Raise your hand if you want to avoid wasting your advertising dollars and pay only for what brings value. Or if you, like businessman John Wanamaker, wonder “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”, you need to look at performance marketing.
What makes performance marketing special is that you can achieve both bottom-of-the-funnel goals (sales, clicks, and leads) and top-of-the-funnel goals (views and impressions).
And, all of this without wasting your marketing dollars.
In this post, we take a deep dive into the benefits of performance marketing and the steps to launch a flawless marketing campaign.
But before we get to these, let’s start with the answer to the question “what is performance marketing?”
Simply put, performance marketing involves making use of online advertising channels to place ads and paying only when someone views or clicks on them.
It’s a term for digital marketing programs where you’d only pay publishers when the desired audience completes a particular task.
When done right, performance marketing crafts win-win opportunities for both the merchant and publisher.
The greatest benefit of performance marketing is that it lets you know which half of your advertising dollars are being wasted.
Jokes apart, this type of digital advertising gives you many perks right from high ROI to low risk.
Let’s see what the rich benefits of performance marketing are:
What better way to save costs than paying only for actual results as opposed to a flat fee regardless of the outcome?
Take the example of TV ads.
The average cost per 30-second commercial is $104,700 (apart from production costs of up to $5,000). This means you will shell out anywhere from $18 to $34 per 1000 ad impressions.
Image via Fit Small Business
With performance marketing, you can reach 1,000 people for as low as $3 to $10.
Not surprisingly, the top goal of marketers who choose performance marketing is to boost ROI. Ascend2’s survey finds that 54 percent of marketers experienced best-in-class results from performance marketing.
With every metric being tracked in real-time, there’s no danger of wasting money on failing marketing campaigns.
Image via Ascend2
No more wild guesses or “guesstimations” about where your marketing dollars are going, which ads are doing well, and who is clicking on your ad.
With performance marketing, you can see exactly how many leads, sales, or impressions your ads generated.
In addition, analytics tools take raw data from online marketing channels and present it to you so that you can get an accurate look at the campaign’s ROI.
Results-based performance marketing gives you a comprehensive and granular view of how your online marketing strategies are performing.
Compared to traditional advertising, performance marketing campaigns (search engine marketing, affiliate marketing, and social media advertising) give you rich insights into
The more insights you have, the easier it is to make data-driven, accurate decisions to accelerate growth with performance marketing campaigns.
Every advertising platform, social media channel, and website that displays your ad has a stake in ensuring you get the results.
It’s easy to see why.
If marketers don’t see results, publishers don’t get paid.
And so, they’ll do everything possible to put your ad in front of their audience. With minimum effort, you can thus reach a wider audience pool with performance marketing than you can with traditional advertising.
You can tweak your budget, track campaign performance in real-time, and even change your ad copy when running performance marketing campaigns.
You can even stop the performance marketing campaign if it has met your goals or if you’ve reached your maximum budget. This flexibility reduces the overall monetary risk of your campaign.
Performance marketing is known for its versatility. You don’t have to get stuck on ads and content that doesn’t work. With easy trackability and flexibility, you can just stop something that isn’t delivering results and try something else.
Now that you’re convinced about the prowess of performance marketing, you can start creating your campaign.
Just like most good things in life, performance marketing only works well when you have a robust plan in place.
Here’s a step-by-step guide to performance marketing that will help you fast-track success:
The secret to making performance marketing work lies in creating a bulletproof plan, keeping in mind your short and long-term business goals.
It also involves knowing the payment methods and top performance marketing channels for your campaign. Here we go:
You already know that performance marketing works when advertisers pay for specific actions that their audience takes.
Let’s take a closer look at what these actions are and how each of them is computed.
This simple advertising model is a great way to drive traffic and promote your products while saving on unnecessary marketing expenses.
With PPC, you only pay when a user clicks on your ad to get to your landing page, website, or ecommerce site.
Here, marketers either agree to pay a fixed price to marketing channels per click or determine the cost per click through an auction.
You can decide the maximum price you are willing to pay per click based on what ROI you think each click brings.
