A Beginner’s Guide to Performance Marketing: Everything You Need to Know
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Performance Marketing is an online advertising strategy that is making a bigger mark in the digital marketing world year over year.
In 2016, Business Insider stated that nearly three-quarters (74%) of US shoppers say they visit two to three nonretail websites before completing a purchase, and 16% say they visit more than four websites, according to Rakuten Marketing and Forrester Research.
These are significant numbers when looking at the global ecosystem of buyers, and they continue to raise with continued interest in Performance Marketing as a new customer acquisition, customer reach, engagement, and conversion strategy.
This growing interest can be seen in the projected number of spend for US affiliate marketing alone – $6.82 billion by 2020.
If you’re looking to dive into the world of Performance Marketing and need to fine-tune your skills, you’ve come to the right place.
We’ve put together an easy reference guide to all things Performance Marketing for beginners that will have you feeling like an expert in no time.
What is Performance Marketing?
Performance Marketing is as it sounds – marketing based on performance.
This performance can be an array of executed desired results, such a completed lead, sale, booking or download.
A comprehensive term, Performance Marketing is a combination of paid advertising and brand marketing put together, but only paid out once the completed desired action takes place.
This win-win marketing opportunity for a retailer or “merchant” and affiliate or “publisher” allows both parties to truly target campaigns in a strategic, high ROI way, all based on performance.
By paying the affiliate or publisher when a specific action is completed, a merchant can feel confident that their money is being well spent since they are already converting their target audience before they pay for the transaction.
Further, because merchants are only paying after the desired action takes place, they also receive the extra added benefits of free brand exposure and targeted clicks along the way.
There is no other new customer acquisition strategy or marketing opportunity like it today!
Is Affiliate Marketing the Same as Performance Marketing?
Affiliate Marketing is both a term that is interchangeable with Performance Marketing, and a piece of a larger “performance marketing” umbrella, which includes Influencer Marketing, Email Marketing, Search Marketing, and any other form of marketing where the marketing partner exchanges sales (or completed desired actions) for commission payouts.
In this model, the most valuable KPIs are credited and paid out based on defined performance metrics.
“Affiliate Marketing” is the term that originated before Performance Marketing, and is still used today. However, over the years it has become a term that implies a much larger picture of performance-based marketing outside of traditional coupon and loyalty partnerships to include social influencers, native advertisers, mobile app developers, geo-targeting paid search partners, email marketers, and more.
Affiliate Marketing, as it sounds, is affiliated brand and product marketing, which has grown into a more innovative, dedicated performance-based strategy that has become a driving force to incremental sales, new customer acquisitions, market expansion, customer segmentation targeting, and high ROI campaigns.
“Performance Marketing”, which includes the more traditional “affiliate marketing” that is historically known for driving sales through cashback and coupon sites alone, has become so much more over the past few years.
Writing an article about a new product or company that can be shared through different content channels, such as a personal blog, or showcasing a product review or lifestyle image on Instagram or YouTube are now examples of the evolution of affiliate marketing to “Performance Marketing” over the years.
Technology has allowed apps to recommend other products to buyers within other apps and earn a commission on those transactions.
Conversation optimization tools, influencers with large mailing lists, and even plug-ins that create a completely personalized shopping experience for buyers whilst charging only once the sale is complete are all examples of how Performance Marketing works today.
This new way of marketing based on performance across device, both online and offline, and across different marketing channels opens a world of marketing exposure and value that no brand, advertiser or merchant can accomplish anywhere else.
Budgets often become limited at some point and internal marketing channels may compete for that budget, so with affiliate marketing, the budget cap becomes non-existent and brings a lift in reach, engagement, and conversation beyond what a brand can afford to advertise for themselves.
Performance Marketing as a strategy results in merchants getting additional brand and product exposure at no additional cost, with the added benefit of generally higher consumer engagements, higher conversion rates, higher average order sizes (basket values) and third-party endorsements, – all leading to sales, brand loyalty and increased buyer retention.
So, while Affiliate Marketing and Performance Marketing technically seem like the same thing, there’s a different approach to each, and Performance Marketing today includes so much more.
Performance Marketing is Affiliate Marketing at scale, and with new partnerships and new technology being enjoyed as part of the Performance Marketing mix.
In sort, both terms result in some type of bounty, commission or kickback to the affiliate or affiliated partner for the referral or sale based at the end of the day.
How Does Performance Marketing Work?
Performance Marketing consists of four groups: Retailers or “Merchants”, Affiliates or “Publishers”, Affiliate Networks and Third-Party Tracking Platforms, and Affiliate Managers or “OPMs” (Affiliate Management Companies).
