Introduction
What is Performance Marketing?
Performance Marketing is as it sounds â marketing based on performance, where performance is the desired result getting tracked, measured, quantified and optimized for every penny the company is spending. The brand/advertiser pays the partner only after the goal is completed in the form of Pay Per âXâ â âXâ can be Sale, Lead, Click, View etc.
Letâs understand this with an example, while surfing online on a daily basis you do a lot of browser searches, engage on social media, scroll multiple websites and apps to read contents, watch videos or play games and while doing that you must have encountered an advertisement in the form of static banners, texts and videos with tags â ads/sponsored/promotional/etc. where the brand is promoting either their products or features. Thatâs a performance marketing campaign led advertisement.
In traditional marketing methods the advertisers have to pay the cost upfront to buy the ad spaces/placements without seeing the performance and conversions, mostly they take a bet on the goals and the final result comes only after the campaign ends. However, with performance marketing the power always remains in the hands of advertisers where they have to pay only after the desired goals are achieved and if the campaign is not performing well, advertisers have full power to pause the campaign anytime and put the money somewhere else where ROI will be better.
Where all you must have witnessed the Performance Marketing Campaigns on daily basis:
Search Ads â When you search in a browser and hit enter, the browser shows you a list of websites on the top with an âAdâ tag. Those âAdsâ are promoted Search Ads and the companies have to pay as soon as you click on the ads.
Video Ads â Suppose you are watching some content on YouTube and suddenly a video plays which is not a part of the original content but still embedded in the original video, thatâs a Video Ad run by the brand. If you watch the video for some time (there are certain rules) or you click on the video and land on the brandâs platform or complete the goal then the brand has to pay YouTube/Google.
Display Ads â While scrolling Facebook/Instagram feed you must have seen there are posts which are not from your connections/followings/liked pages and tagged as sponsored/promoted in the form of static banner. These posts appear after every few organic posts from your connections or networks and that's called a âDisplay Adâ. Brand has to pay only if you either click on the ad or complete the goal on the platform.
Performance Marketing explained with real world examples:
Why Performance Marketing?
Everyone in this world wants to grow and so are businesses. All brands who are doing their business online, be it at small, medium or high scale, want to scale their growth metrics constantly considering two important factors i.e. Time taken and Money invested to achieve the growth.
Letâs see what are the possible ways of getting growth for any online business:
Organic Organic growth of a brand depends on multiple factors like brand recall, market share, competition, user stickiness
Referral or Word of Mouth These type of growth levers are not so scalable in maximum cases and even if it's true it takes a huge amount of time and effort to build.
Branding Branding growth involves a lot of capital investment to create the awareness among the users at scale and also there is a high risk on promised returns.
Digital/Performance This is the most easiest and quickest growth lever for any brand with minimum risk involved as the capital investment required is not that high to start and promises good returns too.
Without performance marketing the brand has to either depend on the organic growth levers or branding. Organic growth for most of the brands (specially small & mid level brands) has a consistent graph (not considering any exceptions) and canât be impacted in quick time and branding on the other hand is too expensive and risky to handle as it comes for a huge cost without the surety of return. Then comes performance marketing where the brand has full flexibility to plan and execute their growth charter by spending a certain amount and measuring the return on it. If the return on investment is good then the brand can further increase their spends to grow faster else they can reduce the spends and optimize the campaign until the returns are not satisfactory. Moreover with performance marketing the brand can optimize their ROI everyday by either increasing the returns or reducing the spends or both as there are multiple levers for optimizations available.
Jargons of Performance Marketing
Before jumping into the principles and concepts of Performance Marketing the most essential thing is to understand the terminologies which are widely used in almost all the discussions. There are many different metrics that marketers and platforms use to track and measure the performance of online marketing campaigns. Here are the most common metrics you will be hearing in the entire discussions so letâs understand them first:
Platform Platform refers to the medium where the advertiser does their online business and wants the users/customers to come and complete the conversion, it can be either web or app.
Impressions Impressions are when an advertisement or any other form of digital media renders on a user's screen, however the viewer doesn't have to engage with the post in order for it to count. If the serving of the digital ad or media to a single user is 5 times then total impression count will be 5 not 1. Impressions are also referred to as an "ad view."
