Performance marketing is a branch of digital marketing that is driven by results. This strategy is ideal for companies aiming to reach their audience at a higher scale. The pricing structure is based on how audiences interact with the content. This also refers to the type of marketing where brands pay marketing service providers after their business goals are achieved, or a specified action has been taken care of.
Performance metrics are optimally effective when advertisers connect with content creators and designers to create a relevant campaign and place advertisements on different marketing channels. Various metrics or indicators give advertisers a clear idea of whether the campaign is a hit or a flop. These indicators involve a number of impressions, clicks, shares, subscribers and sales.
If performance marketing and other aspects of digital marketing are your areas of interest, you must enroll in the Professional Certificate Programme in Digital Marketing For Performance & Growth at IIM Kozhikode. This 9-month course focuses on offering a diverse set of pedagogies for more holistic learning. At the end of this programme, you can receive a digital marketing certificate that can magnify your career growth. Register with Jaro Education to learn the details about this course.
What drives performance marketing?
Advertisers publish their ads on different channels, and then the pay is based on how these ads perform. When it comes to performance marketing, there are various ways to pay.
CPC (Cost Per Click)
The number of clicks is a simple metric that captures how many people click on an ad to visit your website or webshop. Display Ads, Google Search Ads, social adverts and email links may all generate clicks, and all of these campaigns will display the amount of clicks received by each campaign. This is especially critical to monitor if you are running a pay-per-click campaign!
Impressions count the number of times a campaign’s content resource has been “shown or displayed” to potential or existing consumers on a website or app.
While impressions demonstrate how many prospects are exposed to your marketing efforts, it’s important to realise that “shown” does not always mean “seen” by a person. This is because bots now account for about 40% of website traffic, and the amount of impressions does not discriminate between traffic sources.
CPA (Cost Per Acquisition)
CPA is unquestionably one of the most important marketing KPIs, especially for SAAS companies. CPA is a statistic that measures the average price your company spends for a user to convert into a paying customer within a certain time period. Customer Acquisition Cost captures this and may be computed as follows:
CPA = Cost of sales and marketing / number of clients acquired
The optimal CPA level is determined by sales potential and business strategy. Assume your manufacturing company has an average CPA of Rs. 50,000, and a new client may be worth thousands of rupees to your business. However, if the average client spends just approximately Rs. 25,000 every transaction, the same Rs. 50,000 may be unsustainable.
Return on Ad Spend (ROAS)
ROAS measures the efficacy of advertising and how it affects the bottom line. In the most basic ways, it is the ad equivalent of ROI. You may compute it using the following formula:
Revenue / Advertising Spend = ROAS
Any figure larger than one indicates that the marketing initiatives are bringing in more money than they are taking out. As a result, it is useful for measuring success and guiding future expenditure, strategy, and overall marketing direction.
Customer Lifetime Value (CLV)
CLV measures the overall financial value a paying customer may provide a brand for the course of their entire life cycle, allowing for a more comprehensive assessment of a client’s worth. Understanding this metric would help you focus on more profitable sectors in the long term. Using the formula below, one can calculate CLV:
Average customers lifespan x Average customer value = CLV
The calculations for the components are subjective. The pricing model is often used to establish value, whereas historical data is used to estimate lifespan.
Search Impression Share
Search Impression Share is a performance marketing KPI that attempts to quantify the frequency in percentage terms with which your campaign appears. It is relevant for Search Campaigns that aim to increase visibility for certain keywords.
Typically, the aim is to rank as high as possible for branded searches. In the case of generic searches, however, having a high Search Impression Share makes sense only if the ROAS is good.
It may be calculated as follows:
Search Impression Share = Impressions on a search network divided by the estimated number of total searches
Click Through Rate (CTR)
Click Through Rate or CTR is a metric that is used for measuring quality and engagement. A higher CTR indicates that your content is more interesting to your audience. It is calculated by comparing clicks to impressions. This statics is frequently visible on the Analytics Dashboards of many platforms, offering vital insights about how compelling a campaign’s visual impact, wording and placements are. Furthermore, it is critical to realise that a high CTR must be followed by an optimised landing page experience to elicit the necessary action from the prospect.
Other than mapping prospects’ attention, you can explore how many of them take the next required step and convert. In performance marketing, the number of conversions may be calculated as the number of people who complete the action that marketers identify as the finish line. Examples of such actions are subscribing to the newsletter, completing an online purchase after seeing the paid ad as well as scheduling a demo for the sales team. Setting up conversion statistics varies from one platform to another. But once done, it offers a clear indicator of your campaign’s ROI.
