What Is Performance Marketing and How It Works

What Is Performance Marketing and How It Works

performance marketing

Performance marketing is a form of online marketing in which advertisers only pay for results. This means that advertisers only pay when someone clicks on their ad and takes an action, such as making a purchase or signing up for a newsletter.

This type of digital marketing is often used by businesses that sell products, or services online.

There are several benefits to this form of marketing. First, it allows performance marketers to only pay for results, which can save money. Second, it provides businesses with real-time data on what is working and what is not. This type of data is essential for making informed marketing decisions.

If you are thinking about doing search engine marketing campaigns for your business, there are a few things you need to know.

In this article, we will cover what performance marketing is, how it works, and some tips for getting started.

How Does Performance Marketing Work?

The basic idea behind performance marketing is simple. Advertisers only pay when someone clicks on their ad and takes an action, such as making a purchase or signing up for a newsletter.

This allows businesses to save money on their marketing campaigns, and only pay for their campaign performance.

Let’s say, an advertiser wants to run a performance marketing campaign whose target is increasing sales. The advertiser will contact a network and set up an account.

They will then create an offer, which is basically a commission structure for the affiliate partners.

For example, the advertiser could offer a 10% commission on all sales generated from the affiliate’s links.

The affiliate networks will then provide the advertiser with banners, links, and other resources that they can give to their affiliates.

They will use these resources to promote the advertiser’s products or services on their websites, blogs, or social media channels.

When a consumer clicks on one of the affiliate’s links and makes a purchase from the advertiser, the affiliate will earn a commission. The performance marketing platforms will then track the sale and pay the affiliate their commission.

The advertiser will also be able to track their performance marketing campaigns through the network’s platform. This data is important because it allows the advertiser to see what is working and what is not.

It also allows them to make changes to their performance campaigns in real-time, which can help improve their effectiveness.

It is a great way for businesses to reach new customers and generate sales. It is also a great way for performance marketers to earn commissions, by promoting products and services that they are passionate about.

But for the process we have described above to work, four main players in the performance marketing industry have to play their part. They include the following:

  • Affiliates
  • Advertisers
  • Networks
  • Affiliate managers, or outsourced Program management

Retailers, or Merchants

Also known as advertisers, these are the businesses, or individuals selling products or services.

They use this method to reach new customers and generate sales.

For example, if you are an e-commerce store selling women’s clothing, you could use performance marketing to drive traffic to your website.

You can do this by partnering with fashion bloggers and influencers, which could get your products in front of a new audience and generate sales.

For instance, Tamu Mcpherson is a leading blogger and influencer who partners with businesses for paid advertising.

merchants and retailes

Advertisers usually work with networks, which we will discuss next. However, some advertisers choose to work directly with affiliates.

This is more common with smaller businesses that do not have the budget to work with a network.

Affiliates or Publishers

In this form of marketing, people or businesses promote a product or service in return for a commission on any sales they generate.

For example, if you have a blog about pet care, you could sign up to be in affiliate marketing for a pet products company.

text performance

Every time someone clicks on one of your links and buys pet food, you would earn a commission.

Also, influencers, bloggers, and YouTubers with a significant number of followers can participate in this affiliate marketing.

They can create content in which they talk about the product, or service and include a link to the advertiser’s website.

If one of their followers clicks on the link and buys something from the advertiser, the influencer earns a commission.

They are important because, without them, it would be difficult for advertisers to reach their target consumers.

Affiliate Networks and Third-Party Tracking Platforms

Affiliate networks are performance marketing platforms that connect advertisers with affiliates. By providing a variety of tools and information the advertising platforms serve as a crucial cog in the marketing strategies.

For example, they track performance, provide banners, links and product feeds, and handle payments.

Other benefits include access to a larger pool of affiliates, data tracking, and customer support. By acting as the middleman, the networks facilitate both sides of the divide in tracking sales and the overall success of the marketing campaign.

Some of the top affiliate networks channels examples include;

  • ShareASale
  • Awin
  • CJ Affiliate
  • Pertnerize
  • Rakuten Advertising

affiliate network

Affiliate Managers or Outsourced Program Management?

