What is Performance Marketing? A Beginner’s Guide

calendar Oct 18, 2022
author Written by Artur Glukhovskyy

Digital advertising has seen exponential growth since the dawn of the internet. We see this every day when browsing online, whether that’s on a mobile, tablet or desktop, there’s no shortage of ads entering our feeds or screens to promote products and services.

Ad spending is already in the billions but this trend is set to explode even further over the next 2 years bringing global spending to an estimated $526 billion by 2024.

Companies are investing more in digital ad spending as it proves to be the most potent way to reach audiences where they are: online. The pandemic of 2020 produced global challenges in terms of how companies were forced to reevaluate business practices and models. Consumers could no longer go out and buy things readily and had to scrupulously manage budgets amid wavering job security. 

As you’ll recall, a large portion of the planet was indoors for some time, yet even in the face of these challenges and changes to consumer behaviour industries such as e-commerce saw a 43% rise in online shopping! But how did companies capitalise on shifting buying habits and market changes? One way was through performance marketing, enabling businesses to create targeted campaigns to drive results.

What is Performance Marketing?

So, we know that companies are investing heavily in digital marketing to reach audiences and there are many digital marketing types but today we’re focusing on performance marketing. 

Performance marketing refers to an online campaign strategy whereby companies pay marketers and advertising platforms based on agreed-upon results. 

Unlike traditional marketing, for example, where you would pay upfront for ad space in a magazine with no real way to measure whether that ad had been effective, performance marketing allows companies to pay only when the desired outcome has been achieved.

For example, a company might want more impressions on their social media profile or get customers to click a specific link on its landing page. With performance marketing, the company only pays the affiliate when this action has been completed. Making for better budgeting decisions and more measurable data to see what’s working and where to divert time and resources.

How to measure performance marketing

The principal motivation for any marketing strategy is positive ROI. Companies want to get bang for their buck when investing in digital marketing strategies and performance marketing puts performance at the forefront.

Technically, you can track and measure performance-based marketing against any metric or KPI but these are the most commonly used:

Cost Per Click (CPC) 

CPC is where advertisers pay when someone clicks their ad. Determining how much an advertiser pays for each click depends on several factors including relevance, quality and competitor's ranking. As well as which platform they are advertising on, whether that’s Google, Facebook or YouTube. CPC is a popular method of performance marketing because it shows advertisers definitive actions the user has taken, leading to a more accurate analysis of campaigns and actionable data. Check out this guide on CPC for a full breakdown.

Cost Per Impression (CPM)

Also referred to as cost-per-mile, this performance marketing model refers to how much an advertiser pays to generate 1,000 views. So if your ad gets 10,000 views you’ll pay ten times the base rate. 

Bear in mind that CPM is designed to show your ad X number of times, it does not account for clicks or other actions. Simply displaying your ad counts as one view, which makes it less about driving action and more about raising awareness by getting your ad out there as much as possible. Check out this guide on CPM for Facebook.

Cost Per Sale (CPS) and Cost Per Acquisition (CPA) and Cost Per Lead (CPL)

We’ve bundled these three together as they’re closely linked.:

CPS refers to how much you pay when a sale is generated as a direct result of an ad (used in Affiliate Marketing).

CPA refers to the price paid for the user completing an action like making a purchase, downloading an ebook or completing a sign-up form for example.

CPL refers to receiving customer information as a result of completing a sign-up form, subscribing or submitting a contact form for example. The company then follows this lead-up using the contact info.

This graphic gives an example of how Google determines which ads are shown and where:

Which performance marketing model you choose ultimately comes down to your objectives for the campaign but remember to test them and restructure ads based on your data. Performance marketing is iterative at its core so don’t be afraid to try new things as you discover what works best for your business.

What are the best performance marketing channels? 

Now that you have an understanding of the performance marketing terms and models, let’s turn our attention to the most effective channels used by agencies and advertisers: 

1. Native Advertising & Sponsored Content 

Native advertising is designed to circumvent the ad fatigue users have after being bombarded with irrelevant content.

This works by seamlessly blending ads into pages or sections that follow the same style and function of the platform. For example, a news website might suggest a sponsored article based on the viewing history of the user, or how YouTube will suggest a video related to what you’ve been watching. The same applies to the Facebook marketplace where you might search for surfboards and every few rows you’ll see an Ad from a surfboard company. 

This organic or “native” approach is less intrusive and therefore increases the chances of a customer responding positively to the ad. 

2. Social Media Advertising

There is no shortage of social media platforms to advertise on that’s for sure! Each comes with its own set of nuances that should be researched before diving in but the most common channels include:

Social media is typically associated with raising brand awareness through reach and impressions but in performance marketing terms, it’s a great place to drive traffic to websites (CPC, CPA, CPS) and to have sponsored content promoted throughout follower networks.

3. Search Engine Marketing (SEM)

SEM does also apply to organic marketing methods (SEO) such as blogs but here we’re focusing on paid marketing to promote visibility and clicks. Google Ads is by far the most popular SEM platform but Bing and Yahoo are also alternatives. Advertisers pay each time a user clicks on their ad, sending them through to a landing page or website. 

Most searches are conducted through search engines which makes SEM a vital component of a performance marketing strategy. It’s also worth noting that for Google Ads, the cost advertisers will pay is based on an auction-style system where keywords are matched with user queries and then ranked on bid amounts, quality and relevance.

4. Affiliate Marketing

Affiliate marketing serves as an extension of your business whereby a third-party - be it a website publication, influencer, blogger etc - directs traffic to your business and receives a commission upon completion of an agreed-upon-action, typically a sale.

Affiliate software platforms allow businesses to assign tracking IDs and measure the impact of campaigns, this means you can see who, when and where an action has been taken.

What are the benefits of performance marketing?

Performance marketing is all well and good but what are the key benefits of employing this strategy? Here are the leading reasons why performance should be in your marketing mix:

Increase awareness and reach

Getting your business in front of as many eyes as possible is paramount to driving traffic and ROI. Due to performance marketing’s targeted approach, you can segment customers and test campaigns using specific parameters, narrowing your search but appealing to relevant customers who are more likely to interact with your ads.

It’s highly measurable and trackable

Modern data analytics software lets companies see a user’s entire journey from point of contact through to purchase (or whatever the desired action is!). This unprecedented level of insight means that campaigns can be monitored, measured and adapted on the fly, leading to more accurate results and positive ROIs.

Less risk 

Due to its performance-based nature of only paying when an action has been completed, performance marketing absorbs the risk factor. Compared to traditional advertising methods such as radio or print media where there is no real way of knowing how well your investment paid off.

Everything revolves around ROI

Unlike other marketing strategies like brand marketing which focus on spreading awareness or brand image, performance marketing is solely preoccupied with improving ROI.

Whether it’s driving a sale through affiliate networks, gaining customer info to generate leads or measuring click-through rates on a Google Ad, performance marketing is only concerned with how this data can be used to increase revenue.

Final thoughts

So as we come to the end of our performance marketing beginner’s guide, let’s recap what we’ve learnt today:

Ad spending is set to hit over $500 billion by 2024

Performance marketing is measured by:

  • Cost per click (CPC)
  • Cost per impression (CPM)
  • Cost per sale (CPS
  • Cost per acquisition (CPA)
  • Cost per lead (CPL)

The most popular performance marketing channels are:

There are plenty of benefits to performance marketing as described in the previous section and if the trend continues, it’s only going to grow more popular as we move ahead over the next few years.

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