For instance, if you think it will be worth paying $12.5 to get 50 people to click on your ad and visit your website, you can set the maximum CPC as $0.25.
The algorithm compares your ad with other ads based on their price and quality and displays the winning ad above other ads in the case of an auction.
But if you’ve got a direct deal with the advertiser, you can pay a fixed sum for a pre-decided number of clicks.
So, to sum up:
Maximum CPC = Maximum price you are willing to pay / Total number of clicks.
Marketers use PPC ads to generate leads, sales, and also to drive traffic to their site. These ads offer an excellent depth of targeting in that you can serve ads to people who are looking for products or services similar to yours.
Now, for the all-important question—where do you place the PPC ads?
Here are the top platforms for PPC campaigns:
Before we get into the details of these platforms, let’s see what factors influence the CPC.
Cost per click varies based on the domain or industry you are in. For instance, insurance, education, and legal domains have higher CPCs compared to fashion, travel, and real estate.
Here’s an estimate of the average cost per click (in USD) across various industries according to Statista’s figures from May 2021.
Image via Statista
When many marketers are competing for certain keywords that you want to target, ranking for these keywords can be difficult. The competition for keywords varies based on how popular they are and industry competition.
Fortunately, there are tools such as Semrush that can help you analyze keyword competition.
Just enter your primary search term to get a list of target keywords, volumes, KD, and the average CPC.
For instance, if you key in “performance marketing” and select exact match keywords, the tool displays the average CPC for different keyword variations.
Image via Semrush
You can also use Google Keyword Planner to conduct keyword research and find your target keywords.
The CTR (click-through rate) can also affect the Quality Score (the higher the CTR, the better your ad quality score).
The channel you choose for your PPC campaign will also affect your CPC.
Here are the 2021 benchmarks for CPCs on different channels:
The CPM strategy is right for you if your objective is to build brand awareness instead of achieving actual sales conversions.
Advertisers pay a fixed fee per thousand impressions or the number of times the ad was viewed or displayed.
Because cost per impression does not measure how many times users clicked on the ad, advertisers use CTR to evaluate their CPM campaign’s performance.
Like CPC, many factors can affect CPM including the industry, ad quality, location, and site traffic. Let’s see how to calculate your CPM. Here’s the formula:
CPM= (Total ad spend ÷ total ad impressions) x 1000
Let’s say you had to spend $100 to get 4000 impressions, your CPM = $100 / 4000 = $25.
Cost per conversion is the amount of money you spend to convert a lead.
Here’s the formula: Cost per conversion = Total ad spend ÷ number of conversions.
Conversion rate is the number (or percentage) of people who convert out of all website visitors. A high conversion rate means a lot of people want your offering, which in turn means marketing success.
Conversion rate = (Total conversions ÷ total visitors) x 100
Let’s work this one out with an example.
If you had 20000 total visitors and 2000 of them converted, your conversion rate is 2000/20000 x 100 = 10%.
Conversion rates also vary by industry with the average being 8.82 percent. You can see in the chart below that the pets industry has the highest conversion rates while the lowest rates are seen in fashion, furniture, and real estate.
Image via Wordstream
In this performance marketing payment model, you will pay every time your ad generates a lead.
A lead is someone who shows interest in your service or product by taking an action such as:
CPL helps brands understand what it costs to acquire new leads and whether their marketing dollars are being used wisely. It also allows you to discover which advertising channels (and formats) generate the most leads and which ones don’t.
Here’s the formula for calculating your CPL: CPL = Total marketing spend ÷ total leads generated.
For example, if you spend $500 on a CPL campaign to get 50 leads, your CPL is $500/50 = $10.
By comparing this figure to the cost of your product or service, you will know if your campaign is reasonable or expensive.
As it is with CPC and CPM, CPL varies by industry. According to the same study by Wordstream, the average CPL is $41.40 across industries.
You may have to pay a higher price to generate leads in legal, finance, and insurance domains (up to $70) while pets and automotive repairs cost you less.
Here’s a chart that helps you get an idea of industry benchmarks for CPM.
