What Is Performance Marketing? Common Types of Performance Marketing

Performance Marketing is no longer unfamiliar among today's marketing strategies, but turning a performance marketing budget into measurable results is another matter. In this article, Mona Media will help you understand what Performance Marketing is, how pay-for-results works, which KPIs to track and how to run it effectively for your business.

What is Performance Marketing?

Performance Marketing is in fact part of Digital Marketing. Performance Marketing can be understood as marketing based on performance, where performance is a specific result the business wants, such as an order or a click.

In particular, the business pays the individuals or organizations that promote its products (collectively called publishers) only when a result is delivered.

Pros and cons of Performance Marketing

Advantages of Performance Marketing

Performance Marketing has many advantages that bring real benefits to businesses, such as:

• Measurable: From plan to results, the performance of every ad program is measured and tracked in full detail.
• New opportunities are easy to spot: While running ad campaigns, businesses can easily spot new opportunities and use them in future plans.
• Brand building: Helps build the business's brand through the resources potential customers and budget of third-party partners.
• Lower risk: Because the business pays only after the desired action or result is completed, you can spend your budget with more confidence. This method also shows you where orders come from, so you can identify which channels and partners are worth investing in.

Disadvantages of Performance Marketing

Besides the advantages above, Performance Marketing also carries risks. Running a Digital Performance Marketing campaign is not easy. If it is done wrongly, the campaign can cost you a lot of money with nothing to show for it.

Also, if your business lacks knowledge of Digital Performance Marketing and simply invests money and leaves staff to run ads, or hands everything over to Agencyor publishers, it is very easy to lose money. And if you work with publishers or agencies that are careless or irresponsible, the business is the one that suffers.

So before you apply a Performance Marketing strategy to your Marketing projects, make sure you have the ability and knowledge to run the campaign effectively and successfully.

How Performance Marketing works

Performance Marketing is divided into four groups: retailers/merchants, affiliates or publishers, affiliate networks and third-party tracking platforms, and affiliate managers or affiliate management organizations.

Each group has its own role and works best in that role, which keeps Performance Marketing effective.

Retailers/Merchants

In Performance Marketing, retailers and merchants are collectively called advertisers. They are businesses that want to promote their products and services to the market, and this promotion is carried out through affiliates or publishers.

Today, retailers and businesses in fashion, beauty, F&B, health and sports have achieved clear success with this method, because consumers increasingly trust recommendations from influencers, especially when researching a purchase.

Affiliates/Publishers

This group is seen as the “marketing partner” in performance-based marketing. They promote the business's products or brand in exchange for a commission.

The group takes many forms, such as product review sites, blogs, online magazines, loyalty sites and coupon sites.

Influencers are also publishers. They create and publish content through their blogs and social media channels, giving their followers trustworthy information and guidance based on their own experience or reviews.

Influencers also like to be the first to promote new products or exclusive offers, and they often run giveaways for their fans.

This cooperation brings many benefits to businesses. It builds trust between influencers and brands, and boosts sales and product or brand awareness in the market.

Affiliate networks and third-party tracking platforms

Affiliate networks and third-party tracking platforms are important parts of Performance Marketing. These networks and platforms act like a “marketplace”, providing tools such as banners, text links, product information, the promotions and even setting up commission structures such as bonuses and handling returned goods.

Well-known affiliate networks and tracking platforms in the Performance Marketing industry include Partnerize, AWIN, Avantlink, Impact, Commission Junction and HasOffers.

However, different affiliate networks and tracking platforms each have their own strengths and weaknesses. Consider your product, brand or business conditions carefully before choosing one.

Affiliate managers/affiliate management companies

Affiliate managers and affiliate management companies are another group with an important role in Performance Marketing. Many businesses have a team responsible for proposing how to promote products and services, promotional tools, handling issues and more.

Businesses can also hire affiliate management companies. Depending on the business's needs, these companies run the whole program independently or support and work together with the in-house team.

Common forms of Performance Marketing

Affiliate Marketing

Affiliate Marketing (affiliate marketing) is the term most commonly used when talking about Performance Marketing. Put simply, it works like a kind of “brokerage”.

You ask a group of publishers to sell your products. Each product has its own affiliate link. If publishers bring in orders or clicks through that link, they earn a commission from you.

The payment model businesses prefer most for this form is CPA, and you can also use CPC, CPM. CPA is the cost per order, click or form submission. CPM is the cost per 1,000 impressions. CPC is the cost paid for each click.

Native Advertising

Also a form of paid media (paid media), but Native Advertising differs from other paid formats such as ads and display ads, because Native Ads tends to follow the natural form and function of the site it is placed on. The most common payment models for native ads are CPM and CPC.

Display Ads

Display ads, or display advertising, is a form of online advertising that combines images, text and a URL linking to a website where customers can learn more about the product they want to buy or how to buy it. This lets customers receive the message quickly and easily without spending much time.

Sponsored Content

This form of Performance Marketing is widely used by influencers and content sites. They publish a post to introduce and promote a brand or product in exchange for payment.

Depending on the business, payment can be products, free experiences, or payment under Performance Marketing models such as CPA, CPM or CPC.

