Performance Marketing: Will My Business Suffer or Score?

Performance marketing. It sounds like some fancy term, doesn’t it? But what does it actually mean and is it the right choice for your business? We will dive into it in this blog and answer some of your most burning questions.

What is Performance Marketing, Anyway?

Performance marketing, also often referred to as performance-based marketing, is a type of digital marketing in which advertisers pay publishers (such as websites or social media influencers) based on specific performance metrics, rather than paying upfront for ad space or airtime. 

The most common performance metric is the conversion, such as a sale or lead generation. The goal of performance-based marketing is to drive targeted, measurable results for the advertiser, while providing an opportunity for the publisher to earn revenue based on their ability to drive results. Examples of performance-based marketing include affiliate marketing, cost-per-action (CPA) advertising, pay-per-click (PPC) advertising, and cost-per-acquisition (CPA) advertising.

This method of marketing is also known as, pay for performance or results-based marketing.

Performance Marketing: A History Lesson

Now that we have the straight definition of performance marketing, we are sure you are dying to know how it came about. Well, here goes.

The origins of performance-based marketing can be traced back to the late 1990s, when the rise of the internet and online advertising made it possible for advertisers to track and measure the effectiveness of their campaigns in real-time. 

One of the earliest forms of performance-based marketing was pay-per-click (PPC) advertising, which was introduced by companies such as Google in the late 1990s and early 2000s. PPC advertising allowed advertisers to pay only when a user clicked on their ad, rather than paying upfront for ad space.

As an aside, we thought we’d take this time to elaborate on what PPC is to make sure you fully grasp the remainder of this content. Pay-per-click (PPC) is an advertising model in which advertisers pay a fee each time one of their ads is clicked. It is a way of buying visits to your site, rather than attempting to “earn” those visits organically. Search engines like Google and Bing make pay-per-click advertising available on an auction basis, where advertisers bid on the keywords they believe their target market will use to find their products or services. When someone searches for those keywords, the advertiser’s ad may appear at the top of the search results, and the advertiser will pay a fee each time someone clicks on the ad.

Another early form of performance-based marketing was affiliate marketing, which also emerged in the late 1990s. Affiliate marketing is a type of performance-based marketing in which publishers (affiliates) promote a product or service on their website or social media channels, and earn a commission for any resulting sales or leads.

As technology and data analysis methods developed, other forms of performance-based marketing such as cost-per-action (CPA) and cost-per-acquisition (CPA) advertising emerged. These methods allowed for more precise tracking and measurement of the results of online marketing campaigns, which further increased the popularity of performance-based marketing among advertisers and publishers.

What Are the Benefits of Performance Marketing?

Good question.

1. Cost efficiency: Advertisers only pay for results, such as a sale or lead, rather than paying for ad space or impressions.
2. Targeted advertising: Advertisers can target specific demographics or audiences based on the performance of the affiliate or publisher.
3. Increased ROI: Advertisers can track and measure the results of their advertising campaigns, allowing them to optimize their efforts for better returns on investment.
4. Risk-free: Performance-based marketing is a risk-free way for advertisers to test new products or markets, as they only pay for results.
5. Increased reach: Performance-based marketing allows advertisers to access a wider range of publishers and websites, increasing their reach and exposure.

What Are the Downfalls of Performance Marketing?

Performance marketing, while having many benefits, also has some potential downsides. These include:

1. Lack of control: Advertisers have less control over the placement and presentation of their ads, as they are reliant on the actions of the affiliate or publisher.
2. Quality concerns: Advertisers may be concerned about the quality of the traffic generated by the affiliate or publisher, as it may not be as targeted or engaged as other forms of advertising.
3. Limited brand exposure: Performance-based marketing typically focuses on driving sales or leads, rather than building brand awareness.
4. Dependence on affiliates: Advertisers may become too reliant on a small group of high-performing affiliates, making their marketing efforts less diverse and more vulnerable to changes in the performance of those affiliates.
5. Fraud: Some affiliates may use fraudulent or deceptive practices to generate leads or sales, resulting in wasted ad spend and potential damage to the advertiser’s brand.

Is Performance Marketing Right for All Businesses?

Performance marketing can be a good fit for companies in a variety of industries, but it is particularly beneficial for companies with the following characteristics:

1. E-commerce businesses: Companies that sell products or services online can easily track and measure the results of their performance marketing campaigns, making it a cost-effective way to drive sales.
2. Cost-conscious companies: Companies that are looking for cost-efficient ways to drive sales and leads can benefit from performance-based marketing, as they only pay for results.
3. Companies with a wide range of products or services: Performance-based marketing allows companies to test different products or services in different markets, without incurring large advertising costs.
4. Start-ups or small businesses: Performance-based marketing is a relatively low-cost and low-risk way for start-ups and small businesses to test new products or markets.
5. Companies looking to increase their reach and exposure: Performance-based marketing allows companies to access a wide range of publishers and websites, increasing their reach and exposure.
6. Businesses that are looking to increase their visibility in search engine results, as performance-based marketing campaigns can drive more traffic to their website, which can help improve their search engine ranking.

