Performance marketing. Affiliate marketing. Cost per conversion. Chances are good that you’ve heard these terms tossed around the marketing community, but it’s hard to keep them all straight.
In this article, we’re breaking down the details of all things performance marketing.
- What performance marketing is
- How to measure performance marketing success
- Popular performance marketing channels
- Benefits of performance marketing
- How performance marketing works
- Tips for 2022 and trends for the future
What is performance marketing?
Performance marketing is a type of digital marketing where brands don’t pay marketing providers until after the campaign is successful. You might also hear this model referred to as performance-based advertising or pay-for-performance advertising.
With performance marketing, advertisers pay their marketing companies or affiliates once their goals are successful. Marketing providers will receive payment when a specific action has occurred — such as an impression, click, or sale.
Paid marketing channels such as native advertising, search engine marketing, and sponsored advertising are all commonly used for performance marketing strategies. Performance marketing is unique because it’s a 100% results-driven strategy. Advertisers don’t pay for an ad upfront. They pay based on the success of the ad.
Performance marketing is easy to track. It’s low-risk and budget-friendly. And it provides a way to reach an entirely new audience with your message.
How to measure performance marketing success
Before an advertiser can pay for a performance marketing ad, they have to determine how successful the ad has been. There are several ways you can choose to measure the success of performance marketing materials.
Cost per click
With cost per click (CPC), the amount of money an advertiser pays is based on how many clicks an ad receives. CPC is also sometimes called pay per click (PPC).
CPC is commonly used for social media and search marketing ads. It’s a good way to increase brand awareness and recognition because it puts your ad where people will see it — but you don’t pay unless users actually click.
Cost per impression
Cost per impression (CPM) is based on how many impressions, or views, an ad receives. CPM is a metric used per 1,000 impressions. (The M stands for “mille” or 1,000.)
CPM can help you share a message or ad with a large audience. If quantity is your goal, cost per impression is the right performance marketing payment model for you.
Cost per sale
With cost per sale (CPS) or pay per sale (PPS) a publisher is paid based on the number of sales or conversions generated from the ad.
Other marketing strategies often calculate the CPS at the end of a campaign by dividing the total cost of a campaign by the number of sales it generated. With performance marketing, however, the cost per sale is predefined as part of the agreement with a publisher — the advertiser agrees to pay a certain amount of money per sale.
Cost per lead
If your primary goal with performance marketing is to generate leads, cost per lead (CPL) — or a pay-per-lead (PPL) model — is the best metric to use. Similar to CPS, other marketing strategies calculate the CPL metric at the end of a campaign to determine how much the company ended up paying per lead. But for performance marketing purposes, the price per lead is determined upfront.
Cost per acquisition
Cost per acquisition (CPA) is a broader model that measures the total cost of one user taking an action that leads to a conversion. In performance marketing, this translates to a pay-per-acquisition model — similar to CPS and CPL metrics. Cost per acquisition can include any of the other metrics listed here.
Lifetime value
Lifetime value (LTV) refers to the value of each customer. It's a metric that predicts the net profit you’ll receive from all of a customer’s purchases over their lifetime. It’s not a payment model for performance marketing, but it's often used by performance marketers to help set the value of other actions.
Popular performance marketing channels
You’ll find a variety of channels used for performance marketing. Here are the most popular options.
Affiliate marketing
With affiliate marketing, an affiliate — such as a social media influencer — promotes a product and earns a commission for each sale, view, or click. According to an Influencer Marketing Hub study, affiliate marketing is a multibillion-dollar global industry. In Canada and the US, it drives 15% of ecommerce sales. Additionally, Zippia states that social media and blogging are the top methods of generating traffic for this form of performance marketing.
In affiliate marketing, the brand works with the affiliate, or publisher, as they promote the brand’s product. The affiliate marketer is usually required to disclose their relationship with the brand. Then they’ll usually provide consumers with a unique affiliate link and get a portion of the revenue for each sale.
Brands of all shapes and sizes use affiliate marketing. SMBs can usually find a niche micro-influencer, for example, within their limited budget — but enterprise organizations also use affiliate marketing because it’s so effective.
Affiliate marketing is flexible and low risk, and it provides an easy way to target specific audiences. Cost per conversion and cost per like are two common pricing models used for affiliate marketing.
Affiliate marketing vs. performance marketing
Affiliate marketing and performance marketing aren’t the same thing. They’re commonly confused and the terms are often used interchangeably, but affiliate marketing is a type of performance marketing — it falls under the broader umbrella of performance marketing.
