What is performance marketing?, How to Measure Performance Marketing?, How to Get Started with Performance Marketing?, What are the benefits of running performance marketing programs? I will be answering all such questions in this blog post.
What Is Performance Marketing?
Performance marketing is an online marketing program where advertisers pay marketing companies or advertising platforms for results achieved. Performance marketing puts the power back in the hands of the advertiser. You determine the action, then pay when that action has been completed – whether it’s a sale, lead, or click.
In traditional advertising, you pay a fee upfront for an ad space based on common practice and pre-conceptual beliefs. This could burn a significant chunk of your marketing budget without ever seeing a single conversion. Unlike traditional and organic marketing, performance marketing is specifically used to drive actions, track and measure those actions, all while attributing the ROI of each asset, campaign, or activity. This enables advertisers and marketers to identify what has and has not worked for them, the impact it has on the overall business, and optimize it accordingly.
The performance-based marketing umbrella extends into several channels, which usually consists of:
Native advertising
Sponsored content
Social media ads
Search engine marketing
Affiliate marketing
Native advertising:
Native advertising is paid media designed to blend well in the medium it's published. In other words, it is designed to not appear like an ad but part of the overall media. Studies show that native ads drive an almost 18% increase in purchase intent and 9% for brand affinity responses compared to banner ads. Native ads provide better conversion as they are positioned with contextually relevant content. Content discovery programs enable you to scale the reach and improve click-through to the specific landing pages via the websites of publishers.
Sponsored content:
It is a different form of native advertising, where advertisers pay to position their ads with the intention of closely resembling editorial content. These ads may not drive traffic directly to an external page, but to a page within the publisher's website. Advertisers value this because association with a publication and exposure to its audience can drive awareness, conversions, and eventually business leads. For e.g. you might have come across sponsored posts/articles on news/magazine websites.
Social media advertising:
Being on social media is a must for all businesses today. It is a good channel to connect with the target audience, influencers, decision-makers, and end-users. A lot of brands can find and tap into their audience on social media channels, including Instagram, Facebook, Twitter, Pinterest, LinkedIn, and TikTok. Using these platforms for your performance marketing campaigns tends to involve either influencer marketing or paid advertising strategies. The cost of running a campaign comes higher compared to other platforms, but the audience targeting provided by these platforms improves your CTR and lead quality.
Search engine marketing:
Search Engine Marketing (SEM) is also known as Pay-per-click (PPC) campaign. It uses native ads through sponsored search results and positions them based on its algorithm. Pay-per-click programs offered by Google and Bing accelerate a brand’s exposure via search engine results pages for keywords in ways organic Search Engine Optimization cannot. Keywords are the core of SEM, and selecting these requires thorough research. You can analyze the performance of your campaign’s organic and paid search keywords to understand how they complement each other.
Affiliate marketing:
Affiliate marketing is about referring to a product or service through blogs, social media platforms, or websites. With affiliate marketing, advertisers rely on publishers to promote products/services to their followers in exchange for a commission that the affiliate drives. Affiliates (also known as publishers) can be social media influencers, bloggers, or other brands whose audience is similar to the advertisers' target audience. This gives the advertisers access to an audience of customers they might not already have. Many advertisers pursue affiliate marketing and realize a strong return on investment (ROI) as It’s essentially free advertising.
To really hit your business goals, it’s important you build your campaigns strategically—choose the right platform, ad format, optimization goals, focus on the right audience, and of course—create an ad that will resonate with your target audience.
How to Measure Performance Marketing?
A crucial element of performance marketing is Return on Investment (ROI), it is calculated by measuring every trigger and activity, then analyzing against pre-defined KPIs. Measurable ROI is the key to the success of a digital marketing campaign.
The backbone of performance marketing is data. You need to gather a significant amount of data to provide you with deeper insights into the campaign performance. The more data, the more possibility to optimize the campaign and the more accurate your findings will be.