Social Media Marketing

Social Media Marketing is a type of Performance Marketing that uses social platforms such as Facebook and Instagram to raise traffic to a certain level or increase brand awareness. The numbers usually measured here are mainly engagement: total likes, clicks and sales.

Search Engine Marketing (SEM)

Search Engine Marketing is marketing that uses two kinds of search, organic and paid. In paid search, the advertiser pays for their content to appear on the search results page.

Organic search (Organic Search) is the opposite. It uses only free methods such as optimizing SEO or relying on the search engine's own algorithm to get content into the top search results.

Payment models in Performance Marketing

Cost per mile (CPM)

CPM, or Cost per 1,000 impressions, is the cost a business pays for 1,000 impressions on Google. In other words, each time your ad appears on a customer's screen it counts as one impression, also called a view.

Before running ads, digital marketers set a bid to pay for every 1,000 times the ad appears in different placements where customers can see it.

Cost per click (CPC)

Cost per click, abbreviated CPC, is the cost a business pays for each click from its potential customers. With this payment model, the business pays whenever a viewer clicks, whether or not that viewer buys anything or signs up for any service. So businesses should think carefully before choosing this model, because CPC is fairly expensive

Cost per engagement (CPE)

CPE stands for Cost per engagement, the cost paid when a viewer interacts with your ad. Interactions include any action on the ad, such as likes, shares, comments and reactions. Even scrolling down to read comments or reacting to other people's comments counts as an engagement.

This payment model is usually used for rich media, meaning ads that combine several media elements such as sound, images, video ads… to increase viewer engagement. Popular rich media platforms include TikTok, Facebook, YouTube and Instagram.

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Cost per lead (CPL)

CPL, or Cost per lead, is the cost paid for each potential customer who shows interest or asks for more information about the business's service or product.

They leave basic details such as their name and phone number by filling in a survey form. The business can then contact them again to advertise further or give more specific advice about its products or services.

Cost per sale (CPS)

CPS, or Cost per sale, is the cost a business pays for each successful purchase. The process runs from the customer entering their details, ordering, receiving the goods and paying, until the seller receives the bank transfer or COD cash.

It is also the most expensive of the payment models. But if the business is focused on growing sales, it is a sensible option, since CPS is highly effective and the business pays only once an order is completed.

Cost per acquisition (CPA)

CPA is an ad model where the advertiser pays per action, such as filling in a survey, answering a question, playing a minigame or signing up for a course. CPA is currently popular and the most widely used method.

The CPA cost is calculated per completed action, and you receive a commission from advertisers. However, the action must be carried out through the affiliate link that you provide to the customer.

Steps to build a Performance Marketing strategy

Define the goals of your strategy

The first step in building a Performance Marketing strategy is defining goals. They fall into two main groups: building the brand, and improving business performance.

Each main goal includes smaller goals. So you must define the main goal, the smaller goals under it and the priority of each goal in the campaign. That way you avoid missing a goal or losing direction while running the campaign.

Common goals of a Performance Marketing strategy include:

• Increase website traffic
• Raising brand awareness
• Retargeting
• Generating leads
• Increasing sales

Choose channels for the strategy

The next step is choosing the channels for your Performance Marketing campaign. Instead of focusing on a single channel, you should use multi-channel advertising to increase the visibility and reach of the campaign.

For example, use a range of social networks such as Facebook, TikTok and Instagram, or expand the ad formats beyond image ads to include native ads. This increases your chances of success with a Performance Marketing strategy.

Create and run the strategy

Creating and running the strategy is another step you cannot skip. Creating campaigns means defining the target audience and understanding their wants and difficulties. You also create ads with messages that catch their attention.

The better you understand your target audience, the easier it is to find ways to catch their attention with your products and services. You can then build and create images, headlines, ad schedules and more for the best results.

However, each platform or channel has different requirements for ad size, character limits and images. So when you start creating and running the strategy, pay attention to this to avoid wasting time and effort.

Optimize and measure after running the strategy

Performance Marketing campaigns usually start generating data as soon as they are set up and running. Marketers can then optimize individual campaigns to get the best performance across all the channels they use.

Businesses also need to track and analyze the numbers to see which traffic sources perform best, then allocate ad spend accordingly.

Common metrics for measuring the results of a Performance Marketing campaign are:

• ROI – Return on investment
• CPL – Cost per lead
• CPW – Cost per order
• Conversion Rate – Conversion rate
• Customer Lifetime Value – the long-term value of a customer

Handle strategy risks

The last step is handling the risks of the strategy. Any strategy carries certain risks. Businesses need to identify, assess and control the threats so they can respond promptly if something unexpected happens.

Risks you may face when running a Performance Marketing strategy include:

• Privacy
• Publisher fraud and placement transparency
• Brand safety
• Ad fraud and invalid traffic

One effective way to reduce these problems is to concentrate your resources on high-quality social networks and ad platforms, which can handle issues such as brand safety and data privacy. This limits unwanted losses for the business.

That is our overview of the Performance Marketing is. We hope this information helps you understand this marketing method better, so you can apply it to improve your advertising results.

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