Performance marketing - what you need to know before you start

The internet has forever changed the way consumers search for and buy products. Needless to say, because of this, the way companies advertise and sell has also completely changed. Today, marketers have the ability to collect campaign data 24/7 and measure results on an ongoing basis. In the past, attribution, i.e. assigning a share of user conversions to each channel used in a campaign, was almost impossible. Today, data transparency allows marketers to optimise their campaigns to achieve even better results. This is what performance marketing is. Read on to find out exactly how it works, what advantages it has and what goals can be achieved with it.

What is performance marketing and what is its advantage?

Performance marketing, i.e. performance marketing is the term used to refer to online marketing campaigns in which advertisers pay for results, such as clicks or conversions. This is the most important premise of performance marketing, so it is worth repeating again: the advertiser pays for the action performed by the user, i.e. the effect, and not, for example, per display.

Unlike traditional and organic, performance marketing is used to drive specific actions, track them and measure results. The advertiser specifies an action and then pays when that action is completed - whether it is sales, gaining leads or clicks.

The primary advantage that performance marketing has over standard campaigns is that it puts the power in the hands of advertisers. Because they only pay if the objectives are met, they achieve three things:

• have a guaranteed return on investment (ROI)

• their advertising campaigns involve less risk

• have greater control over expenditure

The most common performance marketing objectives

No marketing activity will be effective if it does not have a defined objective. It is the objective that needs to be defined before any campaign - including performance marketing - is planned. It should be noted that the desired action that the advertiser wants performance marketing to induce is not always to make a purchase. It could just as well be:

• completion of the form

• registration

• enrolment in newsletter

• completion of the questionnaire

• acquisition of a lead

• downloading the e-book

• liking/watching your social media profile

• transition to landing page

Advantages of performance marketing

Performance marketing is a result-oriented process. Read about its key benefits.

Measurability and transparency

The possibility of checking the effects of each action and evaluating them on the basis of specific numerical indicators is the greatest advantage of performance marketing. In this way, the advertiser knows which tools are most effective in achieving the objective and can focus on these. Also thanks to transparency, i.e. a transparent billing model and access to reports, the advertiser knows what he is gaining and how much he is paying for it.

Maximising profits

From the aforementioned measurability, another advantage arises, that of maximising profits and saving money. The advertiser knows which activities work and which do not, and therefore will no longer spend resources on the latter. In the long term, this means very significant savings. In the nutshell, in performance marketing the advertiser maximises profits without increasing the advertising budget.

Flexibility

Depending on various factors, changes can be made to the intensity of the activities carried out or to their objectives. These factors include seasonal changes in the market or changes in company policy.

Diversification opportunities

The fact that performance marketing works across different customer acquisition channels makes it a safe solution for advertisers. It does not make success dependent on a single source of traffic, which is why it is valued by companies that care about stable growth.

How do you measure the effectiveness of performance marketing?

The defining element of performance marketing is ROI, or return on investment. Each action and activity is measured, reported and analysed in terms of predefined KPIs, i.e. key performance indicators. In this way, campaigns can be understood and optimised.

Here are some of the key indicators commonly used in performance marketing.

CPC - cost per click

The cost per click, i.e. CPCis the price for each time a user clicks on an advertisement. CPC is a better engagement indicator than CPM because the viewer has taken action and actually clicked the ad. A higher CPC usually also means a higher conversion rate.

CPM - cost per mille

This is the cost that the advertiser pays per 1,000 impressions of digital advertising. CPM does not measure actions taken by viewers. Performance marketers are focusing less and less on CPMs and more and more on action-based metrics.

CPA - cost per action

This indicator measures the effectiveness of the campaign according to a specific actionto be taken by the target group. In performance marketing, the action taken by potential customers is the most important tangible and measurable result. Therefore, CPA is one of the most important and popular indicators.

CPS - cost per sale

Indicator to determine cost per sale, i.e. one that only accrues once the recipient has passed through the entire sales funnel.

CPO - cost per order

Cost per order. Similar model to CPS, but you pay for the mere fact of placing an order. And yet this does not necessarily equate to a sale.

CPL - cost per lead

It's the cost of a lead, i.e. a contact to a potential customer. With contact details usually in the form of name, surname, email address and telephone number, it is possible, for example, to make an offer to a person.

LTV - lifetime value

So-called "lifetime customer value" estimates the expected expenditure of acquired customers based on their current activities. It uses advanced methods such as predictive analytics.

Desired audience action - guaranteed!

You may have already used performance marketing tools in your activities without even knowing it. One example is social media advertising. The platforms allow you to optimise and measure the effectiveness of your campaigns - albeit to varying degrees. Now that you know more about performance marketing, you can start applying it consciously. As a result, your campaigns will achieve higher conversion rates. Keep in mind, however, that performance marketing is not the optimal tool for building brand image or creating relationships with potential and existing customers. It is primarily used to get them to take action.