Image via Wordstream
There are other metrics and payment modes in performance marketing such as pay per engagement, pay per action, and pay per sale.
The basic principle in these remains the same: You only pay when someone engages with your brand, takes a specific action, or actually buys your product
While we are here, let’s also talk about the click-through rate (CTR). You read above that CTR affects your ad’s Quality Score.
But what exactly is CTR?
It’s simple really.
Just divide the number of clicks your ad gets by the number of times the ad is shown and multiply this by 100.
In other words CTR = (clicks ÷ impressions) x 100.
If your ad was seen by, let’s say, 200 people, and 25 clicked on it, your CTR is 12.5%.
Is that a good CTR?
Yes! According to the same Wordstream research, the average CTR is 6.18 percent across industries. A high CTR indicates that your ads are helpful and relevant.
Click-through rate helps you discover the most effective ad copy, keywords, offers, and targeting strategies.
But, here’s the deal—CTR can also be a misleading metric to estimate your ROI.
Let’s say your social media campaigns grabbed 100,000 ad impressions plus 50 clicks. Here, your CTR is 0.05%.
On the other hand, if your social media advertising campaign delivers 300,000 ad impressions and 100 clicks, the CTR is 0.03%.
In this case, although your CTR is lower, you are getting twice as many clicks. Additionally, it’s important to see if the cost of the ads was the same or different.
If you only look at CTR, your online advertising campaigns may fail to deliver the ROI you want.
Analyze your CTR with other metrics such as conversion rate and sales to get the big picture.
The next step is to know what your company’s marketing objectives are and the timeline to achieve them. Otherwise, you could be paying for results that are not aligned with your objectives. Your goals could be to create brand awareness or any one (or all) of these:
You’ll need to get as specific as possible when identifying these goals. For instance, “drive social media traffic” is a nice goal to have, but it doesn’t tell you how much traffic to generate and in what timeframe.
Making your goals SMART (Specific, Measurable, Attainable, Relevant, and Time-bound) will help you choose the metrics to track your ad’s performance. Here are some examples of SMART goals:
|Lead generation||50 new leads per month|
|Sales||$2,000 in revenue each month|
|Website traffic||3,000 unique visitors in three months|
Once you know what your goals are, it becomes easier to select the right marketing channel and ad copy that will help you achieve them. Before you jump on to selecting channels, make sure to nail your buyer personas.
Understanding who your targets are, what they are looking for, and which channels they prefer is crucial to designing a winning performance marketing strategy.
Market research, online surveys, competitor analysis, interviews with customers, and social listening are some ways to understand your prospects.
Now, the challenge is to choose the top performance marketing channels that help you achieve your business goals.
While there may not be one magic channel for all your performance campaigns, some advertising platforms may be better suited for certain goals and target audiences.
That said, here’s a deep dive into different performance marketing examples to help you make informed decisions:
Search engine marketing (SEM) is a popular digital marketing strategy marketers use to increase the online visibility of their website on search results. Here, you have two options:
Paid search advertising is a type of “pull” marketing strategy. Here, an advertiser pays search engines to display their ads in organic search results.
For instance, if you search for “dentists in Florida” the relevant paid search ad shows up at the top of search results like the one below.
Image via Google
While there are many search engines, you can see from the chart below that Google continues to dominate the search engine market with nearly 85% market share.
Image via Statista
Search ads are available on all the major search engines like Google, Yahoo!, Bing. These ads are also shown at several spots in the SERPs.
Display advertising is another popular search marketing format. Unlike search ads, display ads are shown to even those who are not actively looking for your products on search engines. This helps you capture the attention of prospects earlier in their buying journey.
You can also use display advertising to remind and retarget prospects who have visited your site or app previously. From banner ads to emails, these ads appear in many ways.
Banner ads appear on top or to the right of the main content in websites like this:
Image via The Washington Post
Display ads appear in news feeds or on the right sidebar of the main feed on social media channels.
Image via Instapage
Or, in personal email boxes, they show up as text ads that open into images when you click on them:
Image via Gmail
It’s a no-brainer that people are increasingly turning to search engines to look for products, services, brands, and information.
