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Getting Started with Performance Marketing: A Guide for Brands
For most of modern history, the amount of money a company would pay for an advertising campaign was completely independent of the results it provided. If you were a business in the 1980s, for example, you’d pay upfront for a commercial on a TV channel or an ad on a billboard and pray that you’d see a return on investment.
This was the status quo of marketing for decades, and it led to billions of dollars wasted on unsuccessful campaigns. To make things worse: businesses had no way to tell which parts of their ads were working and which weren’t, dooming them to mindlessly spend money and hoping something hits.
Enter performance marketing: a paradigm shift in the advertising industry made possible by recent technological innovations. Nowadays, businesses can measure every aspect of their advertising campaigns and analyze that data to see which campaigns work, which don’t, and how they can improve their existing advertising efforts.
Every business stands to benefit from performance marketing, but for many, it can seem daunting to dive into such a quantitative field. In this guide, we’re going to provide you with an overview of the performance marketing landscape: how it works, how it compares to traditional marketing, and what different options are out there. Finally, we’ll give you some advice on how to get your feet wet with your own performance-based marketing campaigns.
What is performance marketing?
Performance marketing is a marketing and advertising practice in which advertisers are paid only when a specific action is completed. This saves brands money as they don’t have to pay for ineffective marketing campaigns that don’t perform. When a brand employs a performance-based advertising strategy, they’re only spending money when a potential customer completes the action the brand specified.
So, what actions might a brand pay for? A musician, for example, might run a campaign to get social media users to follow him on Instagram. For every person that clicks the follow link, the musician will pay a fee. Alternatively, a financial asset management company may want to expand their client base. They might run a campaign with the goal of growing their email list. For every person that signs up for their list, they’ll pay a small amount.
Depending on your campaign objective and channel of choice, there will be a bidding algorithm. This bidding algorithm will look most commonly at your daily budget, your target audience, how much your competitors are willing to spend on that same audience, and how likely the user is to complete your objective. Based on these factors, your budget will be spent getting your ads in front of people. You then use the metrics to analyze the progress over time, growth (actions completed), and campaign parameters you have set (How audience size/targeting options affect your KPI’s).
Performance marketing vs. traditional advertising
In the past, the amount of money you paid for advertising was only slightly related to its performance. Sure, paying a high-end marketing firm to construct an ad and get it placed would give you a better chance of achieving results, but this approach wasn’t data-driven. That is to say that although you’d be paying for an increased probability of getting results, you’d never pay for results directly.
Performance and data-driven marketing changes all that. These new marketing methods are entirely about results: if the actions you want to be completed aren’t carried out by your target audience, you simply don’t pay. Furthermore, performance marketers run in-depth analytics on all their campaigns to determine which parts appear to be converting the best.
What types of analytics can be used? Brands running an email campaign, for example, could look at click heatmaps to see where their audience is clicking. If they notice that more people are clicking on photos than on text, they may focus their next campaign around images to build off the aspects they determined were most successful in their last campaign.
This type of insight was completely absent from marketing efforts of the past. The most advertisers could do was run focus groups or do some split-testing in which they’d run a few campaigns and see which led to more sales. However, they couldn’t tell why one campaign was outperforming or underperforming — at least not precisely. If they noticed an advertisement with a cute animal and a celebrity was doing very well, they didn’t have any way of determining whether it was the animal, the celebrity, or the combination of the two that was increasing conversions. They’d have to simply cross their fingers, run another campaign based on one of those themes, and hope for the best.
With performance marketing, brands have more control. They decide what they want to achieve with each campaign, and they can analyze the performance themselves or employ the help of a performance marketing agency. No matter how they analyze their results, they will always get better insights than they would with a traditional marketing strategy.
Types of Performance Marketing
When deciding to get into performance-based and data-driven marketing, you’ll need to know about the most common pricing models:
PPL (Pay Per Lead)
PPL stands for pay per lead and means that the marketer will only pay when a new lead is acquired. In most cases, this takes the form of someone in their target audience signing up for the brand’s email list, inputting their phone number, or completing a similar action. The end goal is that the brand has more leads when the campaign finishes.
Let’s imagine the type of scenario in which you’d want to run a PPL campaign. Say that you’re a real estate agent who wants more clients. You might decide to run a referral marketing campaign with a few real estate blogs in your area. Since you’re running the campaign on a PPL basis, you only pay when someone inputs their email address.
CPC (Cost Per Click)
CPC means cost per click. In this case, brands only pay when someone clicks on their ad. YouTube is famous for employing this advertising model: channels can choose to have CPC ads placed during their videos or on their page. Each time someone clicks an ad, the YouTuber makes money, and the business advertising pays. Adsense is another example of this model: Google places ads on websites, and each time someone clicks an ad, the hosting website gets paid and the advertising business foots the bill.
The above ad may be using a CPC pricing model. CPC ads are often seen as banners. Imagine a protein powder brand named ProGain that wants to increase their sales. They may place their ads on a fitness blog and pay on a CPC basis. Since visitors to a fitness blog are likely interested in protein powders and have a high probability of converting after clicking on an ad, ProGain is willing to pay for each click. Each time someone clicks their ad, ProGain is charged a fee.
