What Is Performance Marketing: A Complete Step-By-Step Guide
Raise your hand if you want to avoid wasting your advertising dollars and pay only for what brings value. Or if you, like businessman John Wanamaker, wonder “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”, you need to look at performance marketing.
What makes performance marketing special is that you can achieve both bottom-of-the-funnel goals (sales, clicks, and leads) and top-of-the-funnel goals (views and impressions).
And, all of this without wasting your marketing dollars.
In this post, we take a deep dive into the benefits of performance marketing and the steps to launch a flawless marketing campaign.
But before we get to these, let’s start with the answer to the question “what is performance marketing?”
What is Performance Marketing?
Simply put, performance marketing involves making use of online advertising channels to place ads and paying only when someone views or clicks on them.
It’s a term for digital marketing programs where you’d only pay publishers when the desired audience completes a particular task.
When done right, performance marketing crafts win-win opportunities for both the merchant and publisher.
Here’s how.
Top Benefits of Performance Marketing
The greatest benefit of performance marketing is that it lets you know which half of your advertising dollars are being wasted.
Jokes apart, this type of digital advertising gives you many perks right from high ROI to low risk.
Let’s see what the rich benefits of performance marketing are:
Cost-effective
What better way to save costs than paying only for actual results as opposed to a flat fee regardless of the outcome?
Take the example of TV ads.
The average cost per 30-second commercial is $104,700 (apart from production costs of up to $5,000). This means you will shell out anywhere from $18 to $34 per 1000 ad impressions.
Image via Fit Small Business
With performance marketing, you can reach 1,000 people for as low as $3 to $10.
High ROI
Not surprisingly, the top goal of marketers who choose performance marketing is to boost ROI. Ascend2’s survey finds that 54 percent of marketers experienced best-in-class results from performance marketing.
With every metric being tracked in real-time, there’s no danger of wasting money on failing marketing campaigns.
Image via Ascend2
Easy to Track
No more wild guesses or “guesstimations” about where your marketing dollars are going, which ads are doing well, and who is clicking on your ad.
With performance marketing, you can see exactly how many leads, sales, or impressions your ads generated.
In addition, analytics tools take raw data from online marketing channels and present it to you so that you can get an accurate look at the campaign’s ROI.
Rich Insights
Results-based performance marketing gives you a comprehensive and granular view of how your online marketing strategies are performing.
Compared to traditional advertising, performance marketing campaigns (search engine marketing, affiliate marketing, and social media advertising) give you rich insights into
- CTA click-through rate
- Page views
- Sales funnel progress
- Ad performance
The more insights you have, the easier it is to make data-driven, accurate decisions to accelerate growth with performance marketing campaigns.
Extended Reach
Every advertising platform, social media channel, and website that displays your ad has a stake in ensuring you get the results.
It’s easy to see why.
If marketers don’t see results, publishers don’t get paid.
And so, they’ll do everything possible to put your ad in front of their audience. With minimum effort, you can thus reach a wider audience pool with performance marketing than you can with traditional advertising.
Low Risk
You can tweak your budget, track campaign performance in real-time, and even change your ad copy when running performance marketing campaigns.
What’s more?
You can even stop the performance marketing campaign if it has met your goals or if you’ve reached your maximum budget. This flexibility reduces the overall monetary risk of your campaign.
Greater Flexibility
Performance marketing is known for its versatility. You don’t have to get stuck on ads and content that doesn’t work. With easy trackability and flexibility, you can just stop something that isn’t delivering results and try something else.
Now that you’re convinced about the prowess of performance marketing, you can start creating your campaign.
But wait.
Just like most good things in life, performance marketing only works well when you have a robust plan in place.
Here’s a step-by-step guide to performance marketing that will help you fast-track success:
A Step-By-Step Guide to Ace Your Performance Marketing Campaign
The secret to making performance marketing work lies in creating a bulletproof plan, keeping in mind your short and long-term business goals.
It also involves knowing the payment methods and top performance marketing channels for your campaign. Here we go:
Step 1: Understand the Payment Methods
You already know that performance marketing works when advertisers pay for specific actions that their audience takes.
Let’s take a closer look at what these actions are and how each of them is computed.
Pay-Per-Click (PPC)
This simple advertising model is a great way to drive traffic and promote your products while saving on unnecessary marketing expenses.
With PPC, you only pay when a user clicks on your ad to get to your landing page, website, or ecommerce site.
Here, marketers either agree to pay a fixed price to marketing channels per click or determine the cost per click through an auction.
You can decide the maximum price you are willing to pay per click based on what ROI you think each click brings.
For instance, if you think it will be worth paying $12.5 to get 50 people to click on your ad and visit your website, you can set the maximum CPC as $0.25.
The algorithm compares your ad with other ads based on their price and quality and displays the winning ad above other ads in the case of an auction.
But if you’ve got a direct deal with the advertiser, you can pay a fixed sum for a pre-decided number of clicks.
So, to sum up:
Maximum CPC = Maximum price you are willing to pay / Total number of clicks.
Marketers use PPC ads to generate leads, sales, and also to drive traffic to their site. These ads offer an excellent depth of targeting in that you can serve ads to people who are looking for products or services similar to yours.
Now, for the all-important question — where do you place the PPC ads?
Here are the top platforms for PPC campaigns:
- Search engines — Google and Bing
- Social media — Twitter, Facebook, LinkedIn, Instagram
- Ecommerce marketplaces — Amazon and eBay ads
- Ad networks — BidVertisers, RevContent, AdRoll, AdBlade
Before we get into the details of these platforms, let’s see what factors influence the CPC.
