What Is Performance Marketing & How It Works

Final: What Is Performance Marketing & How It Works

Performance marketing focuses on generating measurable results, unlike traditional marketing, which concentrates on brand awareness and impressions.

In this article, we answer the question: what is performance marketing? You’ll also learn its importance and how to measure and calculate your ROI.

Key Highlights

Performance marketing focuses on driving specific actions, like sales, clicks, or leads, and you pay for campaigns based on their performance
When conducting performance-based marketing, you must track your KPIs, set benchmarks, monitor your results, and use the information to adjust your strategy
There are various types of performance marketing, and the one used depends on what you want to achieve with your campaign
Before starting a performance marketing campaign, define and understand your target audience. Doing so lets you create relevant and engaging ads.
Creating an effective performance marketing campaign requires setting clear goals, identifying your target audience, and having a compelling message

What Is Performance Marketing, and Why Is It Important?

If you’ve never heard of it, you might wonder: what is performance marketing? Performance marketing is a form of online marketing that generates measurable results. It is a part of digital marketing that allows you to pay only for campaigns that perform.

Put simply, performance marketing involves paying only for digital marketing services based on goals reached and actions performed. The plans or activities could be making a purchase, clicking a link or ad, signing up for a newsletter, downloading an app, etc. What’s important is that the goal or action is measurable and can be traced to the marketing campaign.

So, unlike traditional campaigns, where you pay for ads regardless of their performance, with performance marketing, you only pay for the result you get. Also, brands love performance marketing because it targets specific audiences and is highly scalable.

Over 60% of marketers measure the success of their content marketing strategy through sales.

Source: Hubspot.com

How to Measure Performance and Calculate ROI

When conducting a performance marketing campaign, you must measure its performance and calculate your return on investment (ROI). Below are ways of measuring performance and calculating ROI.

Define Your KPIs

KPI stands for Key Performance Indicator, a vital metric for measuring performance marketing effectiveness. It is a specific, numerical marketing metric that measures the progress of a particular goal. Depending on your goals, your KPI may be sales, leads, clicks, number of website visitors, etc. Also, ensure the KPI is specific, measurable, and tailored to meet your objective.

Set Benchmarks

Once you’ve defined your KPI, the next thing is setting benchmarks for each. So, if your KPI is to get clicks, your benchmark might be 200 weekly clicks. When setting benchmarks, determine what you need to measure and what your competitors are doing, and communicate targets based on researched benchmarks. This helps you compare how your goals perform and make the necessary adjustment.

Track Your Results

You must also track your results using KPIs and benchmarks. When you regularly monitor your key performance indicators, you can track changes or trends. This will help you identify improvement areas and adjust your performance marketing campaign.

Adjust Your Strategy

At this point, you must gather your performance data and calculate your ROI. The information will show you aspects of your campaign that need adjustments and how to improve your results. To get better results, you may have to test different ad copies, adjust your targeting, or optimize your landing pages to speed up your site. Google Analytics is an excellent tool for tracking the success of your ad campaigns.

Types of Performance Marketing

There are different types of performance marketing campaigns, each focusing on distinct conversion types. Below are some of the most common types of performance marketing campaigns.

Cost-Per-Action (CPA)

CPA is a marketing metric that measures the aggregate cost of acquiring paying customers on an ad campaign. It is a vital metric for measuring success and differs from the Cost of Acquiring Customer (CAC). In performance marketing, Cost-per-action measures your campaign performance with what your audience wants to do after viewing your ad.

The action could be a subscription to monthly newsletters, product updates, or buying an item in your e-commerce store. When calculating the CPA, divide the cost by the number of measured actions. So, if you spent $150 on an ad and the activities attributed to it are 10, the CPA would be $15.

Cost-Per-Lead (CPL)

CPL is a pricing model used by advertisers in which they pay an agreed price for every lead generated. It is commonly used for subscription-based businesses. Once the organization has the information, they follow up on the prospect to get them to take the desired action. To calculate CPL, divide your total marketing spend by the number of new leads.

