Why we care about performance marketing
What you need to know about what performance marketing can and can't do.
Performance marketing refers to a variety of online advertising programs where parties are paid when a specific action is completed. It’s often associated with pay-per-click (PPC) models on search engines (where advertisers pay for clicks versus impressions). However, it isn’t limited to that, encompassing any marketing approach that’s tied to a specific action.
In addition to the traditional affiliate relationships with publishers, performance marketing opportunities now include influencers on social media, ecommerce-focused web destinations and creators all across the digital landscape. Tech platforms help broker these relationships by setting and measuring specific goals and compensation that help deliver results from the third-party publisher, creator or influencer back to the brand.
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It can be a powerful tool for marketers since it allows you to track and optimize campaigns in real-time based on measurable actions. It can help with the ROI of your marketing budget by providing data and insight about how, when, and where to allocate your spend.
Even so, performance marketing remains vulnerable to fraud from bots and other malicious actors. Marketers need to be vigilant and skeptical about the data they’re seeing to avoid paying for actions that aren’t real.
There are many tools and software solutions that facilitate the planning, launch, tracking and optimization of performance marketing campaigns. These tools range from simple website tracking tools to more sophisticated platforms that offer a complete suite of performance marketing capabilities. In this post we’ll cover:
- What is performance marketing?
- Types of performance marketing models.
- Why marketers should care.
- How reliable is it?
- Who uses or works with performance marketing tools?
- What types of tools or software enable performance marketing?
- How performance marketing can help marketers succeed
- What’s next for performance marketing
- Additional reading.
Estimated reading time: 10 minutes
What is performance marketing?
Performance marketing is any online marketing activity that can be tracked and attributed to a specific action or result.
It encompasses any digital marketing tactic that can be tied to a measurable action – influencer, video, affiliate, search, and content marketing are all fair game in the performance marketing ecosystem.
There are three main types of performance marketing payment models:
- Percent of sale – The advertiser pays a commission on each sale generated.
- Leads – The advertiser pays a fixed amount for each lead generated.
- New customers – The advertiser pays a fixed amount for each new customer acquired.
There are also hybrid performance marketing models that encompass multiple payment types. For example, an advertiser might pay a lead generation fee plus a percent of sale commission to their performance marketing partner.
It’s important to note that performance-based marketing tactics like paid search, where advertisers only pay when a user clicks on an ad, is not performance marketing. While PPC/CPC campaigns focus on an action (the ad click), they don’t necessarily lead to a performance-based outcome like a sale or sign-up.
Why marketers should care about performance marketing
Performance marketing opportunities have opened up beyond traditional affiliate relationships with publishers to include influencers on social media, ecommerce focused web destinations and creators all across the digital landscape.
Tech platforms help broker these relationships by setting and measuring specific goals and compensation that help deliver results from the third-party publisher, creator or influencer back to the brand.
How reliable is it?
It’s impossible to talk about digital advertising (the machine that drives performance marketing) without addressing the $68 billion dollar elephant in the room—ad fraud.
Globally, digital ad fraud will cost companies nearly $70 billion this year, with $23 billion lost by U.S. companies alone. That will amount to about $100 million per day by 2024.
A (short) list of why ad fraud happens:
- Bots simulate real user traffic on websites or apps to generate ad impressions.
- Invalid traffic is generated by humans who click on ads to deplete their competitors’ budgets, or are paid to click/view ads (click farms).
- Fake websites (with fake traffic) are created to inflate impressions for programmatic ad buys.
- Domain spoofing imitates a premium website (e.g., the New York Times) to sell fake ad inventory.
- Cookie stuffing which uses affiliate tracking cookies placed on a user’s device to track a purchase on a site like Amazon (thus stealing the commission from a legitimate affiliate).
- Ads are stacked and the same inventory is sold multiple times – technically the impressions are real, but web visitors only see the ad on top of the stack
- App install fraud occurs when a bot generates fake app installations or a user is incentivized to install an app and then quickly uninstall it
Since performance marketing campaigns look at actions (sales, conversions, leads) rather than superficial metrics (views, clicks, impressions) it’s theoretically a better approach.
Even so, the scale of click fraud is so massive it inevitably impacts the amount you’ll pay for your desired action. The cost of digital ads is increasing – up 11% in the first quarter of 2022 versus the previous year with no noticeable improvement in performance.
That makes it more expensive for your affiliates and partners to buy digital ads and increases the cost per action (CPA) for you.
Another issue: while faking sales is difficult, faking certain actions isn’t, particularly on mobile devices. Bots can simulate real user downloads and app installs, click on links and fake in-app events.
The best way to ensure that your performance marketing campaign is, in fact, performing is to monitor the quality (and validity) of the actions you’re paying for. For example, you can use a lead verification tool like LetsVerify to ensure that the leads you’re paying for are real people who have been contacted and are interested in what you’re selling.
It’s also worthwhile to monitor your CPA along with lead quality and/or sales volume. If your CPA is going up (or suddenly spikes), this can be a sign that you’re being targeted by fraudsters.
Who uses or works with performance marketing tools?
Performance marketing is a very specific and data-driven — and digital — approach to generating results, so it tends to fall within the purview of digital marketing teams.
That said, regardless of where performance marketing sits within an organization’s marketing ecosystem, many people/departments use its tools and strategies.
Here are some ways different groups use performance marketing technologies:
- Marketers plan, execute and measure performance-based campaigns.
