What Is Performance Marketing and Why Does it Matter?

Marketing

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17 min read

In a world where every business wants to know exactly what they’re getting for their money, it’s no surprise that performance-based marketing is on the rise.

Also known as media marketing, or digital performance marketing, this approach has been adopted by thousands of companies who want to maximise their budget, and achieve better results from campaigns.

No business, regardless of its size, wants to chuck money down the drain.

It’s absolutely pointless investing money into channels which aren’t working, as that money could be redistributed and spent elsewhere – in places that actually provide a return on your investment.

As I’ve touched on, this doesn’t only apply to startup businesses. Even the largest, most well-established companies can’t afford to keep plugging money into areas that aren’t profitable.

This is what makes performance-based marketing so appealing.

Keep reading this post to find out exactly what performance-based marketing is, how it works, and the benefits and risks of adopting this approach for your company’s success.
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What Is Performance-based Marketing?

Performance-based marketing is exactly what it says on the tin: marketing based on performance.

But what does this actually mean in practice?

Essentially, it’s a type of digital marketing or advertising where businesses only pay when a certain result occurs.

This result is dependent on your own business and the goals you want to achieve. For example, you might class a new lead, a sale, or a download as a result.

The choice is yours – but the main thing is making sure the result you choose aligns with your goals and objectives.

Performance-based marketing involves channels such as display ads, sponsored content, social media advertising, affiliate marketing, and search engine advertising, all of which we’ve covered in more detail further in the blog.

So, now that you know what performance marketing is, how does it work for your business?

How Does Performance Marketing Work?

Before we dive in, there are two important terms you need to learn when we are talking about performance based-marketing.

These are:

  • Affiliate/ Publisher – These are the people or businesses that promote the products or services of others in exchange for a fee.
  • Advertisers/ Retailer – These are the people or businesses that are looking to promote their products and services through Affiliate Partners or Publishers.

The main difference between performance-based marketing and other types of marketing is that advertisers only pay a publisher once a specific action has occurred.

So, instead of paying up front for the service or paying a monthly fee, advertisers only pay when an action has been fulfilled.

And remember, what this action is totally depends on your own business.

As long as it’s agreed by both the advertiser and the publisher, you can set what you want.

This gives you total control over your marketing spend, as you’re only paying when you achieve a result.
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Types of Performance Marketing Results

Below are some of the common results that businesses set as part of their performance-based marketing campaign.

However, it’s important to note that there is nowhere near a complete list.

As long as the result supports your business objectives, then the decision is all yours.

Lead generation

You might enlist the help of a content marketing agency to help you earn more leads.

The company would then promote your business to prospective customers to drive more people to your website.

The aim is that these customers will then complete a download form which usually requires them to input important information such as their name, email address, and company.

In return for providing their data, they’ll be able to learn more about your company and access valuable resources such as ebooks and whitepapers.

Sales

You might choose sales as your measurable result.

For example, if you’ve just opened a new hotel and you want to promote the different services you offer such as spa treatments, and lavish suites.

In this scenario, a performance-based marketer might produce adverts or digital banners that highlight these offerings.

The hope is that people will click through to your website and purchase a spa treatment or book an overnight stay, which results in a sale for your company.

App Installs

If your business has an app, then you can use performance-based marketing to encourage more app installations.

This is very common across a range of industries from ecommerce to the hospitality industry, as apps help build brand recognition and improve brand visibility.

As a result, performance-based marketers can promote your app to prospective customers, and every time someone new installs your app, it’s classed as a result.

App installs will lead to more leads, which could lead to more revenue.
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Advert clicks

Let’s say you’re advertising your business through social media.

You might choose advert clicks as your desired result, which means you’ll pay a fee every time someone clicks through from your ad.

You could be even more specific if you wanted to, and choose a particular ‘place’ as your result. For instance, you might only pay when someone clicks onto the ‘get started’ button on your homepage.

Again, the decision is yours. It depends on what you’re trying to get your audience to do after clicking through to your content.

Other metrics

As we touched on, the results outlined above are only a few examples.

Essentially, your business can choose any metric that makes sense for your business, and most importantly, any metric that is measurable.

It’s important to carefully consider the metrics you choose to target, as the data you obtain will inform future decisions.

For example, if you want to achieve more sales, but choose ‘website traffic’ as the result, then this isn’t meaningful. That’s because a large amount of traffic isn’t necessarily going to translate into sales.

What Channels Are Used in Performance Based Marketing?

Performance marketing involves a range of digital marketing channels, each designed to get your brand in front of your target audience.

Let’s kick things off with display ads.

Display ads

Display ads refer to banner ads and other visual ads that appear on websites your audience visits.

We all would have seen these at some point when browsing the web, as they can pop up from different locations on the screen.

The idea is that your audience will see this ad and then click through to your website. Usually display ads contain both text and images to encourage more click throughs.

By using Google ads, you can target specific audiences based on their interests, demographics, or other online activity. This increases the likelihood of your audience clicking through from your advert as the content will be relevant to them.