Native advertising
The second most popular method of performance marketing is native advertising. Native advertising refers to paid ads that look very similar to the other content on the platform where they appear. They won’t be large banner ads or colorful display ads — you may have to look closely to see that a native ad is actually an ad. Examples of native advertising might include Instagram Story filters or sponsored article content.
Since native ads don’t detract from the user experience, they can have a high return on investment (ROI). According to The Channel Report, native ads get 53% more views than traditional ads and can reach a click-through rate (CTR) of 0.3% (compared to 0.12% for standard ad formats). This makes native advertising a good fit for performance marketing and a cost-per-conversion pricing model.
Search engine marketing
Search engine marketing (SEM) uses paid ads that appear at the top or bottom of a search engine results page to drive customer action and engagement. SEM is different from search engine optimization (SEO), which refers to marketing efforts that target organic search results.
SEM is a common method of performance marketing. It’s extremely effective because your paid ads can be targeted to catch consumers and buyers at the bottom of the sales funnel. In 2019, Statista reported that 32% of all ecommerce sessions were generated by paid search.
Cost per conversion is the typical pricing model used for SEM because ads can be targeted to audiences who are ready to buy. There’s no need to simply focus on views when consumers and buyers are so close to conversion.
Social media marketing
Social media marketing (SMM) refers to managing a brand’s social presence on various digital platforms to build brand identity and boost brand awareness. Social media marketing for performance marketing is all about social media ads.
SMM is a great outlet for performance marketing strategies because users are ready to engage, and most social channels have a lot of user data. All that data means social media ads can be acutely targeted based on location, demographics, and psychographics.
As brands realize how effective sponsored ads can be, more and more companies are investing in this type of performance marketing. According to Statista, ads on social media are expected to have a worldwide revenue of $252 billion by 2026.
If you want to incorporate social media marketing into your performance marketing, consider placing ads on social media platforms. Depending on your brand and your audience, these platforms might include:
- TikTok
- YouTube
You can track performance by cost per conversion, cost per view, or cost per like.
Sponsored advertising
Sponsored ads typically appear on Amazon, targeting certain search keywords. You’ll define a shopping keyword (for example, “sundress”) and show the ad to a relevant audience — people searching for women’s summer clothes.
You can use your company’s first-party data (information you collect from your customers) to create more effective sponsored ads. For example, if you ship more long dresses to the Midwest and more short sundresses to the Southeast, you can use those insights to target your sponsored ads better.
Benefits of performance marketing
Regardless of the channel you’re using, performance marketing boasts some major benefits for your brand.
Easy tracking and analytics
Since performance marketing is based on success, results are simple to track. There’s no need to estimate — since payment is based on a customer completing a specific action, you know exactly what’s happening. If you’re running a performance with a cost-per-conversion pricing model, for example, you’ll track conversions to determine results.
ROI-focused marketing
Performance marketing is completely focused on ROI. While other marketing models tend to put different KPIs first — making it complicated to connect those marketing efforts to ROI — performance marketing is based on ROI from the very beginning. This gives you full visibility into every campaign and whether or not it worked.
Low-risk strategy
Performance marketing doesn’t come with a lot of risk. With other types of marketing, you might have to fork over a large sum at the beginning of the campaign without knowing whether it will succeed. But with performance marketing, you pay based on the results of the campaign.
This makes performance marketing a good fit for enterprise marketing teams that want to create some balance with another long-term, high-risk strategy.
Access new audiences
Finally, performance marketing is a powerful way to expose your brand to whole new audiences. From search engine marketing to social media platforms to affiliate marketing, there are numerous publishers you can partner with to promote your brand to people who have never heard of you.
Chances are good that you’ll be able to target more niche publishers to help reach a smaller subset of your target audience. Over time these audiences will turn into more sales and revenue.
How performance marketing works
Now that we’ve covered why performance marketing is so important and which channels are most commonly used, let’s take a look at the inner workings. As you get started in performance marketing, there are a few terms you’ll want to know.
Retailers or advertisers
In performance marketing, advertisers are often referred to as “retailers.” They’re the businesses buying ads. These are the companies that want to promote themselves and their product or service.
So the first step in a performance marketing campaign happens when a retailer starts to develop a strategy for how they will use performance marketing channels and KPIs to promote a particular product. If a marketing company decides to work with affiliates to promote its content creation software, for example, the marketing company is the retailer or advertiser.
Networks and platforms
Affiliate networks and platforms are solutions that provide an easy way to track an affiliate campaign. These platforms provide top-down visibility into everything that relates to your campaign. Store the information you need, send out payments, and keep an eye on campaign performance.