Cost-Per-Sale (CPS)

Also known as cost-per-conversion, cost-per-sale is an ad metric used to determine the amount an advertiser pays for each sale generated from a particular ad. This performance advertising type helps you cut costs and save money on your paid search budget.

To calculate CPS, divide your total costs by your total revenue from the sales. So, suppose you get $1,000,000 monthly sales revenue, and your total monthly costs are $100,000. Your CPS is 10 cents.

Cost-Per-Click (CPC)

For every dollar spent on a pay-per-click ad, you get a $2 return, a 200% return on investment.

Source: Wordstream.com

In cost-per-click (or pay-per-click) performance campaigns, you pay for each click that leads an ad viewer to your website. CPC is often expensive, but the potential return on investment is better than most digital marketing strategies. Also, you can set the maximum cost-per-click bid, that is the highest amount you are willing to pay for each click on your ad. To calculate CPC, divide the total cost of clicks by the total number of clicks.

Cost-Per-Install (CPI)

Cost per install is a predetermined amount an advertiser agrees to pay every time a user installs their app. This mode of performance campaign helps drive the number of installed apps. So, if your marketing budget is $10,000 and the ad campaign drives 5,000 installs, the cost per install is $2.

Cost-Per-View (CPV)

Cost-per-view is an ad campaign that focuses on driving people to see a video advert. The ad publisher charges the advertiser whenever someone watches the advert for a set duration. You can calculate the CPV by dividing the total number of views by the total cost of your video.

Cost-Per-Engagement (CPE)

This type of performance ad focuses on driving user interaction for the advertiser’s content on social media platforms. The advertiser only pays for ads when a viewer interacts with the ad somehow. To calculate costs per engagement, divide the total amount spent on the ad by the total measured engagements.

Performance Marketing Strategies: Tips and Best Practices

Final: What Is Performance Marketing & How It Works

Implementing performance marketing strategies help you achieve better advertising spending and return on investment. Below are some tips and best practices to help you create an effective performance-based marketing campaign.

Define Your Target Audience

As with any form of marketing, you must first define your target audience – those you want to reach. After identifying your audience, you must understand their needs, interests, and behavior patterns. You must know what causes them to take specific actions to create a campaign that will be relevant and engaging.

When defining your target audience, consider these data: gender, age, educational background, social class, location, purchasing power, and consumption habits. Also, ask the following questions:

Who are they?
What are their biggest problems, difficulties, and desires?
Where do they look for information online?
What draws their attention?
Who do they trust?

Use Data to Optimize Your Campaigns

Data is vital to optimizing marketing campaigns. Therefore, consistently monitor and use your performance data to change your campaign. There is various data for optimizing your ad campaigns. These include:

Testing different ad copy or creatives
Adjusting your targeting options
Optimizing landing pages for better website accessibility
Monitoring data in multiple channels

Use Ad Targeting

Over 80% of internet users are likely to click on adverts targeted to their needs.

Source: Gitnux.com

Ad targeting involves placing adverts in specific screen areas to improve their visibility and clickability or giving viewers customized ads based on their past behavior and preferences. Therefore, with ad targeting, you can precisely reach the right audience.

When using this option for performance marketing, pay attention to your target audience’s demographics, interests, and behaviors. This increases the likelihood of people who will engage with the ad being the ones to view it.

Test and Experiment

Testing and experimentation are crucial to improving the performance of your ad campaigns. Try different ad formats and targeting options, and use different landing pages to determine what works best for your audience. For example, if your audience prefers banner ads, it will be counterproductive to use pop-up ads.

Focus on User Experience

User experience is fundamental to the success of any performance-based marketing campaign. Therefore, optimize your landing pages for better conversion, improve ad load time, and include a clear call to action. Also, reduce layout, avoid accidental clicks, improve ad viewability, and use non-intrusive ad formats.