With Google dominating the global search engine market share, it makes sense to talk about search and display ads on Google.
Brands can advertise on Google’s search marketing platform (Google Ads) in many ways. The search ads can be text ads, product listings, or videos, and appear on top of Google SERPs.
Wondering how much each click costs you?
The average CPC for Google search ads is $0.67 and for display advertising, it’s $2.32.
While Google is the most popular search engine marketing channel, there are others that you can explore too.
In January 2022, Bing (Microsoft search engine) handled 25% of searches in the US, while Yahoo! (Verizon Media Group) handled 11.2% of search queries.
Wait, there’s more.
Cost per click is not static but varies based on many factors such as keyword categories, actual keywords, industry, location, and your ad quality.
Your CPC can also vary based on the keywords you want and the industry.
Additionally, the CPC also varies based on the search engine you choose to leverage.
Before you select the right channel for performance marketing, it’s important for you to evaluate your goals, industry, and target demographic.
Social media networks are perfect for performance marketing given that over 300 million people in the U.S. are currently active on them.
Among the most favored social media channels in the U.S. (and the world) are Facebook, YouTube, Instagram, and Pinterest.
The best part is that you have an array of social media marketing tools that make it easy for you to create, track, and analyze your social media ads.
Facebook and Instagram
Performance marketing on Facebook and Instagram is a cost-effective way to reach your target audience.
With Facebook’s marketing tools, marketers can advertise not only on Facebook, but on Messenger, Instagram, and Facebook audience network.
You can set a lifetime budget or a daily budget for advertising on Facebook with $1.00 being the minimum budget.
While both platforms pay marketing companies rich dividends, Facebook ads are typically suited for paid advertising campaigns focused on boosting clicks and traffic. For reach and impressions, Instagram may be the better choice.
Here are the multiple places where paid ads are displayed on Facebook and Instagram:
On-platform placements on Twitter include the news feed and search results, among other spots. Performance marketers can experiment with various advertising programs and ad formats right from single images and videos to text and carousel ads.
With Twitter’s “Takeover Ads”, you can ensure your ads are displayed on the news feed when users open the app the first time.
Advertising rates depend on the type of performance marketing campaign you choose, ranging from $0.50 per day to $200,000 and more for promoted trends.
Promoted trends are great for performance marketing given the huge exposure your ads get in a short amount of time. The only catch is that it is costly.
Performance marketers whose enterprise marketing budget is not as high as $200,000 can explore the other paid advertising options:
Image via Statista
Like other social media channels, LinkedIn offers you different placements:
Depending on the competition and targeting criteria, CPC on LinkedIn can range from $2.00 to $5.00 (or more). When it comes to impressions, the average is $7.85 on this platform.
With a growing number of people preferring to shop online, your goal should be to advertise on the best ecommerce platforms. The past two years have seen a spike in ecommerce sales with over 256 million people buying from online marketplaces.
Many ecommerce sites offer advertising options where businesses can pay to have their ads displayed to relevant audiences.
And, like social media and Google, ecommerce sites have their own algorithms when it comes to targeting ads. It’s no secret that Amazon leads the list when it comes to ecommerce market share. And it offers a variety of advertising options for performance marketers too.
Image via Statista
Let’s see how performance marketing works on Amazon. The marketplace offers you these advertising options:
These ads are meant for individual product listings and appear in the product detail and shopping results pages.
Image via Amazon
Sponsored brands help you drive sales by appearing on the shopping results page. These ads contain a custom headline, your brand logo, and a selection of products.
The product collection ads allow you to choose three products, and the order in which they appear.
Like products, sponsored brands are displayed on product detail pages, within, below, or at the top of search results.
Image via Amazon
These are multipage shopping destinations free to use on Amazon for individual brands.
You can highlight your product offering and brand story in stores even if you have no experience with designing and building websites. It’s easy to create a website or your online ‘stores’ on Amazon by using templates and tiles.
For instance, check this Mars Wrigley store on Amazon.
