What is “Performance Marketing” and why is it important?

Performance Marketing

The internet not only altered the way consumers research and come to a buying decision but also changed the way companies advertise and sell. Before the internet, tracking campaign data and analyzing the results was not possible. Now, even small businesses can gather campaign-related numbers and measure the results as they happen. The internet has made data transparent which enables businesses and performance marketing agencies to optimize their campaigns for better performance. That is the reason why this marketing strategy is called Performance Marketing.

What is Performance Marketing?

Performance marketing is a marketing strategy in which affiliates, advertising publishers, or performance marketing agencies get paid based on agreed-upon performance instead of a flat fee. Performance marketing is also known as online performance marketing or performance media marketing. It involves brand marketing and advertising activities in which the payouts are determined by measurable results. These results could be a new lead, sale, or any other agreed-upon outcome. Ads that run on YouTube are examples of performance marketing. Several performance marketing agencies charge based on a certain result and companies nowadays prefer performance marketing.

Characteristics of Performance Marketing:

The impact of COVID-19 has accelerated digital marketing adoption by companies. Priorities and budgets are shifting to performance-based marketing. According to InMobi’s Marketing in the New Normal-India and Southeast Asia:2020 report, the majority of marketers are planning to spend 60% of their budget on performance marketing agencies. This can be attributed to the following characteristics of Performance Marketing:

  1. Measurability: The results can be easily measured
  2. Trackability: The performance marketing campaign can be tracked easily
  3. Attribution: Shows direct link between investment and result
  4. ROI: Return on Investment is high

How does Performance Marketing work?

Traditional marketing involved pushing brands’ messages through traditional media like newspapers, radio, magazines, television, and billboards. A traditional marketing campaign aimed to reach the masses and involved a fixed fee regardless of the performance of the campaign. This form of marketing is generally more expensive and less efficient. Moreover, measuring the real impact of a traditional marketing campaign is extremely difficult. To understand this better, read Traditional Vs Digital Marketing: Which is the best strategy for small businesses?

In the Performance Marketing campaign, rather than paying upfront or by the month, the payment is made when a specific goal is achieved. These goals include the following:

  1. Lead Generation: Performance marketing agencies help businesses to establish the brand and promote among prospective customers to generate leads.
  2. Product/Service sale: One of the major goals that performance marketing focuses on is generating sales. Performance marketing agencies motivate customers to purchase the product/service of your company.
  3. Application Downloads: Companies that have their product/service hosted on mobile apps can also make use of performance marketing as a strategy. Performance marketing agencies promote your app to generate downloads. These downloads in turn can result in more sales and revenue for your business.
  4. Site traffic: Utilizing SEO to rank higher in search results and drawing more traffic to your website can be a goal in performance marketing. Performance marketing agencies help your business rank higher and direct huge amounts of traffic to your website which can increase your brand awareness and sales. Read How to Increase Brand Awareness for small businesses.
  5. Engagement: Performance marketing goal also can be to increase the engagement that customers have with the brand. Performance marketing agencies focus on increasing comments and shares for your brand.

Channels used by performance marketing agency:

Performance marketing involves various digital and advertising channels which include the following:

  1. Social Media Advertising: Social media is becoming the most popular for advertising your business. It has the best targeting and tracking capabilities. Approximately 3.81 billion people are on social media. It gives your business a broader and wider reach. Advertising on social media allows you to target the right segment for your business.
  2. Search Engine Marketing(SEM): This includes both organic and inorganic means of ranking on the search results. Performance marketing focuses on paid search. Performance marketing agencies use Pay-Per-Click marketing which helps place your ad to increase visibility. Read What is the importance of a Website for a small business?
  3. Affiliate Marketing: This is one of the biggest channels of performance marketing. This works in a very simple way where merchants pay commission to the affiliate for every referral or transaction. This is very popular for businesses because revenue is gained before the money is spent.

Why is Performance Marketing important?

Hoping you are clear with what Performance Marketing is and how it works. Let’s now take the discussion ahead to its importance. Global digital marketing spends for 2021 is estimated to be around $455.30 billion. We have compiled a list of reasons why businesses are readily spending heavily on digital and performance marketing:

  1. Real-time ROI measurements: Performance Marketing helps in tracking and measuring results easily. You can keep a track of ROI and know how much you have to spend for achieving that goal. Performance marketing agencies provide clear data while the campaign is still running.
  2. Optimize KPI: With performance marketing, you can clearly define your key performance indicators. These KPI’s help in setting clear marketing goals for your business
  3. Pay as the campaign continues: Rather than paying an upfront fee or deciding on a monthly payment to be released for the campaign, performance marketers charge every time a predecided goal is achieved. This is appreciated by small businesses and startups as this is a budget-friendly approach and is more efficient.
  4. Transparent: Performance marketing is entirely trackable, measurable, and transparent. Performance marketing agencies help a business in deciding where to invest, which partner to work with, and which channels are the most beneficial. You can analyze the numbers and efficiently invest to obtain the desired result.

Conclusion:

It is clear that to be a successful business today, it is important to develop a comprehensive digital marketing strategy rather than just focusing on a single aspect. When you partner with a performance marketing agency, they can help you create a complete strategy for establishing and scaling up your business. Performance marketing services mentioned in this blog works hand-in-hand with digital marketing channels. Only focusing on performance marketing will not be sufficient for a business. It is important to prioritize overall business success.

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