact information, amongst others. As such, the more actions which are fulfilled, the more a business would pay.

What are the optimum performance marketing channels businesses can utilise?

There are essentially five kinds of performance marketing channels which are widely utilised by advertisers and agencies across the globe. These are -

1. Banner/ Display Ads: if you’ve been online recently, you’ll have noticed several display ads on multiple social media platforms. They can appear on the very bottom of a news website you may have visited, or perhaps even on the right side of your Facebook newsfeed. Many companies continue to find success when utilising display ads since it generates interactive content, numerous videos, and graphic designs which draw engagement. However, display ads are gradually losing their appeal given the presence of ad blockers, and banner blindness, which are gaining excessive popularity, and conversions, during recent times.

2. Native Advertising: Native advertising refers to the practice of placing advertisements, on social media platforms, in a manner where they are displayed alongside other contents of the platform itself. When dwelling in native advertising, agencies are taking advantage of the existing appearance of a web page in order to promote multiple forms of sponsored content. A great example of the following is the ‘Watch Next’ section you see when on a Youtube page. Moreover, native ads are quite popular on e-commerce websites such as the Facebook Marketplace. Essentially, native advertising is lucrative, and functional, because it permits your sponsored content to exist alongside other forms of organic content which are already visible to a user. More often than not, users are unable to identify such forms of advertisement, allowing the promotion of your brand in a manner that feels quite natural.

In fact, 78% of global Internet users tend to conduct their product research online itself. 

3. Content Marketing: Content marketing is primarily about conveying information to an audience and educating them.

As per OmniVirt, content marketing costs a whopping 62% less than outbound marketing, while also generating almost triple the amount of leads. 

This is because content marketing focuses upon providing context to your brand when relaying information to them. For example, a company selling vitamins may include a series of blog posts, which provide information, regarding the many benefits of probiotics to an audience. This information could include a link to the company’s website through which they can generate higher sales. All in all, content marketing is an excellent channel that can also be coupled with case studies, e-books, blog posts, and several other niches.

Particularly for blog posts, businesses should note that 57% of companies have successfully acquired customers via their company blogs. 

4. Social Media: Social media is undoubtedly a heaven for performance marketers. This is because it allows users to organically share sponsored content which extends the reach of the brand far more than their original post. Of all social media platforms, Facebook possesses the most extensive services for performance marketers, while alternative platforms such as Twitter, Instagram, and LinkedIn are also quite useful.

5. Search Engine Marketing (SEM): Online research today is primarily conducted utilising search engines. Therefore, it is crucial for a business to have a site which is highly optimised for SEM, particularly where it concerns performance marketing. Essentially, the focus should be centered around cost-per-click (CPC) when it comes to paid advertising, and performance marketers often rely on landing pages which are SEO-optimised, coupled with top-notch content marketing, in order to garner results.

How are businesses reserving their spends on digital marketing?

Today, digital media allows companies to fulfill their marketing goals at extremely low costs.

Statistically, there are over 50 million registered businesses on Facebook, coupled with the fact that 88% of all businesses utilize Twitter for various digital marketing purposes.  

In fact, social media and digital technologies are widely used to raise awareness of public services as well, not to mention the constant surge in political promotions.

All in all, consumers are dedicating an increasing amount of their time to research information, on products and services, online. Businesses have responded to this behaviour by ensuring social media, and digital media, have become essential components of their marketing strategies.

Why should businesses use performance marketing?

Now that you’re aware of what performance marketing is, alongside the main performance marketing channels, it’s important for businesses to focus on the primary benefits it offers.

1. Gauge real-time measurements for ROI

When utilising performance marketing, it becomes far easier for businesses to measure, and track, their results, as is often the case with digital marketing. Every time a user interacts with your ad or perhaps signs up for your newsletter, businesses can immediately be made aware of the fulfillment of their preset goals. Ideally, it allows businesses to be alerted of engagement, or actions, of any kind across the spectrum, of clicks, shares, and impressions, etc.

Therefore, it becomes far easier to maintain track records of your ROI, at any given time, in a straightforward manner. Moreover, as a business, you’ll also be aware of the financial responsibilities you’re incurring when it comes to funding your performance marketing campaign.

2. Optimise your Key Performance Indicators (KPIs)

KPIs play a very important role in the success of your company. With performance marketing, you’re able to directly target metrics such as the percentage of sales made from new customers, or your present customer turnover rate. Moreover, since the primary goal of performance marketing is to sustain higher levels of business growth, utilising KPIs will allow businesses to optimise their leads, impressions, clicks, and several other potent performance markers.

Therefore, when partnering with a digital marketing agency, you should discuss what your company wishes to accomplish with performance marketing, after which your KPIs can be reviewed by a dedicated account manager. Following the same, businesses can utilise these indicators to set their marketing goals.

3. Pay as per the results

Rather than having to pay upfront for services, when utilizing performance marketers, you’ll be charged based on the fulfillment of certain designated actions. Smaller companies would prefer a model of this sort given its friendly association with limited budgets. This is highly useful for marketers as well.

A study by Omnicore states that 63% of all marketers find generating leads, and enhancing their traffic, to be some of the most challenging aspects of traditional marketing. 

In contrast, performance marketing ensures that payments are only made following the successful completion of such agendas.

How to measure performance marketing with actionable metrics?

When businesses set their KPIs, they should ideally begin with their business goals in mind. When utilising targets which are not specific, or detailed enough, you’re likely to end up missing excellent opportunities, whilst being at risk of capturing the wrong data. While businesses can make use of several metrics, it's important to consider only the most efficient, optimum, and actionable ones to utilise as KPIs.

Here are a few notable KPIs for performance marketing, coupled with where they can be best implemented.

• Conversion rates: these measure the percentage of customers who are fulfilling a certain, desired action. This is inclusive of clicking on a paid ad, signing up for a subscription, or agreeing to a free trial. Businesses would typically have to track several conversions across their marketing funnels, therefore, it is important to carefully align this metric with your future plans.

• Customer lifetime value (CLTV): this is calculated by multiplying the average purchase frequency by the average purchase value. After which, the result is then multiplied by the average amount of times a buyer remains with your brand. Being aware of your CLTV will allow your business to determine exactly how much time you can afford to spend on customer acquisition.

• Customer acquisition cost (CAC): this is calculated by dividing all of the costs which your business spent on acquiring new customers, by the actual amount of new customers which were acquired within the funding period. Essentially, CAC is used as an important metric when determining marketing effectiveness.

What have we learnt?

All in all, performance marketing is an integral aspect of digital marketing. Within the digitized age of today, it is important to set your brand aside from your competitors in order to succeed within the marketplace. By familiarizing yourself with what performance marketing is, followed by the best channels to utilise for the same, and its primary benefits, you’ll be able to better determine whether it’s suited to your business. Lastly, by scanning through the performance marketing metrics to effectively determine its success, businesses can certainly give it a go and monitor just how well it's contributing towards their business if you hadn’t made your mind up yet.