Performance Marketing: definition, how it works and use it

The concept of performance marketing encompasses different areas and sectors of digital advertising. We speak of performance marketing for all digital advertising activities that concern the purchase of traffic and advertising space on the web aimed at conversion and optimization of the purchase itself.

It is an activity aimed at user conversions, understood as a subscription, a registration, a link, a like, or a sale, and thus at achieving a predetermined and measurable objective.

In most of the advertising forms, the advertiser pays a fee for advertising space, regardless of performance. This means that hundreds and even thousands of dollars spent without ever seeing a conversion.

With performance marketing, advertisers only pay when the measure of success (conversion, action, or transaction) has been achieved.

To best understand the concept of performance marketing, it is important to take into account and clarify:

  • The preventive strategy;
  • The advantages and how to make the most of them;
  • Disadvantages;
  • Performance Marketing Metrics;
  • Performance Marketing Indicators;
  • Difference between Performance Marketing and Non-Performance Marketing;
  • Performance Marketing Channels.

What is Performance Marketing

”Online Performance Marketing is an online marketing model in which the advertiser pays only for the results achieved”. The definition was coined by the Performance Marketing Association.

The term performance marketing refers to online campaigns in which 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 and track and measure them, attributing the ROI of each activity, campaign, or task.

While large companies can spend millions of dollars on branding, most businesses must focus on the bottom line to remain profitable. Performance marketing puts the power back into the hands of the advertiser. The user determines the action, then pays when the action is completed, whether it is a sale, a lead, or a click.

performance marketing examples

So we can identify all activities and metrics that are part of the world of performance marketing:

  • Lead Generation;
  • Cost per Acquisition/action: As the term implies, it refers to a specific user action on the site. It usually relates to the action of registering for the information form, hence to the acquisition of that user to become a potential customer.
  • Cost per Sale: Used for payment of the advertiser following a sale. It is usually valued on the basis of the basket. So it is possible to be remunerated for a percentage of the basket (e.g. 10% of the total) or to set the remuneration in advance (e.g. $10 per sale regardless of the basket total, whether it is $10 or $100)
  • Cost per Download / Cost per Install (mobile): They travel symbiotically, as remuneration can occur one after the other. Remuneration for downloading an app, with the subsequent installation of it. Obviously, this parameter is generally used for mobile.

Generally speaking, therefore, performance marketing activities can certainly also be placed side by side with the world of affiliate marketing and program marketing, since the purchase of advertising space in this mode and on these terms also accompanies these two areas of digital.

preventive strategy plan

Preventive strategy

In order to plan for the right use of the budget, since the achievement of results is paid for as a percentage of results, it is important to take a number of aspects into account before contacting a performance marketing agency.

Plan real, measurable results. It is crucial to understand the right use of performance marketing planning, as it cannot be used for any marketing objective. It means that it cannot be used to increase a company’s brand awareness, since, we are talking about performance measurement in relation to banners, sign-up forms, etc. In other words, the Performance Marketer’s task is to “land” the user on the right page of our site (landing page). The Landing page is the specific page of our website where we direct the navigation so that we can “transform” the customer into a user. So we aim to make the customer see our work on the web and convince him through a page that is visually and content-wise well done to fill in the application form. How is this done? Using Lead Generation, a marketing action for the acquisition of the most qualified contacts possible. These are references (name, address, email, tel., etc.) of potential customers motivated to purchase to be contacted later to finalize the sale. The 3 fundamental points for proper lead generation:

  1. Market analysis: Potential customers interested in the specific product or service are sought
  2. Planning. A performance marketing strategy must be implemented so that resources and budgets are well coordinated. That is, getting customers who are interested in that service or product.
  3. Landing Page: Last, but perhaps most important, is the task of landing the customer on the right page that stimulates them to want to enquire about our product or service.

The method of payment for leads is Cost per Lead (CPL). For this to be possible, there is the tracking of leads throughout the life cycle from generation to the conclusion of the contract until the conversion, whether positive or negative. Much attention must be paid to avoiding duplication of leads and to their correct classification.