Outsourced program managers are an important part of the performance marketing process.

They are either in-house employees at the advertiser or an outside agency that has been hired to manage the advertising programs on behalf of the advertiser.

They are responsible for recruiting affiliate marketing agents, handling payments, and providing support.

Agencies may be the best option for retailers on a budget and unable to retain a full-time in-house team. Examples of these kinds of management agencies include OPM Company, Affiliate Manager.com, and Acceleration Partners.

That way, they benefit from the established structures such as marketing networks, affiliate partners, and expertise at a fraction of the cost.

The Benefits of Performance Marketing

There are a number of advantages that this kind of affiliate marketing offers businesses. These include:

  • You only pay for results: One of the biggest advantages of this form is that you only pay for results. This means that you only spend money on the performance marketing channels if they generate sales or leads. With traditional advertising, such as print or television advertising, you have to pay even if there are no results.
  • Increased ROI: Because your ad spend is pegged on results, this type of digital advertising usually has a lower Cost Per Acquisition(CPA), and a higher ROI than other marketing strategies. This is because you are not wasting money on campaigns that don’t generate leads or sales.
  • Flexible payment options: You can also blend it with your marketing strategies to choose your affiliate marketing structure. Some businesses choose to pay a flat rate for every sale or lead, while others choose to pay a percentage of the total sale.
  • Truckable campaign performance: With performance marketing campaigns, it is also easy to track and measure. This means that you can see exactly how well your campaign is performing and make changes if necessary.
  • Brand marketing: It is also one of the online marketing strategies that can help you to increase brand awareness. When affiliates promote your products or services, they are also promoting your brand. This can help you to reach a larger audience and boost your brand presence.

measure performance

How to Measure Performance Marketing

For success in performance marketing, it is essential to set up Key Performance Indicators(KPIs) against which to measure ROI.

Below are some of the most common metrics to help in determining the cost-effectiveness of your digital marketing campaign.

Pay Per Lead (PPL)

A lead is the customer information acquired through a signing up, or registration. For example email address, telephone number, and name for later follow-up by the retailer. The pay-per-lead metric measures the cost of each lead generated by the campaign. To calculate this, simply divide the total cost of the campaign by the number of leads generated.

Pay Per Click (PPC)

This is one of the most important metrics in performance marketing. The pay-per-click measures the cost of each click on an ad such as the Google ads. The PPC is calculated by, dividing the total cost of the campaign by the number of clicks.

Pay Per Sale (PPS)

The pay per sale metric measures the cost of each sale generated by the campaign. It is the total cost of the campaign divided by the number of sales generated.

Cost Per Acquisition (CPA)

The cost per acquisition metric measures the cost of each sale or lead generated by the campaign. The cost is calculated by dividing the total cost of the campaign by the number of sales or leads.

Pay Per X (PPX)

The pay per X metric is a general term used to measure the cost of the desired action of the target audiences. For example, you may want to measure the cost per sign-up or the cost per download. To get the cost, you divide the total cost of the campaign by the number of desired actions.

LifeTime Value (LTV)

In this kind of digital marketing, the lifetime value metric measures the total value of a customer over the course of their relationship with a company. To calculate this, you need to know the average revenue generated per customer and multiply it by the average lifespan of a customer.

What Are the Most Common Types of Performance Marketing?

There are quite a number of marketing methods under the performance marketing umbrella. Different advertisers have varied preferences based on what has previously worked for them or depending on the specific area they require results.

For example, some might prefer to use pay-per-click(PPC) while others may opt for cost-per-acquisition(CPA).

Here are a few listed below.

Affiliate Marketing

This is a type of digital marketing in which affiliate marketing businesses are rewarded for promoting other companies’ products or services.

They’re typically paid a commission for each sale or lead generated. Examples include; online retailers, travel websites, and coupon websites.

affiliate marketing

Native Ads

The native advertising model involves placing ads on websites, or apps that are similar in format to the surrounding content.