Industry Benchmark
Cost per click varies based on the domain or industry you are in. For instance, insurance, education, and legal domains have higher CPCs compared to fashion, travel, and real estate.
Here’s an estimate of the average cost per click (in USD) across various industries according to Statista’s figures from May 2021.
Image via Statista
Keyword Competition
When many marketers are competing for certain keywords that you want to target, ranking for these keywords can be difficult. The competition for keywords varies based on how popular they are and industry competition.
Fortunately, there are tools such as Semrush that can help you analyze keyword competition.
Just enter your primary search term to get a list of target keywords, volumes, KD, and the average CPC.
For instance, if you key in “performance marketing” and select exact match keywords, the tool displays the average CPC for different keyword variations.
Image via Semrush
You can also use Google Keyword Planner to conduct keyword research and find your target keywords.
Quality Score
High-quality ads can mean better ad positions and lower CPCs. Google determines the Quality Score on a 1 to 10 scale, taking into account the ad relevance, keywords, and landing page experience.
The CTR (click-through rate) can also affect the Quality Score (the higher the CTR, the better your ad quality score).
The Performance Marketing Channel
The channel you choose for your PPC campaign will also affect your CPC.
Here are the 2021 benchmarks for CPCs on different channels:
- Google Ads (Search) — $0.67
- Google Ads (Display) — $2.32
- Twitter Ads — $0.38
- LinkedIn Ads — $5.26
- Facebook Ads — $1.35
- Instagram Ads — $3.56
- Pinterest Ads — $1.5
- Amazon Ads — $0.89
Cost Per Mille (CPM)
The CPM strategy is right for you if your objective is to build brand awareness instead of achieving actual sales conversions.
Advertisers pay a fixed fee per thousand impressions or the number of times the ad was viewed or displayed.
Because cost per impression does not measure how many times users clicked on the ad, advertisers use CTR to evaluate their CPM campaign’s performance.
Like CPC, many factors can affect CPM including the industry, ad quality, location, and site traffic. Let’s see how to calculate your CPM. Here’s the formula:
CPM= (Total ad spend ÷ total ad impressions) x 1000
Let’s say you had to spend $100 to get 4000 impressions, your CPM = $100 / 4000 = $25.
Cost Per Conversion
Cost per conversion is the amount of money you spend to convert a lead.
Here’s the formula: Cost per conversion = Total ad spend ÷ number of conversions.
Conversion rate is the number (or percentage) of people who convert out of all website visitors. A high conversion rate means a lot of people want your offering, which in turn means marketing success.
Conversion rate = (Total conversions ÷ total visitors) x 100
Let’s work this one out with an example.
If you had 20000 total visitors and 2000 of them converted, your conversion rate is 2000/20000 x 100 = 10%.
Conversion rates also vary by industry with the average being 8.82 percent. You can see in the chart below that the pets industry has the highest conversion rates while the lowest rates are seen in fashion, furniture, and real estate.
Image via Wordstream
Cost Per Lead (CPL)
In this performance marketing payment model, you will pay every time your ad generates a lead.
A lead is someone who shows interest in your service or product by taking an action such as:
- Opting in for a newsletter
- Filling up a form
- Registering for an event/webinar
- Using a coupon on your site
CPL helps brands understand what it costs to acquire new leads and whether their marketing dollars are being used wisely. It also allows you to discover which advertising channels (and formats) generate the most leads and which ones don’t.
Here’s the formula for calculating your CPL: CPL = Total marketing spend ÷ total leads generated.
For example, if you spend $500 on a CPL campaign to get 50 leads, your CPL is $500/50 = $10.
By comparing this figure to the cost of your product or service, you will know if your campaign is reasonable or expensive.
As it is with CPC and CPM, CPL varies by industry. According to the same study by Wordstream, the average CPL is $41.40 across industries.
You may have to pay a higher price to generate leads in legal, finance, and insurance domains (up to $70) while pets and automotive repairs cost you less.
Here’s a chart that helps you get an idea of industry benchmarks for CPM.
Image via Wordstream
There are other metrics and payment modes in performance marketing such as pay per engagement, pay per action, and pay per sale.
The basic principle in these remains the same: You only pay when someone engages with your brand, takes a specific action, or actually buys your product
CTR (Click-through Rate)
While we are here, let’s also talk about the click-through rate (CTR). You read above that CTR affects your ad’s Quality Score.
But what exactly is CTR?
It’s simple really.
Just divide the number of clicks your ad gets by the number of times the ad is shown and multiply this by 100.
In other words CTR = (clicks ÷ impressions) x 100.
If your ad was seen by, let’s say, 200 people, and 25 clicked on it, your CTR is 12.5%.
Is that a good CTR?
Yes! According to the same Wordstream research, the average CTR is 6.18 percent across industries. A high CTR indicates that your ads are helpful and relevant.
Click-through rate helps you discover the most effective ad copy, keywords, offers, and targeting strategies.
But, here’s the deal — CTR can also be a misleading metric to estimate your ROI.
Let’s say your social media campaigns grabbed 100,000 ad impressions plus 50 clicks. Here, your CTR is 0.05%.
On the other hand, if your social media advertising campaign delivers 300,000 ad impressions and 100 clicks, the CTR is 0.03%.
In this case, although your CTR is lower, you are getting twice as many clicks. Additionally, it’s important to see if the cost of the ads was the same or different.
If you only look at CTR, your online advertising campaigns may fail to deliver the ROI you want.
Originally published at Attrock.com.
About The Author
Gaurav Sharma is the Founder and CEO of Attrock, a results-driven digital marketing company. Grew an agency from 5-figure to 7-figure revenue in just two years.