Each group is imperative for Performance Marketing to work, and they work in unison, each with their own essential role that drives the ultimate desired result. Here is a breakdown of each group:
1. Retailers or “Merchants”
Also known as Advertisers, these are the businesses that are looking to promote their products and services through Affiliate Partners or “Publishers”.
Retailers and ecommerce companies in various verticals such as fashion and apparel, food and beverage, health and beauty products, and sporting goods can be very successful in the Performance Marketing.
This is mainly because in today’s world, consumers look to influencers and other shoppers for product recommendations, reviews, and discounts before buying, especially when they are in the research phase of their purchase.
The affiliate programs that do the best in Performance Marketing are usually those who have an already established brand online or a presence in several marketing channels with an already engaged audience, and their website has a minimum proven conversation rate that can help them.
These programs have affiliate partners that produce a positive ROI in exchange for marketing efforts, traffic generation, and exposure.
2. Affiliates or “Publishers”
This group is considered the “marketing partners” of the Performance Marketing space.
Affiliates or Publishers come in many forms: coupon websites, loyalty and cashback websites, product review sites, blogs, online magazine, and so on.
When it comes to the best affiliate programs that pay quickly, coupon and loyalty sites are a great way to drive sales with little effort and through lower commission payouts, especially within the North American marketplace.
However, with Affiliate Marketing moving more towards an all-encompassing Performance Marketing model which includes social influencers, content sites, product review sites, mobile apps, personalization applications, artificial intelligence, complimentary merchant partnerships, and remarketing ad managers, there needs to be a strategy and understanding of what each of these marketing partners need from a merchant to be successful.
Influencers, as an example, are publishers that mainly promote through their blogs, social groups, and social channels.
Their focus is to give their followers trusted guidance with authentic personal experiences and reviews, and they love being first to announce new product releases, exclusive offers and sales and usually have product giveaways for their fan base.
This partnership has a lot of value since it goes beyond the sale with additional brand and product exposure while building continued loyalty for both the influencer and the brand.
3. Affiliate Networks and Third-Party Tracking Platforms:
Affiliate networks or “third-party tracking platforms” are essential to the merchant/affiliate partnership.
They offer a one-stop shop for information and tools such as banners, text links, product feeds, promotions and payouts (like a bank).
These affiliate networks and tracking platforms are also where merchants and affiliate managers create strategic commission structures, issue bonuses, send out newsletters, and handle returns.
For both the merchant and affiliate, these networks and platforms are a way to keep track of leads, clicks, and conversions.
Some examples of leading affiliate networks and tracking platforms within the Performance Marketing industry are Partnerize, Commission Junction, AWIN, Impact, HasOffers, Avantlink, PepperJam and Rakuten Marketing.
Different affiliate networks and tracking platforms have different strengths and weaknesses, cost structures, merchant vertical expertise, and so on, so be sure to do your research, or ask an expert, such as an experienced affiliate manager or OPM.
4. Affiliate Managers or OPMs (Outsourced Program Management Companies):
Affiliate managers, or affiliate management agencies (OPMs), are considered the main driver between the merchant and affiliate.
While affiliate managers can be in-house, brands might also choose to work with agencies to either manage the entire program or support the in-house team, due to their expertise and an existing network of affiliate partners.
Working with an experienced affiliate management company means the brand can scale their affiliate or performance marketing program more efficiently and with a faster higher ROI.
More hands on deck, existing proven processes in place, robust partner databases and technical and strategic expertise all add to the benefit of working with an agency, such as Global Excellence Award winners, All Inclusive Marketing.
Tasks that agencies can support often include partner recruitment, growth strategies, long tail program optimization, content creation, campaign management and more.
Some merchants decide to give their program to an experienced agency to manage 100%, while others engage with agencies to work in conjunction with their in-house team.
These types of agency partnerships are beneficial because often in-house teams have limited resources, expertise, existing affiliate relationships, and limited market reach, so working with an agency can help fill these gaps and drive much faster results.
Affiliate managers within agencies make sure everything the affiliates need are within reach for both the merchant and partner within the network and everyone is supported with brand strategy and approach.
There are different variables to consider when choosing whether to work with an affiliate program management company or OPM, such as in-house team size, budget, goals, timeframes, vertical expertise, and brand alignment/fit.
Now that we’ve covered the groups involved in Performance Marketing, let’s cover the four most common payment models used within the space.