As for some particular examples of companies who have gone this route, let’s reveal. 

1. Amazon: Amazon has a well-known affiliate program that allows publishers and website owners to earn commissions for driving sales through their website or blog.
2. Commission Junction: Commission Junction is a leading affiliate marketing network that connects advertisers with publishers to drive sales and leads.
3. Rakuten Marketing: Rakuten Marketing is a global leader in performance-based marketing, with a network of over 100,000 publishers and a wide range of advertisers across various industries.
4. ClickBank: ClickBank is a popular platform for digital products, where vendors can promote their products through a network of affiliates and earn commissions on sales.
5. CJ Affiliate by Conversant: CJ Affiliate by Conversant is an affiliate marketing network that helps brands to connect with publishers, influencers and consumers through data-driven, performance-based campaigns.
6. ShareASale: ShareASale is a performance-based marketing network that connects merchants and affiliate partners to drive online sales and leads.

These are just a few examples of companies that have used performance marketing, but there are many other companies across various industries that have also used this approach.

Is Performance Marketing Different Than Digital Marketing?

We get this question a lot. They seem very similar but there is an underlying difference.

Performance-based digital marketing is a subcategory of digital marketing. Digital marketing is a broad term that refers to any marketing efforts that use digital channels to reach and engage with consumers. This includes a wide range of tactics such as search engine optimization (SEO), social media marketing, email marketing, content marketing, and more.

Performance-based digital marketing specifically refers to a subset of digital marketing that focuses on driving specific actions or outcomes, such as sales or leads, through the use of affiliate or partner networks. This type of marketing often uses a cost-per-action (CPA) or cost-per-lead (CPL) pricing model, where the advertiser only pays when a specific action (e.g. a sale or lead) is generated.

In comparison, other forms of digital marketing such as display advertising, social media advertising, or search engine marketing typically use a cost-per-impression (CPM) or cost-per-click (CPC) pricing model, where the advertiser pays based on the number of times the ad is shown or the number of clicks it receives.

In summary, performance based digital marketing is a specific type of digital marketing that focuses on driving specific actions or outcomes through the use of affiliate or partner networks, while digital marketing is a broader term that encompasses a wide range of tactics that use digital channels to reach and engage with consumers.

How Does A Company Get Started with Performance Marketing?

A company can get started with performance-based marketing by taking the following steps:

1. Define your marketing goals: Identify the specific actions or outcomes you want to achieve with your marketing efforts. This could include increasing website traffic, generating leads, or making sales.
2. Choose your performance-based marketing channel: There are several performance-based marketing channels to choose from, such as pay-per-click (PPC) advertising, affiliate marketing, and cost-per-action (CPA) networks. Each channel has its own set of advantages and disadvantages, so research which one is best suited for your business.
3. Create a budget: Establish a budget for your performance-based marketing efforts. This will help you determine how much you can afford to spend on each channel and how much you can expect to earn in return.
4. Develop your marketing strategy: Create a plan for how you will achieve your marketing goals using the channel you have chosen. This should include details on targeting, messaging, and creative elements.
5. Track and measure your results: Use tracking and measurement tools to monitor the performance of your marketing efforts and determine what is working and what is not. This will help you optimize your strategy and make data-driven decisions.
6. Optimize and adjust as needed: Based on the results you are getting, optimize and adjust your marketing strategy as needed. Continuously testing and refining your approach is an important part of performance-based marketing.

It’s also important to consider working with a performance marketing agency or a performance-based marketing platform that can help you with the setup and management of your campaigns, as well as providing you with insights, analytics and optimization recommendations.

Can You Elaborate on the Common Pricing Models in Performance Marketing?

The most common pricing models in performance marketing are:

1. Cost per acquisition (CPA): Advertisers pay a set fee for each customer or sale that is generated through their ads.
2. Cost per click (CPC): Advertisers pay a set fee each time someone clicks on one of their ads.
3. Cost per impression (CPM): Advertisers pay a set fee for every 1,000 times their ad is displayed.
4. Cost per lead (CPL): Advertisers pay a set fee for each lead that is generated through their ads.
5. Cost per view (CPV): Advertisers pay a set fee for every video ad view.
6. Return on Ad Spend (ROAS): Advertisers pay a percentage of revenue generated by their ad campaigns.

Interested in performance marketing? Contact Lazarus and we will help you out.