CPM (Cost Per Mille)
Although the name sounds somewhat archaic, CPM advertising is pretty straightforward: businesses pay a set amount for every thousand views or impressions on their ad. This strategy is a bit more like traditional marketing in that there’s no specific action the brand is hoping a user will perform. Instead, brands that use this pricing model simply want to get their name out there and increase awareness in hopes that it will lead to conversions. Below you can see an example of an ad that may be employing a CPM pricing model.
This type of pricing model works well for products that can’t exactly be sold, per se. For example, if a cable TV channel wants to promote a new show, their best option is to let people know when the show will be airing and what channel they can watch it on — there’s no specific “click here to watch” or “sign up now” action they can take. Because of this, they’ll pay for every person that merely sees their ad in hopes that a fair number of those people will tune in later on.
CPS (Cost Per Sale)
In many ways, this is the gold standard of performance marketing. As such, these types of ads are fairly expensive. A cost per sale pricing model means that a business will only make a payment when someone actually purchases something from their site. CPS is very popular among ecommerce brands for this reason.
The cases in which a business would want to use a CPS strategy are self-evident. If you run a shoe business and want to sell more sneakers, it would be a good idea to only pay for advertising when someone actually makes a purchase. You’d set up an ad, run it on an advertising channel, and each time someone buys something from your site, you make a payment.
CPE (Cost Per Engagement)
When a business runs a CPE ad, it means that they’ll only be charged when someone engages with their advertisement in some way. In most cases, this means a user hovering over the ad for a few seconds or expanding a lightbox for more information. It’s sort of a hybrid between CPL and CPC advertising as businesses are usually hoping the user will enter some information upon engagement.
CPE advertising can be useful for the same reasons as CPL marketing. If a financial planner wants to increase her client base, she may run a CPE ad that offers people a free financial planning guide in exchange for their email. Each time someone expands the ad, she gets charged a set amount.
Where to start with Performance Marketing
Now that you understand the basic types and pricing models behind performance marketing, it’s time to get your feet wet with your first campaign.
Here’s what you’ll need to keep in mind:
1. Set clear goals
Without a clear goal in mind, any marketing campaign is bound to fail. Before beginning your campaign, decide whether you want to:
- Increase web traffic
- Acquire new leads
- Increase engagement
- Increase sales
- Encourage repeat visits
- Any other specific and measurable goal
Once you have your goals set out, you can decide which pricing you want to use. If your goal is to increase traffic to your site, CPC may work well for you. However, if you want to generate new leads, CPL would probably be a better fit.
Come up with some performance stats that you’d like to hit. This could be based on previous campaigns you’ve run. For example, if your last campaign had a conversion rate of 0.5%, you may want to set 1% as your goal. Once the campaign is over, you can use analytics tools to determine what made it perform as expected, exceed your expectations, or fall short of what you’d hoped.
2. Decide what type of campaign to run
Figure out how you want viewers to see your ads. Do you want them to pop up in their newsfeeds, or do you want them to appear as a banner on a popular website? There are a few different types of campaigns:
- Native Advertising: This type of campaign helps your ads fit in better with their surroundings. For example, if you’re running a native advertising campaign on a news site, you would make your ads look like any other article on the site. CPC pricing is commonly used for this type of campaign.
- Search Engine Marketing (SEM): SEM is a paid advertising model that employs a CPC or CPM campaign. Brands make their ads appear for certain search terms and pay each time a user sees or clicks on them.
- Display: When you see a banner on your favorite site, this is a display ad. This type of campaign generally uses a CPC or CPM pricing model.
- Social media: If you want your ads to show up when your target audience is scrolling through their newsfeeds, this is the type of campaign you want. Facebook will place ads using either CPM, CPC, or CPL pricing models. Most platforms will use either CPM or CPC.
3. Plan and organize your campaign
Decide when you want to start your campaign, how long you want to run it for, on what sites you want to advertise, and what your budget is. At this stage, you’ll want to design the ads you’re planning to run and determine what filters you’ll use to reach your target audience. Of course, if you haven’t already, this is the time to determine your target audience.
Discuss all aspects of the campaign with your team: who will analyze the data as it comes in? Who will respond to comments? Prepare for any potential pitfalls.
4. Execute your campaign
You shouldn’t just sit back and relax once your campaign goes live. Data will be generated the moment it begins, so you’ll want to evaluate it on a regular basis. If you notice things are going far worse than expected, you may want to take the campaign offline sooner than planned to save money and re-evaluate your strategy.
Conversely, if you notice that one channel is outperforming the others, you should consider taking the poorly performing ads offline and refocusing your budget on the ones that are doing well.
5. Measure your results and look to the future
Results should be measured both during the campaign and after it ends. Most advertising platforms will have analytics tools that you can use to measure your campaign’s performance. Once it’s finished, pore over the data and see what worked as expected, and what didn’t.
For example, if you noticed that you got better results at a certain time each day, consider only running your next campaign at that time. Consider doing some split-testing — the process of running two slightly different ads at the same time and seeing which performs better — to make strategic decisions for your next campaign.
Your first campaign is unlikely to be a success, but that’s ok. No one starts out as a pro, and we all learn from our mistakes. The most important thing is to get out there and give things a try so you can start learning from experience — there’s no better way to learn!
Now that you’ve got a basic understanding of performance marketing, it’s time to get out there and run some ads!
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