There are tons of articles you can read on performance marketing. I also read many of them to understand what performance marketing is. Unfortunately, I found only definitions that are disgusting and not understandable. Also, Wikipedia needs clarification on performance marketing and affiliate marketing.
Hence, I decided to learn performance marketing within a context or action. Here I’m writing my understanding of performance marketing, and I hope you will also be able to appreciate it.
What is Performance Marketing Exactly?
Performance Marketing is a contract between companies and advertisers. In this contract, companies only pay to advertise when certain conditions meet or action is taken, like a contact form filled out, getting a call, and purchasing a product.
Let me explain in my own way!
After the internet’s invention, It was easy to track any action or activity taken by internet users on digital platforms like websites, displays, videos, and search ads. So, brands & companies decided to spend money in a hierarchy. Brands only pay the marketing service provider when their goal and expectation are fulfilled.
For example, I am the manager of a financial firm. I aim to get sales leads and convert them into potential customers, but I have a budget of around $10 per lead. I would tell the marketing team (Outsourcing) that I have a fixed budget of 10 $ per lead for the sales lead of the campaign.
If CPL crosses 10$, then whatever extra cost is not my concern.
How Does Performance Marketing Work?
Generally, performance marketing works on these 5 pillars, also known as the performance marketing pricing model.
Advertisers place their ads on a given channel (see more on the top-performing marketing channels below) and then get paid based on their campaign performance. There are a few different ways to get paid when it comes to performance marketing:
1. Cost Per Click (CPC)
Advertisers pay based on the number of times their ad is clicked on. That is an excellent way to drive traffic to your site.
2. Cost Per Impression (CPM)
Impressions are essentially views of your ad. With CPM, you pay for every thousand pictures (so if 25,000 people view your ad, you’d spend your base rate times 25).
3. Cost Per Sale (CPS)
With CPS, you only pay when you make a sale driven (conversion) by an ad. This system is also commonly used in affiliate marketing.
4. Cost Per Lead (CPL)
Much like cost per sale, with CPL, you pay when a person signs up for something, like an email newsletter or webinar. CPL generates leads, so you can follow up with customers and drive sales.
5. Cost Per Acquisition (CPA)
Cost per acquisition is similar to CPL and CPS but is more general. With this structure, advertisers pay when consumers complete a specific action (which could include making a sale, sharing their contact information, visiting your blog, etc.).
Types of performance marketing
Perhaps there are many types of performance marketing, but I only know these 6 types. Because these are trackable and measurable.
1. Native advertising.
This is a form of paid media that doesn’t look like ads, unlike display ads or banner ads.
Native ads follow the natural form and function of the site they’re on — such as news or social sites. Instead, they fit “natively” on the page and can be fed dynamically based on each user viewing the content.
The most common payment models for native advertising are CPM (pay per impression) and CPC (cost per click).
2. Affiliate marketing.
As explained above, affiliate marketing is any digital marketing affiliated with the advertiser and paid out after the desired action takes place. This often involves partnering with coupon, loyalty, review, and incentive sites or working with an influencer, YouTuber, or blogger.
3. Social media marketing.
This form of performance marketing uses social media networks to gain traffic and brand awareness, such as digital content showcased on Facebook, LinkedIn, or Instagram.
Using various ad formats and targeting options, merchants can reach potential clients while measuring KPIs such as engagement, clickthrough rate (CTR), CCP, and ROI.
4. Sponsored content.
A form of native advertising and content marketing, sponsored content involves including a dedicated post or video on a website that publishes similar content. This way, the sponsored content will blend in with the rest of the content but include some indication that it’s sponsored.
Sometimes the compensation will be in the form of a free product or an experience, while other times, it is a CPA-, CPM- or CPC-based payout.
5. Paid search marketing.
Paid search marketing is when an advertiser pays for clicks to sponsored ads on search engines such as Google Ads, Bing, and Yahoo. Or, less commonly, an advertiser may pay each time their ad is displayed (CPM).
6. Search Engine Optimization (SEO).
Unlike paid search marketing, organic search uses unpaid methods such as search engine optimization (SEO) and relies on the search engine’s algorithm to rank at the top.
Some companies may measure their organic search results on a performance basis, while others may partner and pay out commissions to SEM companies and campaigns based on results.