Image via Amazon
These are similar to Sponsored Products in that they appear as “sponsored” suggestions on search results and product detail pages.
But, unlike sponsored products that are displayed based on keyword searches, Sponsored Display ads target customers who:
Other than Stores, all other Sponsored ads on Amazon are cost-per-click (CPC) ads. You pay for them only when users click on the ads. eBay goes a step further to offer “Promoted Listings” where you only pay when your product actually sells.
Take a look at this ad below.
Image via Amazon
Affiliate marketing is one of the top performance marketing strategies that helps you generate revenue and drive sales.
Brands pay affiliates and marketing partners when they generate sales, leads, or clicks. Typically, brands pay for sales generated while clicks and leads are used less frequently.
Generally, the affiliate is someone with enough expertise and influence to drive traffic.
Firms typically engage bloggers, review sites, editorials, newsletters, and affiliate networks for affiliate marketing.
So, how to go about building an affiliate program?
Recruiting influencers and bloggers all by yourself can be a taxing exercise, particularly when you are new to affiliate marketing.
It makes sense to join any one of the many affiliate networks or use smart influencer marketing tools. These help you save time and fast-track performance marketing results.
Keep in mind that affiliate managers charge a fee that can go into hundreds of dollars or a few thousand dollars a month.
Here’s a list of affiliate marketing platforms that make it easy for you to get started with affiliate marketing:
Now that you have a list of channels, you may be wondering if there’s a clear winner here.
Turns out, 69% of marketers, according to Ascend2’s survey, think social media platforms are the best avenues for executing a performance marketing campaign.
Image via Ascend2
You can streamline your performance marketing plan by using relevant affiliate marketing tools.
However, if certain tactics and channels of performance marketing work for other digital marketing companies, it doesn’t mean they will work for you.
Decide on the best channel (or a combination of channels) based on your performance marketing goals.
Are there times when you don’t even realize you are looking at an ad on a site?
You have native advertising to thank for it. These ads are so named because they appear unobstructive and “native” to the site they are shown on. This plays a major role in helping native advertising deliver a high ROI.
Native advertising looks like the other pieces of content and articles around it. A great example of native advertising is this article from The New York Times, sponsored by Allbirds, a shoe company.
The sponsored content is displayed on NYT’s newsfeed. When you click on the ad, you are taken to an article on NYT’s website replete with sound effects and beautiful graphics.
Image via The New York Times
Here’s another example. Can you spot the native ad on this page?
Image via Entrepreneur
Can’t spot the ad here?
That’s the goal of native advertising! The “Flickto” sponsored content blends seamlessly with other pieces of content. Native advertising can take the form of:
You may not need a study to confirm the fact that native ads are easier to understand and appear more trustworthy than conventional ads.
Here’s what native advertising helps you achieve:
This brings us to the next question—how much do native ads cost?
Just like other ads, the pricing for native ads depends on where you want the ad displayed and to how many targets.
Premier publishers such as The New York Times, Entrepreneur, Forbes, and CNN offer native ad placements that can be more expensive than conventional platforms.
You can use a good ad creator tool to design high-impact and engaging native ads for your performance marketing campaigns.
Created stellar ad copy and decided on the best channels to attract prospects?
Your performance marketing strategy may still not deliver the results you want if your website or app UX (user experience) isn’t great.
A bad landing page, slow loading speed, and un-enticing offers will quickly repel your prospects. Poor website/landing page experience will also hurt your ad’s Quality Score, cranking up your performance marketing costs.
To get the best results from your performance marketing campaign, test and optimize your landing pages/website links, content, graphic design, loading speed, and offers.
Small improvements will also count.
A Deloitte study shows a 0.1-second improvement in site speed boosts
Other than optimizing the speed of your web pages, focus on writing engaging content for the website to boost conversions.
Here are the best practices to get your website UX and performance marketing right:
Good marketers test, adjust, and refine their performance marketing strategies on an ongoing basis. Explore different tactics, revenue-driving metrics, and channels with A/B testing to see what works and what doesn’t.