Some of the common metrics used to measure performance marketing are:
Cost Per Mille (CPM)
Pay Per Click (PPC)
Cost Per Action (CPA)
Life Time Value (LTV)
Cost per mille (CPM), also called cost per thousand (CPT) (in Latin, French and Italian, mille means one thousand), is commonly used to measure impressions of advertising. The "cost per thousand advertising impressions" metric is calculated by dividing the cost of an advertising placement by the number of impressions (expressed in thousands) that it generates. CPM does not measure an action taken by viewers; it only determines the price of getting the ad shown. This campaign strategy is good for brand promotion campaigns, where the objective of advertisement is to create awareness.
Pay-per-click is commonly associated with first-tier search engines (such as Google Ads, Amazon Advertising, and Microsoft Advertising formerly Bing Ads). PPC denotes the price paid for every time a viewer clicks on an ad. PPC is a better indicator of engagement than CPM because the viewer has taken an action (clicked on an ad). Apart from search engines, even social media platforms such as Facebook, Instagram, LinkedIn, Reddit, Pinterest, TikTok, and Twitter have also adopted PPC as one of their advertising models.
PPC is widely dominated by bidding strategies where advertisers decide a maximum bidding amount and the actual amount an advertiser pays, depends on two major factors: the quality of the ad, and the maximum bid the advertiser is willing to pay per click. This is then measured against competitors' bids and your ads placed accordingly. In general, the higher the quality of the ad, the lower the cost per click is charged and vice versa.
Cost Per Action is also mistermed in marketing as Cost Per Acquisition. It measures campaign performance according to a specific desired action. The desired action to be performed is determined by the advertisers. Advertisers who want to optimize their ad campaigns for a specific user action, like sign-ups, downloads, add-to-carts, or purchases, will analyze the effectiveness of each campaign by the cost it takes to drive these user actions. The action taken by potential customers is considered as a tangible and measurable result, hence CPA is one of the most important and popular metrics.
Lifetime Value is an estimate of the average revenue that a customer will generate throughout their lifespan as a customer. This is a critical metric for a company trying to gauge the cost efficiency of acquiring new customers and supporting them over time. Google Analytics helps you in generating the Lifetime Value report. It lets you understand how valuable different users are to your business based on lifetime performance. For example, you can see lifetime value for users you acquired through email or paid search. With that information in hand, you can determine a profitable allocation of marketing resources to the acquisition of those users. Obtaining an accurate estimate of customers’ LTV gives you a much clearer picture of your products, marketing, and sales processes, and how your brand is translating into long-term revenue.
How to Get Started with Performance Marketing?
The internet changed forever the way consumers browse and buy products. Most of any company’s target audience is engaged to at least one social media platform. For e.g. LinkedIn engages professionals, while Snapchat and TikTok target younger, user groups. So, when it comes to promoting on social media sites, marketers have several choices. It has completely altered the way companies advertise and engage with customers. Social media is just one channel, let's explore other possibilities, channels, and campaigns. But, before that, we need to learn how to set up a performance marketing campaign.
Goal setting:
The first step is to define your campaign's objective and goals. The goals can be creating brand awareness, driving conversions, enhancing user engagement, increasing web traffic, customer acquisition, etc. The options are nearly endless, but if you try and pursue too many goals at once you’re not going to achieve any of them. It is important to forecast what you want to measure. Your campaign goals determine where your ads are shown, who they’re shown to, and KPIs to measure the success of the campaign.
Channel selection:
Today, advertisers want to maximize their reach and improve conversions by selecting channels tactfully aligned with a campaign’s goals while providing value to the target audience. It is wise to diversify the channels you use, rather than focusing exclusively on one channel. This helps spread campaign exposure and reach, increasing the probability of success. Affiliate marketing, native advertising, or social media platforms, look for channels that specialize in your conversion type and target audience. For e.g. a campaign focused on professionals and businesses would have a better conversion rate on LinkedIn. Whereas, a campaign targeted to college-going students is more likely to engage on Instagram.