Define the payment model: Since payment is made on a performance-by-percentage basis, it is logical to agree with the agency on the right fee for each type of user advertisement. The most commonly used types are:

  1. CPC: Cost per click
  2. CPM: Cost per Thousand (impressions)
  3. CPA: Cost per Action/ Acquisition (following CTA/FORM clicks)
  4. CPL: Cost per Lead (following clicks on the landing page)

Monitoring: Checking one’s performance marketing planning, before and after, is necessary and it is equally important to change any mistakes as soon as possible. Regular optimization of performance marketing campaigns is the basis of their success.

There must be a fluid relationship between the agency and the advertiser: Both work to achieve the same results so transparent communication is the key to success.

 

Performance Marketing case studies:

A tangible success story involves the collaboration between Tinuiti and The Honest Company, leveraging the capabilities of Amazon Marketing Cloud (AMC). This partnership focused on reducing user cart abandonment, setting a goal to decrease this phenomenon by 25%.

Tinuiti reviewed the data from the last three months, noting that nearly 25% of customers who added an Honest product to their cart did not proceed with the purchase. To tackle this challenge, they utilized AMC’s audience creation capabilities to segment customers who had abandoned their cart in the last 30 days without completing a purchase. They then created separate segments for Honest’s main product lines – Diapers, Wipes, and Personal Care – and launched these audiences in an experiment.

The results of the experiment were very positive, showing that AMC audiences generated a Return On Advertising Spend (ROAS) 172% higher than the overall average of DSP (Demand Side Platform) campaigns. Furthermore, the Cost Per Acquisition (CPA) for new brand customers was 65% lower than the campaign average, and the acquisition of new customers for the Subscribe-and-Save service was 55% more efficient compared to the previous strategy.

This case emphasizes the importance of a full-funnel approach, continuous optimization, and the relevance of the creative message, demonstrating how a well-planned performance marketing strategy can lead to significant improvements in sales performance and campaign efficiency.

 

Performance Marketing: 8 rules

Listed below are the 8 rules to make your business efficient.

1. Displaying posts

This is the first way to find out information about our online performance. We can guess that those who view our posts are interested in our target audience and might become our potential customers. Strictly speaking, it is important to know who views our site, whether they return to it, and what actions they take.

2. Call to Action

Closely linked with Performance Marketing and beyond. Thanks to CTAs we give the user the opportunity to land on our site or more precisely on our Landing Page. The call to action can lead to the purchase of a product, a service or simply to register for newsletters.

Usually placed strategically at the bottom of the page, or perhaps following an impactful sentence. Interesting in this case is the CTR. The click-through rate is an interesting if partial, parameter for measuring performance by representing the percentage of users who performed the action suggested by the call to action on a page.

call to action page

3. Social media

Weekly social monitoring is crucial, as it reduces one of the problems of digital. Indeed, thanks to social it is easy to increase user contact. It is easy to understand that thanks to it, the work of identifying the target audience is simplified.

One can ask for feedback, understand the trends of the moment, understand what tone of voice the user speaks in, provide real-time assistance, and so on.

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4. Affiliate Marketing

Performance marketing on social media can be translated as affiliate marketing. This practice consists of being part of an online sales project for products of any kind and the affiliate marketing specialist’s task is to advertise the site so that it generates sales.

This is done on a referral website, but the easiest way to make yourself known on the web is through social media. The fee? is distributed in percentages determined by the company following a turnover. A clear example of Affiliate Marketing is Shareasale. It is one of the American Affiliate giants, also used by many brands.

5. E-mail Marketing

The E-mail Marketing practice is a step subsequent to user registration via a landing page, banner, etc. It is not permitted to send e-mails to users who have not requested this service. It must be made clear that e-mail marketing does not end here, but is implemented when the user has clicked on the promoted content after receiving the newsletter.

As already mentioned everything is only possible following a registration, therefore, the work of the banner and landing page is relevant, as it must capture the curiosity of the user in order to generate registration.

mail chimp marketing

6. Landing Page

It is none other than the landing page of our site. It is the page used only for this, so we try to edit a page that is attractive to the eye of the user, that will entice him to register. In Performance marketing, this is the most important aspect, this is where the user decides whether or not to be interested in our content.

In fact, one of the most valuable metrics in performance, marketing is precisely the conversion of visitors into inquiries that occurs on landing pages.