Popular affiliate networks include:
- Partnerize
- Commission Junction
- AWIN
- Impact
- AvantLink
- Pepperjam
- Rakuten Advertising
Advertisers may sign up with an affiliate network as they are planning their campaigns.
Publishers or marketing partners
The individuals or brands who are hosting the affiliate marketing are called “publishers” or “marketing partners.” These publishers use their own platform — a website, blog, or social media channel — to promote the advertiser’s brand, product, or service.
That means that the next phase of a performance marketing program is when a marketing partner publishes promotional content. This might be an influencer posting a sponsored video or a website publishing a sponsored article.
Outsourced program managers
An outsourced program manager (OPM) is similar to an affiliate manager. Affiliate programs take a lot of work, so some companies choose to outsource this task to a program management company. These providers have in-house affiliate managers who can take over and run the program, handling everything related to affiliate marketing.
It’s usually easiest for a retailer to engage an OPM from the start of a performance marketing campaign, but a good manager can jump in at any time if needed. Advertisers sometimes realize they need help after a campaign has begun, and more OPMs can take over when that happens.
Performance marketing tips for 2022 and trends to watch for the future
If you’re ready to take your performance marketing skills to the next level, check out these tips to help optimize your strategy.
Know your audience
If you don’t have buyer personas defined for your company, now is the time to create them. These personas will allow you to create targeted, personalized campaigns — which are much more effective than blasting your marketing campaigns out to as many people as possible.
And according to the 2022 Digital Trends Report, personalization at scale is one of the top priorities for companies in the next few years. So think about ways you can create customized experiences with performance marketing (for example, through targeted sponsored ads) for buyers.
When you know your target audience, the content you create for them will be highly relevant and effective.
Test and optimize
Run A/B tests to get a better idea of what works and what doesn’t. Also known as split testing, A/B testing compares two versions of a campaign to see which one performs better.
Run an A/B test for the post or ad you’re planning to use, creating a second version of the ad with one important variation. See which one resonates more with your audience. Then tweak something else and test it again — or go ahead and move forward with your campaign.
Agility is another increasingly important trend for digital brands. The content you share should reflect your audience’s needs and wants while staying in tune with current trends, standards, and expectations. One of the best ways to accomplish this is to develop a culture of constantly testing and optimizing your performance marketing messaging.
Be compliant
Marketing compliance is important for businesses in every industry. Your company and any publishers you work with need to follow the guidelines defined by the Federal Trade Commission, the General Data Protection Law, and the California Consumer Privacy Act.
This is especially important looking into the near future because another major performance marketing trend is the importance of first-party data. Collecting first-party data on your audience is a must if you want to know how to forge strong relationships, but customer trust is important.
If you don’t feel confident in your ability to abide by compliance guidelines, that could be a sign that you need to work with an affiliate management company.
Monitor data
Once you’ve used the results of your testing to decide on a strategy, continue tracking and monitoring data on each channel to make sure things are going well. It’s essential to keep an eye on how your campaigns are performing — this will help you make informed decisions on what you may need to change for the next campaign.
Metrics you should track include:
- Impressions
- Clicks
- Conversions
- Click-through rate (CTR)
- Total cost
Plan for the future
As you outline your performance marketing campaigns, make sure your strategy fits into your broader marketing strategy and business goals. Since performance marketing is results-based, it can be easy to get excited about a high ROI for one campaign.
Getting results is great, but the key is to make sure those results are actually making a difference to the company’s bottom line. That way, you’ll feel confident that the results you pay for are helping meet business objectives.
Use marketing best practices
Don’t overlook general marketing best practices. Since performance marketing is heavily data-based, some marketers tend to make it all about the numbers. But the importance of best practices like communicating your brand identity or creating content that appeals to your target audience doesn’t vanish during a performance marketing campaign.
Follow the tried-and-true digital marketing best practices that you’d incorporate into any strategy. Then combine them with performance marketing tactics to watch your campaigns soar.
The Definitive Guide to Digital Marketing
Get started with performance marketing
Performance marketing is a low-risk marketing strategy. It boasts a high ROI, and it’s easy to track your efforts as you expose your brand to a wider audience.
As with any marketing campaign, start by defining your goals. Outline what you hope to achieve through performance marketing. Once you’ve done that, you’ll be set to move forward with planning the rest of your campaign.
If you’re unsure how to get started with performance marketing, Adobe Marketo Engage can help. Take our interactive product tour to see it in action. From email to nurturing to automation, Marketo Engage is here to make performance marketing easy.