5. Pay Per Sale / CPA (Cost Per Acquisition)
Exactly as it sounds, this is an arrangement where a retailer or merchant pays an affiliate or publisher for sales they generate once the transaction is complete.
In ecommerce, this is the most common payment model for merchants to set up.
6. Pay Per Lead
A “lead” is typically a completed form registration or signup involving information given by the user or consumer about themselves and is usually a non-cash conversion.
This could include the customer’s name, email address, phone number, household income, personality traits, job information, and so on.
Leads can be as simple as name and email, or as complex as a three-page in-depth information exchange to qualify for a mortgage or loan.
Usually the more complex the lead form, the higher the payout.
7. Pay Per Click
In this payment model, a retailer will pay an affiliate for any clicks they refer to a desired landing page.
This model is less used in the performance marketing world and is generally used only when Nexus applies.
8. Pay Per ‘X’
In this payment model, the ‘X’ can represent whatever the merchant defines as the desired action outside of a lead, click, or sale.
Downloads, upsells within apps, and rewards program sign-ups are examples of these.
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What are the Most Common Uses of the Term “Performance Marketing”?
When it comes to the use of the term “Performance Marketing”, there are several areas within the digital marketing space that use it, yet differ from each other slightly.
Meaning, not all performance marketing is the same.
While one merchant might decide only one area is appropriate for their strategy, others might use multiple areas within a larger “Performance Marketing” umbrella to fulfill their goals.
Here are some of the most common areas in digital marketing that the term “Performance Marketing” is used.
1. Affiliate Marketing
As stated above where we discussed the difference between Affiliate Marketing and Performance Marketing, Affiliate Marketing is more related to any type of marketing that’s affiliated with the advertiser and paid out after the desired action takes place.
In many cases, especially within the North American market, this usually involves partnering with coupon, loyalty, review, and incentive sites.
Affiliate Marketing is the most traditional, and most commonly used term when referring to Performance marketing.
2. Native Advertising
This is a form of paid media that, unlike display ads or banner ads, don’t truly look like ads.
These types of ads tend to follow the natural form and function of the site it is placed on such as news or social sites, and can often be fed dynamically based on each user reading or viewing the content.
The most common payment models for Native Advertising are CPM (Pay Per Impression) and CPC (Pay Per Click).
3. Sponsored Content
Mostly used by influencers and content sites, this type of Performance Marketing involves a dedicated post or article promoting a brand and/or product in return for some form of compensation.
Sometimes the compensation will be in the form of free product or an experience, while other times it is a CPA, CPM or CPC based payout.
4. Social Media Marketing
This type of Performance Marketing is the usage of social media platforms to gain traffic or brand awareness, such as content being showcased on Facebook, Pinterest or Instagram.
The metrics that are typically measured in social media based “performance marketing” are usually centered around engagement, likes, clicks, and sales.
5. Search Engine Marketing
Broken down into two parts, Search Engine Marketing can be successful through paid and/or organic options.
Paid Search Marketing is simply when an advertiser pays for clicks to ads on search engines such as Google, Bing, and Yahoo while Organic Search is the opposite – using unpaid methods such as Search Engine Optimization (SEO) and relying on the search engine’s own algorithm to rank in the top.
Some companies measure their Search Engine Marketing results on a performance basis, while others partner and pay out commissions to SEM companies and campaigns based on results.
What are the Benefits of Performance Marketing?
There are many benefits to adding Performance Marketing to your growth and online marketing mix. Besides the obvious benefit of building your brand through third partner partners with their own audiences, budgets and reach increasing your market share, targeted traffic, and audience engagement, you can also reduce your risk, increase your market reach, and decrease budgets while growing your brand and revenue streams. Further, Performance Marketing is entirely trackable, measurable and transparent. In fact, brands can now see the entire click-to-consume path of each buyer, and identify where to invest more and in which partners, which channels and produce better results.
Since Performance Marketing is paid after a desired action takes place, the risks are lower, the CPA (Cost Per Acquisition) often lower and the ROI higher. This leaves more room in the budget for other marketing strategies to expand and be tested in order for you to grow and compete.
What are Some Performance Marketing Tips to be Successful?
1. Focus on a good landing page and offer.
When it comes to Performance Marketing, a bad landing page can deter visitors from converting and a bad offer can prevent them from clicking through.
Further, both of these not working as well as they should, will deter partners from working with you and being excited about promoting your product and brand.
As an advertiser, make sure you are offering your publishers enticing offers to promote and audit your website for any problems a visitor might encounter when they arrive on the appropriate landing page(s).
Think of and test the entire user experience when they get to your website and mobile site.