Continuously Measure and Optimize

Finally, performance marketing is ongoing, so you must continuously measure and optimize your ad campaigns. Measure the number of impressions and clicks, the conversion rate, and your average spend per ad. Also, track your KPI metrics, analyze results, and make changes where needed.

To optimize your ads:

Readjust targeting
Use automatic CPM optimization
Create optimization rules
Activate click booster
Improve your creatives and landing page
Distribute ad budget and daily spend to meet campaign goals

By doing all of the above, you will achieve better results with performance advertising.

Examples of How Performance Marketing Works in Different Industries

Performance marketing is used in different industries to drive consumer actions and improve ROI. The following are performance marketing examples for different sectors:

E-Commerce

Businesses in the e-c0mmerce industry use performance marketing to drive sales and increase revenue. For example, you can use cost-per-click to drive traffic to your website, which increases sales. Also, with retargeting campaigns, you can re-engage shoppers who abandoned their carts or browsed through products to get them to make a purchase.

Travel

In the travel industry, performance advertising drives bookings and revenue. With cost-per-action, travel companies like hotels and airlines can drive traffic to their website. They can also reach out to customers who abandoned an action using retargeting.

Healthcare

Performance marketing is used to acquire and engage patients in the healthcare sector. Cost-per-lead and cost-per-click are two types of performance advertising commonly used in this industry. As with other sectors, you can retarget those who visited your website and left without completing an action.

Finance

In the finance industry, performance marketing drives customer acquisition and lead generation. You can use cost-per-lead and cost-per-action to get your audience to make inquiries, download apps, or subscribe to financial products. Also, you can engage those who showed interest in your products or services using retargeting.

Education

Performance marketing is used in the education industry to drive student enrollment and lead generation. With cost-per-lead, you can increase inquiries and boost website traffic using cost-per-click. Also, you can re-engage with students who have shown interest in your institution using retargeting.

Creating Effective Performance Marketing Campaigns

Creating an effective performance marketing campaign requires a strategic process. The following tips help you create a successful campaign:

Set Clear Goals

The first step is setting your goals. Ask yourself what you want to achieve with the campaign: lead generation or increased sales. Also, ensure your goal is specific, measurable, achievable, realistic, timebound, and aligned with your business objective.

Identify Your Target Audience

Again, your target audience is those you wish to attract and get to take action. You can identify your target audience using demographics, behaviors, age, interests, location, etc. Knowing your target audience helps you create relevant, personalized, and engaging campaigns.

Choose the Right Channels

Know the channels used by your target audience and then use them. This could be social media networks like Facebook, Instagram, TikTok, etc. Choosing the right channel helps you effectively target your audience. Also, if your audience regularly uses search engines, you can run paid ads on these platforms.

Develop Compelling Messaging

Create compelling messages that speak directly to your target audience and address their needs, wants, and pain points. Also, use unambiguous language and focus on the benefits of your products or services.

Create Engaging Creative

Your ad creative must connect with your audience, capture their attention, and align with your message. Include high-quality images, videos, and other visual elements relevant to your message and target audience.

Test and Optimize

Test different ad formats, targeting options, and creative elements to see what appeals to your target audience. Then use performance data to optimize your ad campaign and make informed decisions for better performance.

Measure and Refine

Use data to continuously measure and refine your campaign to improve its performance. Also, the insight from performance data shows the areas you need to improve and how to optimize your campaign for a wider reach.

Conclusion

This article answered the question: what is performance marketing and shared its importance? Performance marketing will help you manage your ad spend and achieve your goals. With it, you will drive specific actions and generate measurable results.

However, don’t forget to set metrics, define your KPIs, track your results, know your audience, set achievable goals, and measure and refine your ad campaign. For more tips on marketing and generating results for your website, visit our HostAdvice resource center.

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