Performance marketing has many different definitions, but at its simplest, performance marketing is a strategy where the success of the campaign is judged by adherence to explicit metrics and goals defined by the client. Performance Marketing – a Step Further We go a step further, to define performance marketing as meeting and exceeding the clear KPIs that will drive specific, bottom-of-the-funnel results that will grow a client’s business. For example, our key metric to measure performance might be cost per acquisition at X dollars, generating an average order value above Y dollars, or increase completed conversions by Z percent. Generally, these are hard, provable metrics that measure product sales, customer conversions, or financial growth that align with positive business outcomes and scalable growth.
Do the MathWe look at long-term growth for our clients along with short-term campaign outputs. To that end, it all comes down to the math. The right strategy should include the ability to model out every aspect of the campaign and the metrics therein that ladder up to the key KPI — and the math must make sense. A series of equations, informed by past and present category data and audience behavior, will inform us if the campaign will work. For (a very simplified) example, if the:
- CPM is value A;
- Average click-through rate is B;
- Average first-visit conversion is value C;
- Cost of Goods is value D;
- Offer configuration yields an average order value of E;
- Repeat purchases happen on average every 5 months; and
- Seasonality is weighted with 75% of sales in Q2 and Q3,
Vanity Metrics and Performance MarketingBe cautious about vanity metrics that are often touted as performance marketing, or as “guarantees” of performance. Usually, these guarantees are centered on soft metrics that are not real signifiers of successful business outcomes. For example, if someone “guarantees” 1M impressions with X budget, they can simply buy cheap media at bottom of the barrel CPMs to hit the impressions metric, but that does nothing to drive the business forward. Another “guarantee” might be driving 100,000 leads to a site because the client thinks lead volume will generate conversions. Well, they may well drive 100,000 leads to the site within the budget, but the leads will not convert, because again, the agency strategy was to drive a number of leads, but not necessarily qualified leads that will convert. As you can see, these types of guarantees of performance are built upon a shaky foundation of soft metrics that although easily achievable, might not be aligned with the actual growth of the business.
Other Types of Performance MarketingVarious other tactics can all be captured under the umbrella of performance marketing. For example, affiliate marketing, where an affiliate is paid only if their referral results in a sale of the product. There are also performance marketing tactics where an advertiser pays on a “per inquiry” basis, meaning if an agency delivers a qualified lead in the form of a phone call or site visit, then the agency gets paid for that “inquiry”. While these tactics are acceptable to utilize for tepid growth, they are rarely scalable or repeatable, and will not provide actionable, dependable short- and long-term growth.
Benefits of Performance MarketingSome of the key benefits of performance marketing include:
- Accountability. Performance marketing allows a company to measure the effectiveness of advertising in a provable, accountable way.
- Speed. Performance marketing allows the company to react quickly to the indicators of the advertising campaign, practically in real time.
- Efficiency. By carefully predicting results based on knowable and retrievable data, the campaign is an efficient investment, with a target ROI, instead of advertising spend that hopes for good results.