With the advertising spend following steadily an upward trend during the last years, the need for marketers to accurately measure the payoff of their efforts and multiply results with lower acquisition costs gave birth to a new form of marketing, the so-called “Performance Marketing”.
What is Performance Marketing?
According to Performance Marketing Association (PMA), it is “a comprehensive term that refers to online marketing and advertising programs in which advertisers (a.k.a., “retailers” or “merchants”) pay marketing companies (a.k.a, “affiliates” or “publishers”) when a specific action is completed; such as a sale, lead or click.”
On the contrary to traditional advertising, in which companies invested their budget in marketing activities upfront without knowing their outcome- just hoping to yield results- this type of marketing is based on measurable online and offline performance. Today, marketers leverage the use of several attribution tools, to track every customer interaction, be it clicks or calls.
This new era of data-driven marketing has reinvented the way brands market and advertise their products and services. Performance Marketing now offers a great opportunity for them to raise awareness-tapping into a variety of channels- and increase sales revenue eliminating the risk of wasting money in non-converting campaigns.
Which parties are involved?
There are 4 core groups of professionals taking part in the Performance Marketing arena, and need to cooperate efficiently to drive the desired results:
1. Advertisers or Merchants
Advertisers, which are also known as Merchants or Retailers are those businesses seeking to advertise their products and services through a network of Affiliates in order to increase brand awareness and sales.
Nowadays, more and more customers are seeking reviews and recommendations before adding products to their baskets. This is why influencer marketing, among others, enjoys an increase in popularity. And Performance Marketing can be an ace in the hole for a great deal of ecommerce and retail businesses.
2. Affiliates or Publishers
Affiliates or ‘Publishers’ are individuals or companies that display ads in their owned web pages. In order words, they are the vehicle for the Merchants to promote their products or services to an audience. Publishers- who can be bloggers, review sites, shopping platforms, influencers, or else- deploy social media channels, blogs, and other mediums to place ads directing prospects to the advertisers’ web properties and they are paid with a commission upon completion of the agreed action. Such actions can be link clicks, downloads, form completions, or whatever else the advertiser has set as a goal. The Affiliate’s role stops when they complete that goal. All the rest is handled by the advertiser.
3. Affiliate Networks
Affiliate Networks work as an intermediary among Advertisers and Affiliates, providing the platform in which the former and the latter connect and establish their partnership. In other words, affiliate networks are the ones bringing together demand and supply, but also work as account managers keeping track of transactions, preparing reports, making payouts, etc.
4. Affiliate Managers
Affiliate Managers are the ones to ensure that processes run smoothly. Many businesses hire Affiliate Managers in order to handle the affiliate program in-house, while others prefer to outsource to advertising agencies. Agencies apart from offering a range of services that most businesses can’t afford to manage internally, also offer their valuable relationships established over time and their expertise after years of experience in the field.
Top Performance Marketing Channels
1. Native Advertising
Native advertising is a type of paid advertising, but in fact, doesn’t look like a paid ad. Unlike display advertising which is kind of disruptive for the user, native ads fit in a native way in the media formats they appear, blending naturally with the overall look and feel. The primary goal of native ads is to provide quality content that brings value to the reader.
Which are the most common places to bump into a native ad? Newspapers, magazines, various websites, and social media feeds, as well. Usually, native ads are tagged as “Sponsored” content, yet they don’t disrupt the user experience to the extent that pop-ups and display banners do.
With more and more ad blockers being installed in our devices, native advertising is a good practice to take advantage of and reach new audiences to serve your sponsored content. Besides, there is a good chance your competitors are using them already. According to emarketer, by the end of 2020, advertisers will devote almost two-thirds of display budgets to native ads.
2. Social Media Marketing
In this type of Performance Marketing, the advertisers leverage the power of social media platforms such as Facebook, YouTube, and Instagram to connect with their target audience, raise brand awareness, generate traffic towards their web pages, and most importantly drive sales. To achieve so, they need to create and publish high-quality content (paid and organic), engage with their followers, monitor their results and optimize their actions.
3. Search Engine Marketing
In the past, Search Engine Marketing was a general term that involved both “Search Engine Optimization” and “Paid Search”, but nowadays advertisers use it mostly when referring to paid search- which is one of the most important types of Performance Marketing.
Search Engine Marketing encapsulates the efforts of advertisers to gain traffic to their web pages, using a real-time auction system, bidding for keywords their customers use to search for a product.