Much like physical fitness, consistent A/B testing will help you optimize your digital marketing ad copy, CTAs, ad placement, website design, and channel strategy.
But hold on.
There are headline analyzer tools that help you tweak your ad headlines to grab more eyeballs.
The latest in the digital marketing scene is the Automated App Ads or AAA from Facebook. This tool lets you test various combinations of 50 creatives (images, text, and videos) to see which one performs the best.
Another way to understand why something is not working is to ask the users themselves. Exit surveys and polls can help you understand customer behavior (what made them click or not click on an ad).
That brings us to the end.
Before we wrap up, let’s do a quick recap on what is performance marketing and other commonly asked questions:
Q1. What is performance marketing and how does it work?
A. Performance marketing is a results-driven digital marketing strategy. Instead of the traditional fixed-rate payment, advertisers pay the publisher only when the ad “performs.” Performance here refers to clicks, impressions, and sales the ad generates.
Q2. What is the role of performance marketing?
A. Performance marketing is a win-win opportunity for publishers and advertisers. For advertisers, it is money well-spent because they only pay when the desired action happens. It plays a major role in helping brands grow and also serves as a revenue model for publishers.
Q3. What is performance marketing in digital marketing?
A. Performance marketing is a set of digital marketing strategies that work on the principle of paying for only those results that you get. It leverages advertising on various channels like social media, search engines, etc.
Q4. Is SEO a part of performance marketing?
A. SEO (Search Engine Optimization) is a component of digital marketing, but it isn’t a part of performance marketing. SEO’s goal is to increase organic traffic (not paid) through SERPs. And so, SEO-based campaigns, by default, are not performance marketing. This is because you don’t have control over the results and don’t pay for the results.
Q5. What is the difference between performance marketing and digital marketing?
A. A digital advertiser pays online channels (or publishers) whether or not the ad produces results. A performance marketer pays publishers only when the ad generates results.
Q6. What are the benefits of performance marketing?
A. The top benefit of performance marketing is that it is cost-effective. Marketing companies pay only when the ad generates clicks, leads, sales, or views. But, the benefits go beyond cost-saving. It is trackable and easy to plan. It also gives better reach and reduces risk.
Q7. Is performance marketing the same as growth marketing?
A. Nope. Growth marketing is all about brand marketing and crafting advertising programs to develop a highly engaged audience over the long term. Performance marketing is typically a short-term strategy that looks to get quick results. To achieve your business goals, you will need both of these strategies.
Q8. What tools do performance marketers use?
A. Some performance marketing platforms used by performance marketers are:
Q9. Is performance marketing the same as affiliate marketing?
A. Affiliate marketing is done through bloggers, influencers, coupon websites, online magazines, and product review sites. Brands pay these affiliates a commission when they generate results (leads, clicks, or sales).
Performance marketing includes affiliate marketing and influencer marketing. But, performance marketers also use other channels apart from affiliate marketing.
Q10. What are the different types of performance marketing?
A. Advertisers pay for placing ads on different types of performance marketing channels to drive results:
Performance marketing today is seen as critical to business success. Fast results and a high success rate are the reasons why brands continue to increase their investment in performance marketing.
To enjoy its full benefits, create a comprehensive, strategic plan focusing on
A word (or two) of caution.
In the digital marketing world, it’s not all hunky and dory. Beware of ad frauds where bots might be clicking on your ads instead of your targets. This can seriously damage your performance marketing efforts.
What you also need to guard against is being myopic about your marketing goals by focusing on short-term clicks, leads, and sales.
Sure, performance marketing gives you quick results.
But, it may not convert into long-term profitability if you lose sight of your company’s overarching business goals. Make sure your performance marketing goals help you get closer to your larger goals.
And finally, keep yourself updated on the latest trends in performance marketing.
The digital marketing landscape is changing rapidly thanks to technologies such as AI-powered optimization to programmatic advertising, visual search to live-stream shopping.
The future of performance marketing is exciting. With a razor-sharp focus on your larger goals, craft a clever performance marketing program to elevate your company’s success.
Have any questions? Ask them below in the comments.
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