Campaign launch:
Launching a campaign is as crucial as planning a campaign. Make sure your performance marketing strategy is based on your overall business goals. All the campaign assets, content, targeting, and communications address solutions to problem areas of your target audience.
The more you understand the target audience and how the product or service can appeal to them, the better the impact of your campaign will be.
Measuring performance:
The real work kicks in post-launch. Establishing and measuring the success of a marketing campaign involves using key performance metrics (KPIs). Performance campaigns begin to generate data the moment they are up and running. Attribution, mobile vs. desktop, bounce rates, etc. all give important data points that can give you a better insight into what is working and what is not. However, before you start pouring over data you’ll want to refer back to your goals. This will help you zero in on the numbers that actually matter. Testing, tracking, and measuring gains and losses is equally important to get the most out of your performance marketing campaigns. Once you can analyze those numbers you can figure out what’s working and what isn’t, so you’ll have insights you can take action on. It’s up to the marketer to optimize individual campaigns for performance, across all channels in use.
Optimizing performance:
As mentioned in the previous point, testing and measuring are essential for any performance marketing strategy to work. Useful insights from the analysis may include information around the engaged audience in comparison to the targeted audience, information on which assets performed and why, information on which strategies performed and why. Wherever possible do overlay this with market data to get a sense of improvement areas. Running A/B tests can provide you with results on what is working for you and what is not. When it comes to Performance Marketing, try different techniques and strategies for optimization of conversions and click-through rates.
Performance Marketing is all about building relationships between advertisers and publishers to reach, engage and convert the audiences to build your sales and brand.
What are the benefits of running performance marketing programs?
Lower risk
In performance marketing programs advertisers make informed decisions based on accurate data and this improves your chances of running successful campaigns. From a business perspective, there’s a less financial risk with performance marketing than other models. These campaigns are flexible providing advertisers the freedom to tweak their budget anytime. This optimizes your marketing budget and boosts ROI.
Superior transparency
Transparency is one of the major benefits of performance-based marketing. It allows advertisers to determine the amount of value they’ll generate out of their investment. For e.g. As an advertiser you know your objectives and what is needed to drive those results, increasing the drive to achieve the KPIs. These programs can also reveal which partners/channels are performing well in driving traffic, conversions, or any other metrics, so businesses can use those insights to improve their campaigns and boost their company’s bottom line further.
Enhanced insights
The more data you have available, the easier it is for advertisers to make accurate, data-driven decisions to drive growth in the longer term. Performance marketing provides a detailed view of your marketing strategies, as they can be connected to your lead funnel or conversion metrics. With performance marketing, measuring the performance and effectiveness of your company’s marketing strategy becomes easier. This empowers companies to better evaluate the success generated from smaller initiatives as well as larger campaigns as a whole.
ROI driven
Performance marketing is much more budget-friendly than traditional display advertising. Instead of paying a sum upfront regardless of the results, organizations that employ performance marketing only have to pay when a specific action is achieved. It also adds to budget planning as advertisers define their goals and manage bids/CPA/commissions for each of the actions that are completed. This ensures that performance campaigns are continually moving towards better results, which helps uplift the brand across all metrics and boost leads and sales.
Conclusion
Performance marketing campaigns give you the ability to measure everything from brand awareness to conversion rate down to a single ad. In order to make your performance marketing successful, you’re going to have some technical pieces that need to be in place. You will have to familiarize yourself with tracking, data feeds, online ads, affiliate programs, and more depending on your performance marketing plan. As advertising becomes more transparent, advertisers are looking beyond branding to build marketing strategies with proven ROI. The new age of data-backed marketing ensures you only pay for the results you want, so your ad spend is worth every penny. So jump into performance marketing today, and begin reaping the benefits of tracking, measurement, and optimization for your ROI.
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