Reach It is the number of unique users you have exposed or will expose your ad to by showing impressions. In digital marketing, this can refer to the total users targeted or reached in a digital campaign.
Frequency It is the average number of times a user sees your ad, calculated by dividing total impressions by total reach.
Impression vs. Reach vs. Frequency Reach shows the number of unique users that are exposed to your ad, while impression shows the number of times your ad is displayed to the users and frequency shows the average number of times the ad is served to the user. Letâs take an example, suppose you are on a website and reading some content and encounter a brandâs ad 5 times till you finish reading that content. In this case the count of Impression is 5, Reach is 1 and Frequency(Impression/Reach) is 5.
Target Audience & Segmentation Each ad platform offers ways for you to target your audience in the form of audience segments which helps you to reach the right potential users. There are 4 types of segmentation - Demographic, Geographic, Psychographic & Behavioral.
Details about each segmentation type is covered in the link below: Read More: 4 Key Types of Market Segmentation: Everything You Need to Know
Conversion The economics of performance marketing is based on meaningful actions and thatâs when the publishers get paid too. Conversions are the final action or the desired goal that advertisers wish the users complete on the platform.
Bid Bid is the maximum amount youâve agreed to pay for an ad to be served in a specific placement and time, to your chosen target audiences.
Bid strategies If performance marketing is about paying for actions, the advertisers have a strong grasp on the various bid strategies to choose from different types of actions which are most commonly measured.
Cost Per 1000 Impressions (CPM - Cost per Mille): The amount an advertiser pays for serving one thousand ad impressions to the users.
Cost Per Click (CPC): The amount an advertiser pays only when their advertisement is clicked and the user gets redirected to the platform.
Cost Per Sales (CPS): The amount an advertiser pays only when a sale is generated from an advertisement. This strategy is usually pivoted with RoAS or generation of maximum return of revenue on average ad spends.
Cost Per Leads (CPL): The amount an advertiser pays when they receive a sign-up from an interested consumer as a direct result of their advertisement.
Cost Per Action/Acquisition (CPA): The amount an advertiser pays when the advertisement fulfills the desired goals like sale, signups, clicks, subscription, etc.
Players Involved in Performance Marketing
Before starting the story of performance marketing in detail letâs first understand the different players involved and their contribution in the ecosystem.
Advertiser Advertisers are the brands also referred to as merchants or retailers who either sell goods or provide services and spend money to meet their goals like â getting more users/leads/sales/etc.
Publisher Publishers are the companies or individuals also referred to as affiliates or partners who own and operate a website, app, social channel, etc. and sell digital advertising placements on it.
Ad-Exchange An Ad-Exchange is an online marketplace which is a neutral and autonomous platform where publishers and advertisers trade the online inventories/placements by RTB (real-time bidding) technology. There are two aspects of how the publisher and advertiser trade on Ad-Exchange:
Publisherâs Side: Publishers upload and connect their placement inventories on ad-exchange with the help of SSP (Supply Side Platform). As soon as the visitor views the publisherâs page, the ad-exchange comes to know about the visitor on the basis of information collected via cookies on website and chooses the most interested bidders and the right placements to target to show an ad to the user.
Advertiserâs Side: Advertisers have to connect to a DSP (Demand Side Platform) to start buying online traffic from ad-exchanges. Advertisers can set up a campaign on DSP to target a specific type of audience segment and declare the desired maximum or target cost per impressions/clicks/results. Once the campaign is LIVE, the setup process enters into the RTB mechanism and starts finding the right sets of users on publisher's website/app and shows an ad as soon as the the bid wins for that user on ad exchange.
Ad-Platform Ad-Platforms are the companies who facilitate the technology for monetizing the online traffic/inventory available on both websites or apps via a self-serve dashboard. The main purpose of an ad-platform is to connect the advertisers with publishers via a centralized system where advertisers can run campaigns to buy the online traffic available on the app/web via RTB (real time bidding) mechanism and can also track and optimize their ads on the basis of their performance. Majorly, there are two types of Ad-Platforms:
Ad-Platforms who have their own inventory: Platforms like Google, Facebook, LinkedIn, Quora, Microsoft, Twitter Ads etc. are the ones who manage and sell their own or partnerâs inventory.