7. Traffic sources

These are the tools used by performance marketers to attract users. Generally, they are Social, Email Marketing, search engines, and users generated by typing directly on the URL. It is necessary to point out that traffic sources cannot determine the number of users who are really interested in what we are promoting.

In fact, by means of the aforementioned tools, we can bring a number of users to our landing page, perhaps with a registration, which turns into a false intention to receive information.

8. Monthly processes

Finally, the last metric to be evaluated is that of monthly progress: while all the metrics seen above need to be monitored from week to week, monthly progress provides a broader and more complete overview of the performance achieved through our web marketing activities.

Advantages and disadvantages

Now, having understood what it is and listed the 7 rules for doing performance marketing right, we can give some statistical data on the positive aspects of this work. Cake Marketing in 2013 compiled statistics on the advantages and disadvantages of performance marketing, now let’s start with the advantages.

  1. This is said to be the fastest-growing segment of digital advertising.
  2. According to one study for every dollar invested in performance marketing, there is a return of $11.
  3. 93% of the companies that use it recommend it.
  4. New revenue opportunities are generated with mobile, lead generation, and PPA (pay-per-action) strategies.
  5. Its effectiveness will increase with the introduction of business intelligence technologies that will provide a better understanding of how to improve return on investment.

Cake Marketing, as already mentioned, also drew up the disadvantages of Performance Marketing.

  1. An uncertain conversion (49%).
  2. Not having quotations (31%).
  3. Bureaucracy (31%).
  4. High costs (23%).
  5. Poor knowledge of the technology platform (22%).
  6. Data security risks (21%).
  7. Lack of tools and knowledge (19%).

Performance Marketing Metrics

Knowing how to do performance marketing involves, above all, measuring the results obtained. Monitoring results means adopting appropriate metrics to view the results obtained over a given period of time.

Generally, measuring results can be done simply by monitoring the results produced by the platforms and socials used to do performance marketing. So, see on social who is interested in our target audience, who shares, and who likes the posts we publish.

Another way to monitor the results is certainly to see the user clicks on our page, and based on this determine the advertiser to be paid back.

There are, however, metrics that help us dig much deeper to learn more about this data. Marketers in the industry don’t think it is the simplest aspect of this subject, but they do believe it is an important evaluation as it determines future decisions. Some of these are :

  • The Lifetime Value of a Customer is an indicator of the value of a customer acquired over the duration of their relationship with a certain brand or product;
  • l Cost per Customer Acquisition the total cost of acquiring an individual customer;
  • Lead-to-Customer Ratio is understood as the sales force’s ability to convert an acquired lead into a customer.

sample metrics

Clearly, these are particular metrics that help us understand how much of our customer base is available for various purchases and how much each user costs in the long run. They are certainly very important metrics that can determine precise future planning without wasting budget.

In spite of their effectiveness, they are little used, as this would require suitable resources and tools that cost the company a significant amount of money.

Marketing Performance Indicators (KPIs)

Talking about Marketing Performance Metrics and KPIs is definitely not the same thing, but in this subject, they travel hand in hand. We can define that KPIs can be part of Marketing metrics but not necessarily all.

When we mention KPIs, we are talking about tools for determining results, for future planning of results. The most commonly used ones with regard to Performance Marketing are:

  1. The turnover generated by sales activities: how much revenue did I get from the investment?
  2. The cost of contact acquisition: how much does it cost to turn a user into a customer?
  3. Customer value: how much does each customer cost us in the long run?
  4. The ROI: Return On Investment.
  5. The ratio of traffic volume to the number of leads generated: Useful to better target the campaign, so as to retain customers who generate leads and eliminate those who do the opposite.
  6. The ratio of leads to actual customers: Useful to understand how many leads I generate and subsequently how many actual customers I acquire. In the case of high leads and low customer numbers, we know that we have to improve our leads.
  7. The number of conversions with respect to each landing page: therefore measures the level of effectiveness they demonstrate in the process of inducing contacts to make decisions

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Performance Vs Non-Performance Marketing

Performance marketing certainly has strong advantages that make it essential for pursuing performance goals. Therefore, there are other marketing tactics that cannot be overlooked in a balanced marketing plan.

