Performance based marketing or affiliate marketing is a method of advertising using the Internet, having the advantage that companies pay the website owner a variable price which depends on the performance of the ad, and not a set price. This comes into the benefit of the businesses which seek for advertising platforms, as they do not have to pay for large audiences.
Performance based marketing also refers to purchasing advertisements into magazines or newspapers, but this approach is becoming old-fashioned, as print media is more expensive than online platforms (because they address to mass audience, rather than to targeted audience).
Performance based marketing is particularly attractive to small businesses with small budgets, who can use the Internet to reach their customers. This type of advertising can be purchased from a wide variety of web-publishers who seek to earn money from the traffic that their websites generate.
An example of performance based marketing is this website itself. As you can see, there are several ads on this website. These ads are paid on the basis of the location they occupy, the number of clicks they have, the number of people that view the ad etc etc.
The method is advantageous particularly from the cost point of view, as the purchaser pays on a ‘’performance’’ basis. The performance based marketing payments include:
- Cost Per Thousand views (CPM – ‘’M’’ stands for the Roman numeral thousand) – in this case the price will depend on how often the ad is displayed to a user.
- Cost Per Click (CPC) – The purchaser pays for every click on the ad.
- Cost Per Lead (CPL) – Payment for whenever a customer provides contact information.
- Cost Per Action (CPA) – This refers to actual sale, which generally requires credit-card information.
Performance based marketing is not effective for all kinds of businesses, as it typically reaches those who spend a great amount of time online. Most performance based advertising promotes online sales, as it is assumed that once a customer has opened the ad, is already feeling more comfortable with making transactions online.
Therefore, the method becomes more effective for the generation who grew up with mobile devices and less effective for seniors who still mistrust E-commerce.
The first step towards for the effectiveness of performance marketing that businesses should take is developing attractive ads with easy-to-understand landing pages and click-through processes. One must take into account that CPM advertisements promote offline purchases which make it one of the weakest forms of performance based marketing, as the businesses pay for a large audience, but there is no guarantee that the audience will respond to the ad.
The next step is to engage a web developer who will place the ads in relevant location of the webpages, targeting the desired audience, wishing for the customer to click on the ad. In this case, the business purchase CPC advertisement. The landing pages for click ads, should be user-friendly and optimized for the user experience. If the customer has reached the landing page, it means that he came there on purpose. Therefore, it is compulsory to present a compelling value proposition, in order to lead him to make the purchase. Otherwise, the landing page becomes ineffective, as the company pays per click, but no actual sale happened.
And finally, the businesses will continuously monitor the behavior of online customers and will make adjustments in order to increase click response.
CPC advertisement works best when it is connected with relevant field or industry, for example, posting the ad on a blog which discusses the industry you operate in, or simply reviews products in the field you are selling. This approach is also cost-effective, as the most popular words are obviously the most expensive. Linking a CPC with a blog which publishes texts about the industry or field you are operating in, increases the chances of acquiring more viewers.
Performance based marketing is a ”must use’’ tool of marketing as it presents a bundle of advantages, particularly to small businesses. It is a great opportunity to increase the audience value and acquire customers at a lower cost.
Here is a video by Marketing91 on Performance-based marketing.