As a publisher, always audit links and offers you have available, keep the latest content and releases up and update any landing pages that are under-performing.
2. A/B test and optimize for revenue-driving KPIs.
As any good marketer knows, testing and measuring are essential for any good marketing strategy to work.
When it comes to Performance Marketing, try different techniques and strategies for optimization of conversions and click-through rates, AOVs and traffic by doing A/B testing for a clearer answer to what’s working and what’s not.
3. Choose your traffic sources.
Making sure your traffic is coming from reputable sources and locations is extremely important with Performance Marketing.
When less than reputable sources are advertising you, consumers will think twice about trusting you as a brand and will be deterred from buying or visiting you again.
4. Track and monitor as much as you can.
Attribution, mobile vs. desktop, bounce rates, etc. all give important data points that can give you better insight to what is working and what is not.
Just like testing, tracking and measuring gains and losses is equally important to getting the most out of your Performance Marketing campaigns.
Without the analysis of your work and adjustments to optimize it, your program and your sales, will not grow.
5. Be compliant.
Performance Marketing is all about building relationships between brands and publishers to reach, engage and convert the audiences of others to build your sales and brand.
To do this successfully, both brands and publishers need to follow the rules.
The Federal Trade Commission (FTC) has ever-evolving laws and policies in place, so it is up to both the brands and publishers to stay on top of these federal requirements to ensure that their programs and posts are aligned.
Click here for an easy in-depth look at FTC guidelines to make sure you are in compliant or work with a professional affiliate management company, such as those listed above, to help.
What are Some Performance Marketing Trends to Watch?
Every form of marketing is always evolving, and the same goes for Performance Marketing.
With this type of marketing responsible for more than 16% of ecommerce sales in 2017, it’s easy to see that the growth of this strategy is accelerating at high speeds.
This percentage puts Performance Marketing on par with email marketing and ahead of display advertising as a driving force for ecommerce conversions.
With this growth, more people are making Performance Marketing a career, more advertisers are investing in it, and more publishers are entering the space.
This uptick in influencers, performance-based technology companies, and content sites means more opportunities to promote your brand in the performance marketing space.
Further, with more options for improved tracking and attribution thanks to the enhancements of third-party tracking platforms, these enhancements enable first click models where publishers can rest assured they won’t get dinged if someone leaves their referral and comes back to buy from a different source.
Other new developments to keep an eye on for tracking and attribution are multi-touch, position based, time decay, and linear options.
Another exciting trend in Performance Marketing to watch is the continued development and implementation of Artificial Intelligence (AI) and Machine Learning driving sales, all on a performance basis.
Four areas to pay attention to are automation, segmentation, personalization and optimization – thanks to AI and machine Learning, these buzzwords are making big strides.
In Performance Marketing, marketers have hundreds or thousands of data points, if not millions and billions of data points, to track and measure.
AI takes the complexity out of these data points and helps scale efficient optimization seamlessly using machine learning.
Adapting to this growing trend also allows marketers to free up their time, giving them more opportunity to be creative in their marketing efforts, and gaining more from each dollar spent.
In general, Performance Marketing is a growing marketing strategy for ecommerce brand, merchants and retailers alike.
The trends show continued investment into the channel, from new players entering the space to new technologies being invested in order to optimize results better, faster, cheaper.
Performance Marketing holds a high value to the relationships between multiple moving pieces from the affiliate managers who drive relationships and strategy to the third party tracking platforms that track and credit campaign results.
Performance Marketing helps scale reach, engagement, and conversion of new buyers in new markets at a lower cost, lower risk and much higher ROI than any other marketing channel at scale.
Performance Marketing is a way to build your brand, increase your product awareness and engage with customers without the limitations of budgets or conflicting marketing channels.
It’s a piece that gets layered on top and can drive an average of 16% contribution to your top and bottom line.
Working with publishers and affiliate management companies and affiliate networks as an extension of your brand allows for an added reach that you might never have working within more traditional marketing approaches.
If you already have an affiliate program, it is good practice to evaluate your strategies and your program to see if you can benefit from an outsourced management team being added to the mix, or managing the program completely.
Be sure to test, track, measure and optimize.
For those in the beginning stages of your business or your program, you can build your sales with coupon and loyalty sites first and then branch out with influencer, content and AI performance-based marketing.
No matter where you and your brand stand in the Performance Marketing space, there’s always room to improve and grow.
Find out which approaches will work for you and what needs need to be met for not only the brand but your affiliates and partners.
Once you have your goals defined, jump in and start building those relationships!
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