Performance marketing, also known as performance-based advertising or performance-driven marketing, is a form of marketing in which the marketing or advertising agency is compensated based on measurable results. This fee for results model has become very common, as ad clicks, e-commerce sales, customer acquisition, and B2B leads are increasingly measurable online. Performance marketing is not to be confused with affiliate marketing. While affiliate marketing is a type of performance marketing, supplying a code to a retailer or publisher and collecting on each new customer or sale they deliver is significantly different from the holistic set of services a digital marketing agency delivers.
Performance marketing services may include PPC advertising, banner ads, native advertising, sponsored content, search engine marketing, SEO, website development, social media marketing, display advertising, content writing, and much more.
How are performance marketing agencies compensated?
Since the beginning of advertising, most ad agencies worked on the pay for services model: The client paid the agency by the hour or a big fat retainer for creative services plus the cost of broadcast, print, and/or digital media. Conversely, the performance marketing model is based on measurable results and agencies are compensated based on cost-per-lead (CPL) or cost-per-acquisition (CPA) metrics such as:
- ad clicks;
- ad impressions;
- a percentage of sales generated by their marketing;
- by the lead;
- by the registration;
- for every new customer;
- for every product review;
- for every new social media follower;
- for every video view;
- for every email newsletter signup;
- for every product demo;
- Or combinations of these.
The performance model has significantly upset the traditional value proposition for marketing agencies as it allows for real-time measurement of advertising budget ROI. Performance marketing is especially attractive to small and medium sized businesses, who have limited staff, limited budget, and may lack in-house marketing expertise. The financial risk falls to the advertising or marketing agency to produce leads or sales and ensure that the advertising is properly targeted to generate results.
How is my advertising budget ROI measured in real time?
A wealth of tools are available to measure advertising results – some require a subscription and some are free. The miracle of the internet is that as you move between web pages and perform actions, those actions are captured (the measurement tools do not capture personal information). And that’s how an advertising budget ROI is measured. Agencies can monitor how many clicks an ad receives, how many sales take place on an ecommerce site, how many lead forms are submitted, how many phone calls are generated, how many videos are streamed, how many new social media followers you have, which keywords users clicked to find your website and much more. This allows for the opportunity to change marketing tactics if they aren’t working or to increase the velocity of those that are.
The importance of quality content in performance marketing
Performance marketing is directly affected by the quality of the content and the client’s offer or value proposition. Off-target advertising, poor landing pages, content created without keyword research, or an offer which doesn’t excite all may contribute to less than stellar results. The basic building blocks of marketing and understanding your customer are important whether you engage in performance marketing or traditional marketing.
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