What is Performance Marketing & Why Do Brands Need It?

As worldwide annual spending on digital marketing surpasses $325 billion, there are always new, creative, and alternative methods that companies are willing to trial in order to stand out from the crowd and see a significant ROI. Businesses are looking at new ideas and ways to embellish their marketing strategies to drive them forwards ahead of their competition. An increasing number of businesses are now implementing Performance Marketing as part of their marketing strategy.

Choosing the right marketing strategy for your business is key to successfully elevating your brand, attracting the right customers, and seeing results. Whilst every brand’s strategy will be different, what I have noticed consistently is the rise in Performance Marketing year-on-year, and as I continue to support Berlin-based brands grow through digital marketing talent acquisition, I have seen an increasing number of job vacancies for “Performance Marketers” and “Performance Marketing Managers”. But what is Performance Marketing and why are companies increasingly investing in it?

What is Performance Marketing?

Performance Marketing, as you may infer, is marketing based on performance. But it is also much more than this. It is an approach to digital marketing where businesses only pay when a desired and specific result, such as a click through or a sale, is achieved. This includes areas such as affiliate marketing, online advertising, and sponsored content. So why do businesses love it? Well, the client only ever pays to the extent that the campaign performs, and if it doesn’t perform at all, no payment is taken.
Whilst Performance Marketing is not risk free, it gives a lot of control and power to the company since no payment is required until outcomes have been met. Additionally, these types of campaigns tend to be more successful because they are highly targeted, and the marketers can optimise their content based on real data to ensure higher performance. Therefore, it’s obvious as to why businesses are opting to trial performance marketing as part of their overall strategy.

Who’s Involved in Performance Marketing?

There are four main groups involved in building and executing a performance marketing strategy, and it’s important to understand what they are, and what their roles are.

The Brand (also known as the retailer or merchandiser) is the company that is selling goods or services and who wants to see a specific result such as leads or conversions.

The Publisher (also known as the affiliate, marketer, or partner), is the person or company who strategies and techniques to promote the brand and accomplish its goals.

Networks and Platforms are third-party entities that connect brands and publishers, manage campaigns and payments, and track the performance of campaigns.

Outsources Programme Managers (OPMs) are the agencies that run full-service performance marketing campaigns for brands that don’t want to manage them in-house.

Examples of Performance Marketing

Social Media Marketing: brands can identify which social platforms their audience is most active on, and then use traffic drivers and highly targeted content to win business. Common metrics for social media marketers include engagement metrics (likes, shares and comments), mentions, follows, clicks, and sales, and it can utilise paid content and influencer marketing.

Display Ads: visual advertisements that display on websites that your target audience visits, which links through to a landing page where users may convert into leads or customers. These ads are tailored to users whose interests, demographics, or online activity match those of your target audience. Common metrics might be registrations and sales.

Native Advertising: ad content designed to blend into the medium it’s published on to that it doesn’t look like an ad. native ads can increase purchase intent by approximately 18% brand affinity by 9% compared to banner ads. Common metrics might be pay per impression or pay per click.

Sponsored Content: involves working with influencers and content curation sites, where they publish a post or article dedicated to advertising a brand, goods and services in exchange for payment in free products or money based on metrics. Common metrics include cost-per-click (CPC), cost-per-mile (CPM), or cost-per-action (CPA)-based compensation.

Affiliate Marketing: partnering with similar companies (not competitors) can be beneficial as you both leverage each other’s networks and audiences. This might involve partnering on a deal, or advertising on each other’s websites. As a basic example, a company selling exclusively pencils, might partner with a company selling exclusively erasers.

Search Engine Marketing: pay-per-click (PPC) or paid search advertising that uses native ads through sponsored search results to combine it with other types of marketing. Advertisers bid on keywords and pays for the clicks they get on ads posted on search engines like Google, Yahoo, and Bing.
These different channels of performance marketing don’t necessarily exist completely separate. In most cases a campaign will exhibit characteristics from multiple, or even all of the ideas explained above. Different companies will leverage different aspects of each.

Benefits of Performance Marketing

Real-time ROI & Metric Driven Marketing

Performance Marketing focuses on that all important ROI, so it naturally carries less risk. It ensures positive results for the goals or performance-related actions you set out to achieve by giving you access to real time performance metrics, meaning that you can adjust campaigns and budgets, or stop them altogether to avoid overpaying for underperforming campaigns. Every decision you make can be based on performance metrics, meaning you can pursue marketing ventures with the biggest ROI, with less risk.

Easy Analytics & KPI Targeting

Because Performance Marketing focuses on specific goals such as leads, sales, conversions, likes and so on, it makes it really easy to track and trace. Modern tools even often automate this process for you, so that analytics are ready for you to review and adjust campaigns as necessary. Your key performance indicators (KPIs) are also important, and whether your KPIs consist of your customer turnover rate or your percentage of sales from new clients, performance marketing allows you to target these metrics directly and easily track them.

Pay Only for Results

Rather than paying a fixed upfront cost for marketing, brands pay only when their desired goals have been achieved. This means campaigns that underperform have lower financial implications attached, because you’re only paying for successful goal completion. The visibility of metrics, means you can quickly change, amend, and stop campaigns, which would also save you money.

Flexibility of Revenue Streams

Due to the visibility and structure of how performance marketing works, brands can quickly pivot with the times, responding to new trends and new channels, therefore allowing them to diversify their revenue streams quickly, efficiently, and at low risk and cost.

Tap into New Markets

By leveraging aspects such as affiliate marketing, and sponsored content in particular you are able to leverage strong existing target audiences of similar companies and brands, allowing you to enter new markets and audiences, with very little difficulty. This increases your brand reach, and opens up more opportunities for sales and new customers.

Since Performance Marketing is paid after results are proven, the risks are naturally lower, the CPA (Cost Per Acquisition) often lower and the ROI usually higher, leaving room in the budget for other important marketing strategies or team growth.

Caution Points with Performance Marketing

Performance Marketing sounds great, and for many businesses it is. However, like everything, it is not risk free and there are things to be cautious around. The main three being:

• Vanity metrics: are your likes and shares really contributing to revenue, or do they just look good?

• Unpredictable costs: whilst you don’t pay upfront, you must keep an eye on campaign performance and compare it with revenue. Campaigns, if left unmonitored, can accumulate significant costs.

• Know your agency: if you are working with an external agency, make sure they are not just driving low-value results (e.g. vanity metrics). If you’re unsure around digital marketing, ask around and choose a reputable agency!

Summary

Performance Marketing seems like a great option for businesses who really want to drive ROI from their marketing efforts, as long as they have carefully selected meaningful KPI’s and goals rather than vanity metrics. It gives brands the opportunity to experiment with different channels, marketing strategies, and content ideas at relatively low risk, because ideas that essentially fail, won’t cost anything. It also becomes much easier to trace campaign performance and to decide which campaigns to push further, which to amend/optimise, and which ones to cancel, based on real time metrics.

Performance Marketing definitely gives marketers the flexibility to pivot from idea to idea, in order to keep a competitive edge.

I’m keen to hear from my network of Performance Marketers to see what their experiences (the good and the bad) with performance marketing has been, or to hear from companies looking at potentially investing in Performance Marketing. If you’d like to be featured in future content, contribute to our upcoming Marketing & Growth Top Tips feature, or discuss current role and partnership opportunities please get in touch at dan.flood@maxwellbond.de.