In this instance, you need to choose what result you want to set. For example, you might decide a result is achieved once your audience has clicked through from your ad, filled out the form, or took some other form of pre-determined action.

Sponsored content

Sponsored content combines elements of content marketing and advertising.

This tactic involves creating a piece of content (such as a blog post or a video), and then paying another company to publish this on their website.

However, it’s not just about picking any company out of thin air.

For sponsored content to be effective, you need to choose a company that aligns with your own. Your content should fit in with the rest of the content that already exists on the website, but with some indication that it is sponsored.

With the performance marketing model, you would pay a fee every time someone clicks onto your website from the blog post or video (or other form of content that you have produced).
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Social media advertising

Social media is an absolute gem for just about any business, as you can target a much broader net of people.

And, with various ad formats, targeting options, and payment plans, social media advertising gives businesses even more control over their spend.

You can also target specific audiences with your social media ads to ensure you’re appealing to the right people.

Furthermore, advertising allows you to reach new customers who might not yet be familiar with your brand.

Affiliate marketing

Affiliate marketing involves an individual or company receiving a payment every time they send new leads or customers to a business’s website.

As we’ve touched on above, this individual or company is known as the affiliate or publisher and their role is to promote another business’ product or service.

They do this by either linking out to their website from their own content or by placing ads for them on their website. For every click, lead, sales (or other result) generated by the links or ads, the affiliate receives a commission

For example, if you’re writing about travel, you might have an affiliate marketing agreement with hotels.

This is essentially a win-win situation, as you have content for your blog, and the hotels are getting more website traffic (and hopefully, more sales).

Search engine advertising

Have you ever looked for something on Google and seen lots of content at the top with the label ‘Ad’?

This is search engine advertising, as you’re paying to be placed at the top of the search engine results pages (SERPs).

As a result, this greatly increases your online visibility as ads are the first things your customers will see. Usually, these ads are only text-based, but with Google shopping, you also have the option to include an image.

Under the performance marketing model, you only pay when a user clicks your ad, converts on your landing page, or takes another preset action.

How Does Performance-Based Marketing Differ from Digital Marketing?

Digital marketing is a type of marketing that uses online channels to promote your business.

Performance based marketing is a type of digital marketing centered around a payment model, where you only pay when a certain action is fulfilled by your consumer.

Essentially, digital marketing is the umbrella term, and performance based marketing is only one part of it. There are various strategies, channels, and payment models included in digital marketing, which is why it is such a broad term.

However, performance marketing is defined by the fact businesses only pay when the predetermined actions are met.

Another key difference is the end goal of these two approaches.

For starters, digital marketing works towards longer-term goals such as increased brand awareness or brand loyalty. This is not something that happens overnight, and is part of a wider business strategy.

Performance marketing on the other hand focuses on short term goals, such as number of clicks or leads generated, as both of these metrics are easy to measure.
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What Are the Advantages of Performance-Based Marketing?

There are a few reasons why business’ use performance marketing to promote their offering.

With that said, let’s take a look at some of the benefits of this approach and how it can help boost your profitability.

Easy to keep track of your return on investment

Performance marketing makes it easy for you to track and measure your results.

Every time someone clicks on your advert, completes a download form, installs your app, or completes any other form of action you have set out to achieve, you’ll know immediately that you have fulfilled your goal.

This allows you to measure your return on investment, as you know exactly what’s working and what’s not.

There’s no waiting game involved, and we know time is money for any business owner.

You’ll also know how much you need to pay out for your performance marketing campaign, which allows you to organise your budget better so you don’t overspend.

Pay as you go

Unlike other forms of digital marketing, there are no upfront costs or monthly subscription fees.

This means advertisers can pay as they go – and most importantly, only pay for what’s providing tangible value.

Because businesses set the goals themselves, they can tweak their strategy if the result they have set isn’t producing the right results. This means they can maximise their budget, which is why performance marketing is an attractive option for smaller businesses.

Optimise your KPI’s

Key performance indicators (KPI’s) are an integral part of your company.

Without understanding what you’re trying to achieve, you have absolutely no sense of direction. With performance marketing, you can target metrics directly, whether that’s your customer turnover rate or sales revenue.

Since performance marketers are focused on driving higher performance levels for your business, you can optimise your clicks, impressions, leads, downloads, and various other performance markers to make sure you’re getting the most out of your spend.

When you partner with a web design agency, they dig deep into your KPI’s to find out exactly what you’re trying to achieve.

This includes discussing and reviewing your KPI’s to ensure you are working towards achieving your goals.

Extends Your Advertising Reach

When you engage in performance marketing, your brand will be promoted on different websites. As such, you’ll have an army of websites sending people your way, whether that’s through links or display adverts.

This means you’re getting your brand in front of even more people as these publishers might already have an established, loyal customer base.

They might also have standing in markets that you don’t, which means you can utilise their contacts and connections.

This opens the door to opportunities that otherwise might not have been possible.
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What Are the Disadvantages of Performance-Based Marketing?

Now to the flip side of the coin – the disadvantages of performance marketing.