- Publishers track performance and get paid for results.
- Influencers find opportunities, set goals and measure performance.
- Advertisers find publishers and influencers to work with, set performance-based goals and track results.
- Business growth leaders identify and track opportunities for growth.
- Agencies find and work with publishers and influencers on performance-based campaigns.
What types of tools or software enable performance marketing?
Tech tools in the performance marketing space span from tracking and attribution to influencer and affiliate management. They also include features for identifying and reaching out to influencers, publishers, and partners.
The types of performance marketing tools include:
- Partner software: This helps brands find, connect and manage relationships with performance-based partners like publishers, influencers and affiliates. Tools like PartnerStack and Everflow enable businesses to manage influencers and referral partners (e.g., consultants, agencies, customers), track their performance and get paid for results.
- Referral/affiliate software: This allows marketers to manage affiliate programs and partners with features that enable commission payments, program launch and marketing automation (e.g., emails, social media, paid search, etc.) Tools like LeadDyno and OmniStar Affiliate fit within this category. They also help with recruitment, SEO and tracking/reporting.
- Influencer management software: Influencer management software helps brands identify, manage and track relationships with influencers. Tools like Grin (for eCommerce businesses) and Upfluence help with influencer discovery and outreach, performance tracking, campaign management and payments.
- Marketing attribution software: Businesses can use this to attribute results to specific marketing activities using marketing analytics and data. Attribution tools also help marketers understand which activities are driving the most ROI. Tools like Google Analytics and MixPanel focus on website analytics while campaign-specific tools like Sprinklr and Pointillist measure customer journey analytics across all digital marketing channels.
There’s a lot of crossover with features and functionality among these types of tools. So it’s important to choose a performance marketing platform that offers features specific to your needs and easily integrates with your tech stack.
How performance marketing can help marketers succeed
Performance marketing can be a very effective way for marketers to drive results and grow their business. Instead of paying upfront for advertising programs and inventory that may not produce results, performance-based campaigns are a low-risk way to test and measure what’s working (and what’s not.)
In addition, performance marketing allows you to effectively allocate your marketing budget by only paying for results. This can help stretch the marketing budget further and ensure that every dollar is working as hard as possible to drive ROI.
Key benefits include:
- Trackability: Performance marketing provides marketers with data and insights that can be used to continually optimize campaigns and improve results. Campaigns are tied to specific transactions and KPIs, so performance can be tracked and reported at a granular level.
- Diversification: You have the capacity to expand your reach beyond traditional sales channels and revenue streams. It gets your partners and affiliates involved in the success of your business, which can lead to long-term relationships. It also helps you reach new audiences and niche markets in organically discoverable ways (e.g., when an influencer promotes your brand or product to their followers).
- Efficiency: It is a low-risk way to grow your business. You only pay for results (e.g., a sale, sign-up, etc.), so there’s no wasted spend on inventory or ad placements that don’t produce results.
- Creativity: Working with partners, performance marketers can develop unique campaigns and content that resonates with their specific niche audiences. This means you capitalize on new trends, technologies, and channels as they emerge.
What’s next for performance marketing
There are several digital marketing trends converging right now that are impacting the efficiency and ROI of standard CPM and CPC/PPC-based digital marketing programs.
- Digital ad fatigue: The average person is exposed to between 6000 and 10,000 ads a day. This is fueling an ad avoidance phenomenon among internet users. Most consumers are proactively avoiding advertising with ad blockers, ad skipping and the consumption of ad-free media. According to Blockthrough, an adblock recovery platform, 81% of people who use ad blockers in the U.S. do so to avoid annoying or intrusive ads.
- Increased competition: There’s a marked increase in advertiser competition online, as the number of brands and businesses competing for consumer attention continues to grow. Two-thirds of global ad spending will be digital in 2022. According to eMarketer, spend is expected to exceed $867 billion by 2026.
- Data and privacy issues: Consumer concerns about how companies use their data, combined with an increased need to comply with privacy laws like GDPR and CCPA, are impacting the effectiveness of digital marketing campaigns. Consumers are increasingly aware of their data being collected and used and less willing to click on ads or give up personal information.
- The death of cookies: With the demise of third-party cookies on browsers like Safari, Firefox, and (very soon) Chrome, digital marketers will need new ways to target audiences and track campaigns. This has marketers relying on first-party data and server-side tracking, or the use of alternative tracking methods like unique identifiers that are privacy compliant.
Performance marketing, which focuses on quality over quantity, enables marketers to develop unique campaigns on emerging digital channels which tend to resonate more with digital audiences. Since they’re tied to actual results (e.g., sales, revenue and leads), they also deliver a higher ROI.
These campaigns can also garner a wide reach in terms of impressions, clicks, and views since performance marketing partners use a variety of tactics, including reaching out to their existing networks.
As a result, performance marketing is poised to continue growing in popularity among marketers looking to drive real results from their digital marketing programs.
Want to learn more about performance marketing’s capabilities and applications across the digital landscape? Here are some resources to help you improve your practices:
- Why marketing attribution is both a challenge and a necessity: While some are skeptical about the attribution narratives derived from touchpoint data, others insist that measuring marketing is a must.
- A new way to navigate agile marketing: Not all companies can afford a coach, but even small companies can benefit from agile marketing.
- Technology and brain science can drive performance: Harness the full potential of your martech solution by triggering brain responses.
Opinions expressed in this article are those of the guest author and not necessarily MarTech. Staff authors are listed here.