Performance marketing is the term given for online marketing campaigns where advertisers pay marketing companies or advertising platforms for results achieved, such as clicks or conversions.
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.
While major corporations can spend millions of dollars on branding, most businesses need to focus on the bottom line to stay profitable. Performance marketing puts 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.
The internet changed forever the way consumers browse and buy products. Needless to say, it also completely altered the way companies advertise and sell. Today, marketers have the capability to gather campaign data 24/7 and measure the results as they happen. While in the past, attribution was nearly impossible, data transparency now enables marketers to optimize their campaigns so they perform better. And that's why it's called "performance marketing".
In an increasingly brand saturated market, standing out is a challenge, and that’s why brand awareness is so important. There are many ways to increase brand awareness, such as social media campaigns, native advertising, content marketing and more. Some of these may actually fall under the umbrella of performance marketing, because they are measurable and advertisers only pay for specific actions.
For example, Hexa recommendations are a powerful way to boost brand awareness by exposing target audiences to relevant, top-of-funnel content that addresses their pain points and sparks interest. Because the results of these campaigns can be attributed and the advertiser only pays according to a specific budget and conversion goal, this is a form of performance marketing.
Affiliate marketing is a definite subset of performance marketing, as it is entirely driven by metrics and goals. With affiliate marketing, a commission is earned for the online promotion of the product or service of another company. The affiliate marketer advertises on behalf of the merchant, with the goal of driving traffic, clicks and sales to the merchant’s website. The affiliate receives payment only for actions taken, such as clicks, conversions or leads.
A defining element of performance marketing is ROI (return on investment) – every activity and action is measured, reported and analyzed against pre-defined KPIs. This is how the performance of a campaign can be understood and optimized towards improving performance.
Measurable ROI is the key to successful digital marketing, so it’s important to track it regularly. There are loads of performance optimization tools available on the market, but whichever you choose, give your campaigns time to gather data. The more data you have, the deeper your insights and the more you’ll be able to optimize in an accurate and effective way.
Programmatic marketing is an automated method of buying ad space, targeting the most relevant audience at the best possible price. Programmatic is becoming an essential ingredient of performance marketing, as it enables advertisers to buy better placements at scale and maximize their ROI. A huge benefit of programmatic is the in-depth reporting and analysis, which means that advertisers can explore performance of programmatic ads and optimize in a highly focused way.
Cost Per Click denotes the price paid for every time a viewer clicks on an ad. CPC is a better indicator of engagement than CPM, Viewer has taken an action and actually clicked on the ad. A higher CPC usually means that the value of the conversion is higher. For example, a luxury car brand might set a higher CPC, targeting a much smaller audience of high potential customers who are likely to buy an expensive car. The cost of the click is more expensive, but the potential return is much higher.
CPM stands for Cost Per Mille, or Cost Per Thousand, and it is the cost the advertiser pays for 1000 impressions of a digital ad. In other words, it is the price for every 1000 times an ad is shown to viewers on any app or website banner. CPM does not measure an action taken by viewers; it only determines the price of getting the ad shown. Some performance marketers are focusing less on CPM and more on metrics that have a concrete, action based meaning.
CPA stands for Cost Per Action, and it measures campaign performance according to a specific desired action you want the target audience to take, such as downloading an ebook, signing up or subscribing, purchasing an item, clicking on add to cart or some other action. In performance marketing, the action taken by potential customers is considered the most important tangible and measurable result, so CPA is one of the most important and popular metrics too.
This metric concentrates on the predicted “Lifetime Value” of an individual customer during their entire relationship with the brand or company. LTV estimates the expected spend of acquired customers based on their ongoing activity, using advanced methods like predictive analytics. Thanks to increasingly sophisticated measurement capabilities, LTV is fast becoming a popular metric, as it helps marketers plan their overall strategies towards the ultimate goal of boosting ROI.