Ad-Platforms who donât have their own inventory, called as DSP (Demand Side Platform): Platforms like AdRoll, Appnext, MediaMath, TubeMogul etc. are the ones who donât have their own inventory instead they buy from ad-exchanges or direct publishers and sell to advertisers.
Ad-Network Ad-Network is a media company that sells ad inventory across a range of publishers to advertisers at a fixed price which includes negotiations. Ad-Networks are like âmiddlemenâ that work directly with publishers to sell ad impressions that a publisher has not directly sold anywhere.
Performance Marketing Agency A performance marketing agency is a outsourced firm that offers a full time performance marketing services to the companies that donât have the adequate workforce to manage the same in house. The agency helps the advertisers in devising the correct market strategy, competitorâs analysis, negotiating, onboarding and managing new publishers, affiliates, ad-networks and programmatic channels. These agencies donât have their own direct placements but have a good penetration and connection in the publisherâs side market and can bring better deals.
Pros & Cons of Performance Marketing
Pros
Easy-to-track performance: Performance marketing campaigns are set up with the express purpose of tracking and measuring. With the help of various data analytics tools designed especially for performance marketers, keeping a finger on the pulse of performance campaigns and adjusting them to get better results is easy.
Low risk: Marketers know exactly what is going on with their performance campaigns at every stage, which puts them in a much better position to optimize and reduce risk whenever necessary. Plus, with less risk, quicker launch times are possible. No more pushing for approvals.
ROI-focused: Performance marketing is guided by ROI, so the focus is always on the end goal of improving performance. This ensures that performance campaigns are continually moving towards better results, which helps uplift the brand across all metrics and boost leads and sales.
Testing: Through testing, one can find even better marketing campaigns and solutions for their business. One should never let a campaign go untested, and always have a couple of variables of the live campaigns to see how they measure against each other.
Diversification of revenue streams: Performance marketing is a versatile marketing approach. When one channel doesnât work, you can quickly pivot to another one that can bring better results. That means you donât have to continue spending your ad budget on ineffective tactics, since you have a sure-fire way to generate revenue. This can be helpful when your other marketing channels arenât generating the sales volume that you need.
Tap new and hard-to-reach audiences: An effective performance marketing plan can help you acquire an increased and more diversified audience that wouldnât otherwise be possible with traditional advertising. This is especially true if youâre using affiliate marketing, where the outcome can bring in a larger audience, tap highly targeted traffic, and generate more sales. Additionally, since performance marketing can come in different formats, it opens your brand to new markets as your ads find placements across various channels and content outlets.
Pay only for results: Instead of paying a fixed amount upfront, performance marketing agencies and marketers will charge you only when your desired action or goal is met. Typically, the payout is on a cost-per-impression basis to allow businesses to easily track their spending, ensuring their money doesnât go to waste. Whether youâre looking to build your mailing list, drive traffic to your website, increase the downloads for your app, or generate sales, this approach means that you only pay when these metrics are hit.
Cons
Vanity metrics: Vanity metrics are metrics that appear to be beneficial but donât have a meaningful impact on your businessâs primary goals. For example, increased website traffic or a growing follower list on Twitter might seem like a significant improvement. If it doesnât lead to increased sales or revenue, though, this metric isnât the most important metric to track. Thatâs not to say that increased web traffic and other similar metrics canât lead to increased revenue, but itâs important not to make them the end goal. Avoiding vanity metrics is especially important with performance marketing. You donât want to pay for an increase in a metric that wonât lead to increased revenue. This situation is what can lead to performance marketing costs outweighing the return.
High costs: When you partner with a trusted digital marketing agency, your costs are consistent and predictable. Each month, you know what your company will pay, which can ensure your business adheres to your marketing budget. In a performance marketing campaign, however, your monthly costs can vary widely. A significant jump in costs can cause issues, especially if the campaign doesnât lead to increased revenue immediately, such as with leads or ad clicks. Since youâre paying for each sale, you could also end up paying more for the same results than you would with other types of digital marketing.
Fraudulent results: If you donât work with a reputable agency, you open yourself up to the risk of fraud. For unscrupulous companies, the incentive for fraud is especially high with performance marketing.
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