Conversion rate is an optimisation indicator that measures the number of conversions as a percentage of total clicks. It may be used to determine whether your CTA and offer are functioning successfully, as well as whether there is a gap in the customer journey between your landing page and ad creatives.
Conversion Rate = number of conversions / number of clicks
Cost per conversion
The cost per conversion, which represents an average of your conversion expenses, is another key metric for tracking your efforts. However, it is vital to first determine the appropriate conversion activity based on the stage of your organisation. You may determine the cost per conversion using the following formula:
Total cost / total number of conversions = Cost Per Conversion
It is an important performance marketing statistic since it plainly displays which efforts are effective and which are not. Using this knowledge, you may implement laser-focused efforts to improve underperforming campaigns through tests involving campaign copy, images, CTA locations, landing page optimisation, and so on. Alternatively, you might consider shifting your digital marketing spending to other marketing channels where your campaigns are doing well.
Best Performing Marketing Channels
There are ideally 5 types of top-performance marketing channels that advertisers and agencies use to drive traffic.
It is a method of advertising that uses the natural appearance of a site or a webpage to promote sponsored ad campaign or other content. For instance, you may have seen sponsored ads appearing on the YouTube page in the “Watch Next” section. Native ads are widely common on e-commerce sites, for example, Facebook Marketplace. This metric works for ads because customers can stream them alongside other organic content. Users, at times, won’t be able to differentiate between the two and this way, marketers can promote their brand in a natural way.
The marketing strategy where relevant articles, blogs, infographics, videos and other media are shared to engage with a specific audience is commonly referred to as content marketing. When it comes to content performance marketing, the content created is solely crafted based on the demands of specific customers/audiences. By analysing past and present analytics, this approach is readily used by marketers to fulfil their objectives.
Display (Banner) Ads
People who are online must have seen display ads or banner ads. These ads may appear on the top or button of a webpage you have visited or on the side of one’s Facebook newsfeed. Though these ads are losing their impact due to ad blockers, many companies find this metric useful to drive traffic and sales. They utilise these ads to create interactive content, engaging graphic design and videos.
Search Engine Marketing
Most online searches are seen on search engines. So, for Search Engine Marketing, the said site has to be optimised on a particular search engine to be visible to the target audience. The focus remains on cost-per-click in terms of performance marketing. Many marketers rely on SEO-optimised landing pages and content marketing for organic SEM.
Social media is the best place for performance marketers. It not only drives the audience to your site but also consumers can share your sponsored content organically, whose reach goes far beyond the actual post. For performance marketers, Facebook has the most extensive list of services. Also, there are other platforms, including Twitter and LinkedIn, that offer various opportunities to reach new customers.
Benefits of Performance Marketing
Since digital marketing’s future look promising, marketers can now use different performance marketing tools and channels to meet the brand’s needs without spending much. Some of the common benefits of performance marketing are as follows:
Yields better and faster results
When marketers tailor their spending to obtain specific objectives (as done in performance marketing), they can achieve better results in less time. If you consider e-commerce stores, performance marketers would be interested in achieving the best results, and sellers would be assured about making the most out of every penny they invest.
Improved KPI optimisation
To make sure a brand achieves its ability, key performance indicators or KPIs take the lead. No matter how much a seller would want to increase its sales, boost retention, elevate conversions or targets something else, performance marketing would allow them to target whatever they are looking for with a few metrics.
ROI measurements in real-time
Tracking and measuring outputs have become remarkably easy with performance marketing. Each time a person clicks on a newsletter, an email or any other piece, the marketer would know that their purpose has been served. This makes the tracking of an ROI campaign so easy. Also, by looking at the metrics, advertisers would understand their expenditures for the performance marketing campaign.
Better brand reach
Performance marketing is an effective tool to increase brand reach. It gives businesses access to a more diverse audience which otherwise would not have been possible through conventional advertising techniques. Different metrics of performance marketing open up ideas of brand-new ads that can be placed on an array of outlets and channels, thereby helping brands increase business sales.
For many companies, performance marketing can be an ideal approach to obtain positive and faster results. This marketing technique helps marketers to rise scale their reach, conversions and engagement without the need to break the bank, with lower risks and considerably higher ROIs. Furthermore, there are different channels of this marketing strategy that would drive traffic to specific content and also would ensure customer retention.
To gather 360-degree knowledge and skills in performance marketing, join the Professional Certificate Programme In Digital Marketing For Performance & Growth. This programme will provide you with an overall approach to marketing to digital consumers. The top-tier faculty of IIM Kozhikode will solve all your queries. Plus, at the end of the course, you will receive a digital marketing certificate that will brighten your career possibilities in the world of digital marketing.