Like with any type of marketing approach, it does of course, have its downsides.

Let’s take a look.

Can be more expensive

When you partner with a trusted marketing agency, you know exactly how much you’re paying each month.

For instance, when you partner with Canny to work on any aspect of your brand, website, or content, there are no hidden fees. We listen to what you truly need from us to make your business a success, and tailor our services to suit.

Budget is very important, and we understand that you need to know exactly what you’re getting in exchange for your hard earned cash.

However, performance marketing can be a little more tricky, as costs can jump quickly. For example, if you’ve set ‘advert clicks’ as your result, as you suddenly have lots of people clicking on your advert, you need to pay for all of these clicks.

Also, are advert clicks the most important metric to measure?

Whilst getting eyes on your brand is a good thing, it needs to generate profit. This leads us nicely onto our next point…

Vanity metrics

Vanity metrics are metrics that, on the surface, seem beneficial. However, they don’t produce tangible results and don’t have a meaningful impact on the goals of your business.

An example of this would be learning that your Twitter following or website traffic has increased.

Whilst both of these things are positive movements for your business, they don’t necessarily translate into sales or revenue. Therefore, they shouldn’t be the main metrics that your campaign focuses on.

Every business needs to make money – otherwise your business will be unable to survive.

Therefore, it’s important to concentrate on results that truly matter, and those that will generate the most revenue for your business.

You don’t want to end up paying for an increase in a metric that doesn’t lead to an increase in revenue. In this scenario, the cost of the approach would outweigh the benefits which follows on from our point above.
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Fraudulent results

One of the biggest threats to the effectiveness of performance marketing is fraud.

If you don’t work with a reputable agency, then you leave yourself vulnerable to unscrupulous companies.

This is especially common in performance based marketing, as it publishes receiver payment every time they hit the goals you have set.

As such, this can push them to drive low-value results as all they are interested in is getting paid. For example, they might encourage you to focus on vanity metrics such as increasing your social media following.

When this has been achieved, you owe them money as they have fulfilled what you asked them to do.

However, as we’ve covered above, a higher social media following doesn’t automatically mean a higher number of sales. Regardless of this logic, the company will start to want to be paid as they have achieved your marketing goals.

Therefore, it’s important you work with a reputable agency who is working for your benefit, rather than just their own.

Focuses on short term goals

One down side of performance marketing is that it primarily focuses on short term goals.

For example, website traffic, number of clicks, and number of impressions – all of which are easy to obtain quickly and easily.

Whilst all of these metrics are important, and should be monitored on a regular basis, they don’t tell you much about more general, long term objectives.

That’s because there’s no single metric you can use to track a long-term goal as success depends on a range of factors.

It also takes time to see if your campaigns have paid off which requires a little more patience!

Top Tips to Improve Your Performance Marketing

Below are some top tips to improve your performance marketing to ensure you’re getting the most out of each and every campaign.

1. Focus on creating good landing pages

Let’s say you have an advert on a publisher’s website, and as such, customers have clicked through.

They’re now on your landing page, but the design is very poor.

This can make all the difference when it comes to converting people from a lead into a customer. Getting people to click through from your ad is one thing, getting them to make a purchase is a whole other challenge.

Never overlook the importance of good landing page design as this bridges the gap between people showing initial interest in your brand, and actually taking it a step further.

Before you invest in a performance marketing campaign, make sure you test the user experience to make sure it is as engaging as possible.

Put yourself in the shoes of your customer, and create an experience that would make you want to become a customer.
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2. A/B test to optimise KPI’s

Any good marketer knows that testing and tracking is absolutely essential!

Without knowing what tactics are working for your business, you could quite literally be chucking money down the drain.

This is what makes A/B testing so important as you can test different strategies, content, and techniques against each other to see which one performs best.

Whichever one comes out on top, is the one you should be plugging the most time and money into.

3. Make sure you track and monitor results

Following on from the point above, you need to monitor any losses and gains, as this gives you an insight into what’s working.

For example, attribution, mobile vs desktop, bounce rates etc all give an indication of how your campaigns are performing.

After all, you want to make sure you’re getting the most out of your performance marketing otherwise you could be spending your budget elsewhere.

You need to be able to anlayse the data and make adjustments where necessary to ensure your campaigns are as optimised as they can be.
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What Is Performance Marketing and Why Does it Matter?

Performance marketing allows businesses to understand what’s working for their business.

As the name suggests, it’s marketing based on performance meaning businesses only pay for campaigns that actually generate results. Essentially, they pay for campaigns that ‘perform’.

As such, this approach is very attractive for a range of businesses including startups, as it allows them to manage their budget and concentrate on areas that bring value.

Whichever approach to marketing you choose, having the support of a reputable, trusted agency is essential.

At Canny, we work with companies across a range of industries from Tech to Recruitment to get their brand in front of their target audience. Regardless of what you’re trying to achieve, whether it’s increasing sales, organic traffic, or download sign ups, our team works with you to make those goals happen.

To find out how we can help, get in touch with our team of experts.