Digital marketing channels can be diversified along the line that differentiates outbound from inbound marketing. Thus, one speaks of outbound marketing whenever the display of a campaign comes before any action by a user; one speaks of inbound marketing whenever there is a transactional action that precedes the display of corporate content.

A classic example of inbound tactics is content marketing. Content marketing defines a set of promotional activities based on the development of content that can position the company as “trustworthy” in a given market.

Content marketing activity in general has a fixed cost, which does not relate to performance metrics, and a return on investment that is difficult to measure, except indirectly.

That said, in many cases, a company that merely works on performance marketing without tying itself to a content marketing activity would be penalized in comparison to competitors using this tactic.

Performance Marketing Channels

Performance marketing channels are multiple and give us the opportunity to achieve a common result but with different techniques. Now, let us look at the main ones and the most used by marketers in the industry.

marketing channels website

  • DEM and databases: In this case, we consider working techniques which are those already listed. The advertiser relies on this communication tool to enrich their database and carry out targeted CRM actions. In essence, it is targeted advertising to receive users via web and social channels and with lead generation work. Then banners and landing pages guide the user to the registration of a form.
  • Co-registration: Co-registration and co-sponsoring (or active co-registration) are internet marketing techniques aimed at generating and sharing a database of users among several sponsoring companies and reducing acquisition costs. Through this digital database, direct marketing and/or telemarketing actions can be undertaken, which are essential for all companies wishing to increase their sales.
  • Search engines and SEM: SEM is a subset of web marketing activities, the object of which is to promote a site within the results pages of search engines, in relation to keywords that are deemed suitable for reaching one’s target audience. Keywords are those that users presumably search for most frequently on search engines when they want to find information on a specific product or service.
  • Programmatic: The term programmatic refers to the automation of digital advertising management processes; basically, it is the ability to buy, sell and optimize advertising space through a set of enabling technologies such as:
    1. Demand-Side Platform (DSP), i.e. for use by advertisers and agencies;
    2. SSP (Supply-Side Platform) on the supply side, thus for use by publishers/owners
  • Mobile: Mobile marketing identifies all the possibilities of communicating and intercepting mobile users, particularly with smartphones and tablets, exposing them to promotional/advertising messages also based on their geographical location. Any activities that are not available through an Internet connection, such as sending SMS messages, are not covered by this analysis.
  • Comparison sites are sites used by users to search for products or services and to compare their features and prices. There are many types of comparison sites. Among them, some focus on specific product categories, such as Trovaprezzi.it.

What a Performance Marketing Specialist Does and how to become one

To be successful as expected, an advertising campaign must be carefully researched, designed, planned, and analyzed. The objective of advertising is not always to sell a product or provide a service to as many users as possible.

On the contrary, it is often intended to give visibility to a company or to strengthen its image, but different purposes require different strategies. A Performance Marketing Specialist, therefore, has the task of managing an advertising campaign, taking into account the results that the brand wants to achieve.

When it comes to online advertising, this task cannot be separated from the use of certain channels that enable it to reach the target audience. Among the latter, there is Google Ads (formerly AdWords), which is currently the leading search advertising platform in terms of market share.

Still, on the subject of SEM (Search Engine Marketing), it is impossible to ignore Microsoft Ads, a PPC (Pay-Per-Click) service that, although it cannot count on the same audience as Big G, is driven by a network that collects 689 million unique visitors per month.

The largest global e-commerce operator also offers content space for advertisers with Amazon Ads, as do all popular general interest social media such as Facebook, Instagram, Twitter, and TikTok, and specialized social networks such as LinkedIn.

Making a career in Performance Marketing

Now you must be wondering how one can make a career in the vast world of performance marketing, right? Making a career in digital marketing is no small thing, as knowing how to do Performance Marketing doesn’t count if you don’t know other aspects.

The best in the business are used to convey the idea that doing Digital Marketing involves knowledge of multiple aspects, you cannot focus on just one aspect of this big world. You need proper and comprehensive training in all these aspects, in all these subjects.

If you believe the digital way is for you and performance marketing fascinates you, try learning more about web marketing courses now.

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