What Is Performance Marketing?

Performance marketing refers to a digital marketing strategy in which advertisers only pay when user conversion occurs. In other words, ad payments take place when a user responds to a call-to-action (CTA). This might include clicks, leads, and sales – even the simple act of filling out a landing page form.

If performance marketing is new to you, don’t fret. We’ll give you a simple guide to deploying this tactic in your digital marketing business.

marketing performance

Performance Marketing Definition

Traditional marketing strategies are risky in that advertisers may not see any return on their investment. Traditional methods also tend to be more expensive. This places you, the advertiser, on defense. You can monitor the results of your traditional marketing campaign and make corrections over time, but you may not see any significant profit from your efforts. In this case, your ad dollars are spent, whether or not a user engages with your products or services. 

Performance marketing is a way to overcome this.

With a targeted approach, such as a PPC (pay per click) campaign, you need not worry about taking on significant financial risk – you don’t pay unless the user clicks or a set business goal is met (like a predetermined number of sales). Using this approach, it’s safe to say your ad campaign will be less risky, with a guarantee of significant return on investment. It’s a win-win strategy that will benefit you and your affiliates.

Affiliate Marketing

One common performance marketing strategy is affiliate marketing. When creating a new affiliate marketing campaign, you’ll need to determine three crucial elements: who your affiliates will be, your determined business goal (or goals), and the commission rate you’ll pay the affiliate.

Affiliate Partners

Finding affiliate partners to publish your ad content seems tricky, but in fact, it’s quite simple. In most cases, affiliate marketing relies on social media influencers to increase visibility of products and services. The best way to find affiliates? Reach out. Give a brief overview of what you’re selling and how you think it could benefit the influencer’s followers. Be sure to outline the benefit to the affiliate marketer, as well – an agreed-upon percentage of each sale.

Setting a Business Goal

Before you contact potential affiliate partners, you must first ask what your business goal is. Let’s say you intend to increase sales for a particular product line 20% over a three-month span. And depending on the product and who it’s created for, this could help you narrow your list of potential affiliates. With this in mind, you could work with your chosen affiliate partner to come up with an appropriate performance marketing strategy. 

In many cases, you could work with your affiliate to create product demos. These are examples of how it’s used, what benefit it provides or problem it solves, and where to find it. The affiliate marketer will give their followers a distinct discount code they can use during the checkout process on your company site. Then, all you need to do is track every sale that uses the distinct discount code. You’ll be able to calculate the total commission for your affiliate from these sales.

what is performance marketing

Rate of Commission

Determining the commission rate might be the trickiest part of affiliate marketing. Of course, you’ll want to settle on a number that is of benefit to both you and your affiliate marketer, especially if you anticipate having a long-term partnership. Also, consider the average customer and whether you believe you can retain them over time. 

Perhaps the easiest way to determine the commission rate is to measure the scale of your affiliate’s reach. How many followers do they have? Are they on several different platforms? Another key factor: what rates your competitors offer (you’ll at least want to match their rates, if not exceed them). In most cases, commission rates between 5% and 30% are deemed appropriate. If your affiliate partner showcases more than one of your products, you can offer different commission rates depending on the demand for each individual product.

Other Types of Performance Advertising

We already covered affiliate marketing as it’s one of the more common forms of performance marketing, but are there other campaign strategies you can implement? Yes, of course. The strategies you use, how you use them, and when you use them is up to you. That said, you’ll likely incorporate several different advertising strategies to increase your company’s reach.

So, what are the other forms of performance-based advertising?

Native Advertising

Native advertising is when an ad is placed strategically on a web page so that – unlike those pesky banner ads – it blends in with the page design, thus making it more appealing to the user. One example would be a sponsored Instagram post.

Because sponsored posts are dynamic in that they are fed to users based on previous views or interests, native advertising is a method to target new customers in a relevant way. Ad payment in this case often occurs by impression or click.

Sponsored Content

More individualized than native advertising, sponsored content typically comes in the form of an influencer’s social media post. Unlike a strategic sponsored ad, these content posts are often more detailed in nature with emphasis placed on how the influencer feels about the product or service. In essence, they are a strategic (and psychologically sound) way to build user interest in the product.

Search Engine Marketing

There are two distinct methods of search engine marketing: paid search marketing and search engine optimization (SEO).

  • Paid search marketing is a strategy where the advertiser pays each time a user clicks on a search engine ad.
  • Search engine optimization is thought of as a more “organic” method of digital performance advertising. SEO is a method of tailoring your content so that it gains maximum visibility by a search engine’s algorithm. The goal, obviously, is to have your content ranked higher than the content of your competitors, so that it appears higher on the search results page.
    • It is important to note that SEO works differently depending on the search engine you use. Because of Google’s reach, it’s important to gain expertise in Google-specific SEO strategies. Why? Because the average ROI for an ad placed on Google is $2 for every $1 you invested.

Social Media Marketing

Social media marketing is a way to leverage various platforms – Facebook, Instagram, etc. – so that your products or services gain as much visibility as possible. Typically, you can measure your ad performance on social platforms by viewing metrics based on things such as clicks, shares, and likes.

performance advertising

How to Measure and Pay For Marketing Performance

The benefit of using performance marketing is that it puts you in control by giving you insight through observable metrics. All aspects of the marketing process – from each individual click to your customer’s purchasing trends – are available to you in an up-to-date format. This allows you to compare performance against your initial business goals. In short, it is an easy way to track ROI. It is also a sure method to make the necessary corrections to your strategy over time.

Using the latest data analytics tools, you’ll gain insight into how your content is performing on digital platforms from a sales and SEO standpoint.

Some of the common performance advertising metrics are:

Cost Per Action (CPA)

CPA refers to the performance metric that tracks desired actions from users. An example would be if a user purchases a specific product. You could measure the CPA against ad spending in a way that ensures a significant ROI.

Cost Per Mille (CPM)

CPM is a flat-rate an advertiser pays for every 1000 impressions. Impression can be defined as the number of times an ad is viewed

Pay-Per-Click (PPC)

PPC is the price you pay every time a user clicks on actionable content. This method gives a better snapshot of user engagement than CPM in that it tracks individual actions. High conversion rates typically correspond with higher potential ROI, because it has a higher value.

Lifetime Value (LTV)

LTV is a more complicated method of performance tracking in that it relies on predicting the behavior of users. That said, if advertisers can learn to use LTV properly, they can gain incredible insight into the ongoing engagement of users.

performance marketing definition

Performance Marketing in Action

Knowing the downsides to traditional marketing methods, you simply cannot afford to overlook the importance of digital performance marketing. With nearly 20% of all retail sales occurring online (25% by 2025), it’s crucial to the success of your business that you learn how to launch competitive ad campaigns in the digital sphere.

Whether you choose to use affiliate marketing, native marketing, sponsored content, or other strategies is determined by the products and services you offer, who your target users are, and what your business’s defined goals are. And don’t forget about the variety of methods for tracking performance marketing metrics.

The great news is that there’s a wealth of knowledge and resources available to you. There’s never been a better time to join the performance marketing revolution. And if needed, you can always seek the help of external partners for crafting thoughtful and results-orientated ad campaigns.

FAQ:

  • What is performance marketing?
  • How do I find affiliate partners?
  • What is native marketing?
  • How do I track the success of performance marketing?
  • What are the two types of search engine marketing?

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