With worldwide digital advertising spend expected to reach $646 billion U.S. dollars by 2024, it’s no wonder that new forms of digital marketing are popping up left, right, and center. Performance marketing is one such form of marketing that’s on the rise. But what exactly is performance marketing?
What is performance marketing?
In a nutshell, it’s a type of marketing where advertisers only pay for results. That means if an ad doesn’t lead to the desired action (such as a sale, sign-up, or download), the advertiser doesn’t have to pay.
Performance marketing is a win-win for everyone involved, as it aligns the interests of the advertiser with those of the consumer. The advertiser only pays for results, so they only want to invest in ads that are likely to lead to conversions. On the other hand, the consumer is only presented with ads for products or services they’re interested in, making them more likely to convert.
Why is performance marketing so important?
The traditional model of marketing is based on reach and frequency. Advertisers would buy ad space in hopes that their target audience would see their ad enough times that they’d be persuaded to convert.
This model is no longer as effective as it once was, as people are now bombarded with ads from all angles. In fact, studies have shown that most people now have “banner blindness”, which means they tune out ads that they see on a regular basis.
86% of consumers suffer from Banner Blindness
Performance marketing, on the other hand, is a much more effective way of reaching and converting consumers. As it’s based on results, advertisers are only paying for ads that are actually reaching their target audience and generate conversions.
In addition, performance marketing is a great way to build long-term customer relationships. Because it’s based on providing value and meeting customer needs, it encourages repeat business and loyalty.
Benefits of performance marketing
There are several benefits of performance marketing, both for advertisers and consumers:
Advertisers only pay for results
As we’ve mentioned, the biggest benefit of performance marketing for advertisers is that they only have to pay when their ad leads to a desired action. That means they can invest with confidence, knowing that they won’t be wasting money on ads that don’t work.
Lower cost per acquisition
Because advertisers only pay for results, performance marketing can be a more cost-effective way to acquire new customers than other forms of marketing, such as traditional advertising.
Performance-based marketing tends to have a higher ROI than other forms of marketing, as advertisers are only paying for results.
Better alignment of interests
As we mentioned above, performance marketing aligns the interests of the advertiser with those of the consumer. The advertiser only pays when their ad leads to a conversion, so they have a vested interest in making sure that their ads are relevant and targeted. The consumer, on the other hand, is only presented with ads for products or services they will have an interest in – making for more likely conversions.
Performance marketing is generally more transparent than other forms of marketing, as advertisers can track exactly how their ads are performing. That means they can see which ads are working and which aren’t, and adjust their campaigns accordingly.
Types of performance marketing
There are five main types of performance-based marketing: cost-per-action (CPA) and cost-per-click (CPC), cost-per-sales (CPS), cost-per-leads (CPL), and cost-per-acquisition (CPA), each with their own advantages:
- Cost per sale (CPS): In CPS advertising, the advertiser pays a commission to the publisher (usually a percentage of the sale price) whenever their ad leads to a sale. This type of advertising is common in e-commerce, as it’s an effective way to drive sales.
- Cost per lead (CPL): With CPL, the advertiser pays for leads rather than sales. Seeing as it is an effective way to generate new leads, it is particularly useful in B2B situations.
- Cost per action (CPA): CPA is the most common type of performance marketing. With CPA, advertisers only pay when a desired action is taken. For example, they may only pay when a sale is made, or when a user fills out a form on their website. B2C advertising can use CPA to drive conversions.
- Cost per click (CPC): CPC involves the advertiser paying each time their ad is clicked. The amount they pay will depend on how much they’ve bid for the keywords used in their ad. When it comes to search engine marketing, CPC is an effective way to drive traffic to a website.
- Cost per acquisition: In CPA advertising, the advertiser pays a commission to the publisher whenever their ad leads to an acquisition, such as a sale or sign-up. This is particularly useful in e-commerce, as it’s an effective way to drive conversions.
These models are based on a pay-for-performance model, meaning that the advertiser only pays when their ads generate results. But how does performance marketing differ from some of the most popular forms of marketing, such as affiliate marketing and digital marketing?
Affiliate marketing vs. performance marketing
In affiliate marketing, affiliates are paid a commission for every person they refer to a merchant, regardless of whether they make a purchase. In performance marketing, on the other hand, affiliates are only paid when their referrals result in the desired action, such as a sale or sign-up.
This difference means that performance marketing is much more effective for advertisers, who only have to pay when they get results. It also means that affiliates are more selective about the products and services they promote, as they only want to invest their time and effort in products that are likely to convert.
Digital marketing vs. performance marketing
Digital marketing covers a wide range of activities, from SEO to social media marketing to email marketing. On the other hand, performance marketing focuses on one thing: results. This laser-like focus means that performance marketers are always looking for ways to improve their campaigns and get better results. That could involve testing different ad copy, trying new targeting options, or using different creative assets.
Engaging the audience with performance marketing
The key to successful performance marketing is engagement. Advertisers need to create ads that are relevant and useful to the consumer, otherwise, they’re wasting their time (and money). There are a few ways to ensure that your performance marketing campaign is engaging:
1. Use data to target your audience
One of the advantages of digital advertising is that you can target consumers very precisely. Using data such as demographics, interests, and purchase history, you can ensure that your ads are only being seen by people who are likely to be interested in them.
2. Personalize your message
Another way to ensure that your ads are relevant and engaging is to personalize the message. This can be done by using the consumer’s name, referencing their location, or mentioning their interests.
3. Use strong visuals
A picture is worth a thousand words, so make sure that your ad contains strong visuals that will grab the attention of the consumer and make them want to learn more. Keep it short and sweet.
In the world of digital advertising, you have a very limited amount of time to make an impression. That’s why it’s important to keep your message clear and concise. Get straight to the point and don’t try to cram too much information into one ad. You can many different software with templates for ads such as Canva which have an array of pre-built templates to customize to your brand.
Get started with performance marketing
If you’re interested in getting started with performance marketing, there are a few things you need to do.
Start by setting your goals. What do you want to achieve with your performance marketing campaign? Do you want to increase brand awareness, drive traffic to your website, or generate leads? Once you know your goals, you can start planning your campaign.
There are also several different platforms that offer performance marketing, so it’s important to choose the one that’s right for you. Consider things like your budget, target audience, and objectives when making your decision.
And as we mentioned before, the key to successful performance marketing is creating ads that are relevant and engaging. Take some time to brainstorm different ideas and test out a few different versions of your ad before you launch your campaign.
By following these steps, you can be sure that your performance marketing campaign will succeed.