Search ads, that can be used for many types of industries and businesses, are admittedly a powerful medium that allows advertisers to leverage search engines such as Google, Bing, and Yahoo to place their ads in front of those customers with high intent to buy.
4. Affiliate Marketing
Affiliate Marketing is the process of promoting a company’s products or services and earning a commission when people finally convert. It’s a common type of Performance Marketing that requires establishing a partnership between an advertiser and an affiliate. Advertisers offer a financial incentive- sharing part of their revenues with affiliates- and the latter earn a passive income when they manage to close a deal. Usually, the affiliate’s role play influencers, bloggers, review, and coupon sites.
The following is an example of how affiliate marketing works in action. You may click to explore the Nimbata Affiliate program and, why not, start earning money promoting our call tracking service.
5. Sponsored Content
Sponsored Content along with native ads is created following the look and feel of the page it’s displayed. The difference between sponsored content and native ads lies in the creation and distribution of the content. Advertisers pay publishers to create and distribute the sponsored content, while in native ads advertisers are those who create the content.
Most Useful Payment Models
And now let’s talk about pricing! Here are the most frequent payment models that marketing platforms and partners use in Performance Marketing:
Cost Per Click (CPC) – When charged with CPC, you pay only when a prospect clicks on your ad and gets directed to your designated landing page.
Cost Per Sale (CPS) – As its name implies, CPS means that advertisers pay their partners each time the latter generate a sale.
Cost Per Lead (CPL) – Cost per Lead means that you pay when a prospect interacts with your ad filling out a lead form or provides their details to get contacted.
Pay Per ‘X’ – In this payout model, the ‘X’ is determined by the advertiser according to their desired action, e.g. downloads, sign-ups, etc., keeping out clicks, leads, and sales that we mentioned above.
The benefits of Performance Marketing
If you are unsure whether Performance Marketing is a suitable option for your marketing mix, the following points will hopefully help you settle things up in your mind.
1. Get measurable results
Instead of traditional media, where advertisers used to promote their products paying in advance and simply hoping to generate sales, in Performance Marketing the results are absolutely trackable. Yes, I wrote about marketing results, not estimations. This is a basic principle of Performance Marketing; Advertisers pay only when their specific and predefined actions (link-clicks, downloads, subscriptions, etc.) are achieved by their affiliates.
In addition to this, with advanced tracking and analytics, advertisers and marketers can break down the performance of their activities-down to the click or the call– and understand which of them are worth investing their budget further.
2. Reduce Risk
Almost every business owner and marketer has been at some point in doubt whether their marketing decisions were right or wrong, and if their money was well spent. But this is not the case with Performance Marketing. Since advertisers pay once an action is completed, they run a lower risk their budget is wasted in promotions that don’t bring back the desirable results.
3. Extend reach beyond your niche market
Think of your affiliates as a truck to reach new verticals and prospecting customers that in any other case would be left untapped. Because affiliates have their own, specific target audiences to market your products and in the second place, they know how to do it. Targeted messages that speak to the heart of the audience have increased possibilities to result in sales.
What is more, the benefit for the advertisers is twofold. Why is that? As they pay upon actions completed, they get free exposure and awareness for their brands, no matter if the target audience finally takes the desired action.
4. Diversify risk and revenues
In an ever-changing and competitive environment, it doesn’t seem a wise choice to put all your eggs in the same basket! I know, your current sales channels might be more than successful, delivering quality leads and loyal customers, but how can you be sure what lies ahead? If internal or external conditions change rapidly, will you still be able to count on those channels? Nobody can guarantee, neither do you. This is why many businesses around the globe are seeking to generate revenue streams from different sources so that they diversify the risk.
5. Incentives for extra creativity
Commission is an affiliate’s strongest incentive to deliver results for your business. That is to say, they are willing to experiment with new trends and try different approaches or techniques in order to maximize successful transactions for your own brand. In any other case, all these would require your valuable time and resources to get set up and run, but your affiliates have a strong motivation to take over instead of you. And they can get very creative!
To wrap up
Figures show that Performance Marketing has been enjoying an increase in popularity over time, with more and more brands investing their tight marketing budgets and businesses coming up with new methods and technologies to measure and optimize faster the results.
Performance Marketing serves as an opportunity to expand your reach to new niches and make consumers aware of your products, but without the risk of throwing away your money and gaining nothing in return. In any case, the only way to find out if Performance Marketing is a good fit for business is to experiment. Test different approaches, measure the results, and optimize your efforts. Good luck!