The term native advertising term is derived from its ability to blend in with the surrounding content. Also, they are less intrusive than other types of ads.

Usually, the costs of payment are determined by the CPM(Cost Per Thousand Impressions), or CPC(Cost Per Click)

Sponsored Content

This is a form of affiliate marketing, where you pay to have your content published on another website, or platform with the aim of reaching the target audience.

Sponsored content can include articles, blog posts, infographics, or videos. The cost of this type of marketing is usually determined by the CPM (cost per thousand impressions) or CPC (cost per click), or a free product for testing.

sponsored content

Social Media Marketing

Social media marketing is a type of performance-based marketing that involves paying to place ads on social media platforms for brand marketing or traffic.

The most common example is on Facebook, Twitter, and Instagram. It involves various ad formats, such as; banner ads, video ads, carousel ads, image ads, and collection ads.

Through this marketing companies can monitor KPIs such as engagement, and CTR to gauge the impact of their advertising campaign.

content performance

Paid Search Engine Marketing

This is a form of performance marketing campaign where advertisers pay to have their ad appear on the search engine results pages.

For example, Google AdWords, Bing, or Yahoo. The cost of this type of marketing is usually determined by the CPC (cost per click) and sometimes CPM (cost per thousand impressions).

advertising performance

Search Engine Optimization(SEO)

Search engine optimization is the process of optimizing a website to rank higher in the search results of a search engine.

The goal of SEO is to improve the visibility and organic traffic of a website. The cost of this type of marketing can vary depending on the services required. For example, keyword research, link building, and content marketing.

Tips to Be Successful in Performance Marketing

There is no one-size-fits-all solution for performance marketing, as the most effective strategy will vary depending on the products or services being offered, and the target market.

However, there are some general tips that can help you to be successful in your marketing efforts.

Have a Great Landing Page and Offer

A good landing page is a key to success in performance marketing. It should be optimized for conversions and clearly showcase the offer.

The offer itself should be compelling and relevant to the target audience. For example, if you are selling a new type of phone, your offer might be a free trial or a discount on the purchase of the phone.

Also, ensure both the affiliate marketing agents and the potential customers receives the best experience on your site. Make regular site audit to nip out any bottlenecks in the buyers’ journey.

Shopify is one of the companies with terrific landing pages as you can see below.

sell on shopify

A/B Test and Optimize for the Best Results

A/B testing is a method of experimentation where two or more variants of an ad are shown to users, and the performance of each variant is measured.

The aim of A/B testing is to identify which variant performs better so that it can be used going forward.

When using this digital marketing strategy, it’s important to test and optimize for revenue-driving KPIs such as conversion rate and ROI.

Avoid Dubious Traffic Sources

When performance marketing, it’s important to avoid dubious traffic sources that could result in low-quality traffic and potential fraud.

These traffic sources can damage your brand reputation and waste your advertising budget. Instead, focus on high-quality traffic sources that are relevant to your target market.

Track and Monitor to Guarantee Results

In order to be successful in performance marketing, it’s important to track and monitor as much data as possible. This data can be used to optimize your digital marketing strategy for better results.

Some of the things you should track include; bounce rate, clicks, impressions, and conversion rate.

Be Compliant With Regulations

Be sure to comply with any relevant advertising regulations, such as those set by the FTC, GDPR, and CAN-SPAM.

Non-compliance can result in hefty fines and could damage your reputation. Some of the things that can land you into trouble include; failing to disclose material connections, making misleading claims, and sending unsolicited emails.

regulations performance

Final Thoughts

Performance marketing can be a great way to drive sales and grow your business. However, it’s important to keep in mind that there is no one-size-fits-all solution.

The most effective marketing strategies will vary depending on the products or services being offered, and the target market.

But notably, all businesses can benefit from the immense potential of digital marketing, no matter the size, or stage in their marketing journey.

All you have to do is to find the right marketing approaches, that match your goals and the aspirations of your marketing partners.

By following the tips above, you can be well on your way to success in performance marketing.

Written by
John Timmerman
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