Performance Marketing is a marketing direction that has a clear focus on sales. The work is carried out with an audience that has already generated demand, which distinguishes it from Brand Communication image advertising aimed at creating demand.
The main feature of performance marketing is that it focuses on a specific and measurable result: profit margin, number of sales. The main task of this direction is to understand what tools and channels allow you to achieve the maximum result for a certain type of business, to think through and implement a comprehensive strategy for application and development. Internet promotion in performance marketing implies an emphasis on business indicators (ROI, CPA, etc.), rather than on the classic evaluation of the result by the number of clicks. This allows you to focus your investment and efforts on channels that generate sales, and not just click-throughs to the advertiser's resource. How effective a channel is usually measured by the return on investment that is invested in advertising using it. Proper use of performance marketing helps to ensure maximum profit while minimizing costs.
- Focus on results - Performance marketing can encourage a consumer to take a specific action, such as purchasing a particular product.
- Measurability - The effectiveness of the channels used is linked to the digitized business indicators of the organization.
- Relevance - There is an opportunity to influence the performance of a promotion campaign in real-time.
- Payment for the result - Performance marketing agencies are usually paid for meeting their targets (KPIs).
How performance marketing works
In this direction, standard advertising channels and tools that are familiar to online marketing are used. Here are the main ones:
- Contextual Advertising - According to statistics, most agencies that work in accordance with the concept of Performance, focus their main efforts on this area;
- Promotion in Social Networks - The site is selected based on social status, age group, interests, and other parameters;
- Email Marketing - The tool is most effective for long sales cycles, promotion of online stores, and promotion of repeat purchases. Efficiency is greatly affected by the quality of the database and the letters themselves;
- Native Advertising - The advantage of the tool is the absence of associations with regular advertising, which increases the degree of trust of potential customers. In most cases, native content is presented in the form of informational articles or videos;
- Viral Advertising - It represents content that arouses the interest of users and provokes them to large-scale discussions, repost and other actions that contribute to the spread of viral material (graphics, video, etc.).
If the advertising sources used are identical, the difference between performance marketing and regular online promotion is the synchronization of the channels and tools used. The approach involves the development of a single comprehensive strategy with clear digital indicators and the advantages of different channels involved, which will help to achieve a common goal. Only effective tools are used in the promotion process. Marketers exclude channels that do not produce results.
Main stages of strategy development
- Defining goals and objectives - The overall goal of any business is to increase sales. The most specific goals and objectives are determined depending on the scale and direction of the business, corporate strategy and mission, regionality, and other individual parameters.
- Analytics - Performance marketing specialists study the client's business in detail, the specifics of the services provided or products offered, the current state of marketing (performance, tools used, etc.). They also audit the competitive environment, advertising campaigns, positioning and marketing activity of competitors, etc.
- Strategy development - At this stage, a detailed development of the performance strategy takes place, selection of traffic channels, tactical tools, optimal advertising materials, etc., and determination of the most effective ways to establish contacts with the target audience.
- Creating a media plan - A plan for using advertising tools and channels is created based on the existing strategy. It includes detailed instructions on when and where ads will be placed, and what budget should be allocated to a particular channel.
- Strategy optimization and performance evaluation - After a campaign is launched, specialists start tracking its effectiveness, analyzing the overall achievement of the goal, and the effectiveness of each channel. Based on the results of this assessment, changes are being made to the media plan and strategy. This is done in order to eliminate inefficient tools, as well as optimize those that give the desired result. The more information you have about the CA, the more effective your marketing strategy is.
Performance Indicators for Performance Marketing
Performance indicators (KPIs) usually allow you to evaluate parameters such as:
- Traffic - It shows the number of sessions, clicks, or views over a specific time period. Traffic cannot reflect the quality of these actions, so it is considered a fairly approximate indicator. But it allows you to track ups/downs and analyze their causes. Traffic is usually tracked daily, weekly, or monthly;
- Conversion rate CR - It shows the ratio of the number of successful sessions (when the required action was performed – a call, purchase, etc.) and the total number of users. This characteristic allows you to analyze the effectiveness of a particular channel in terms of converting regular users into buyers/clients;
- Bounce rate BR - It allows you to identify problem areas, i.e. sections of the landing page or resource page that users left. This allows you to make the content more relevant to the target audience's queries and reduce the percentage of rejections (potential customers leaving the site);
- CPC - This indicator means the amount that an advertiser must pay to a specific advertising source for each click on an ad. This cost is influenced by the region of promotion, business orientation (search phrase competitiveness), and other factors. To calculate the CPC, you need to divide the total amount spent on advertising by the number of clicks;
- CPA - This indicator represents the price for the desired action (purchase, call, subscription, etc.) performed by the customer. The main difference from CPC is that the cost of an action is calculated, not a click-through to the site (i.e., a click);
- CPO - This is the amount that the company spent on attracting one client. To calculate this indicator, you need to divide all expenses for selling a unit of production by the number of orders received by the company. The lower this indicator, the higher the return on investment in marketing;
- ROI - This is the designation of the return on investment indicator. You can use it to determine the payback and effectiveness of advertising campaigns. ROI = (profit received as a result of marketing activity - marketing activity expenses) / marketing activity expenses x 100 %;
- CPL lead cost - This coefficient can be calculated as the ratio of spending on a specific advertising channel to the number of leads received from it over a certain period of time;
- LTV customer lifetime value - The indicator indicates the amount of total profit made by one client of the company. To determine the LTV, you need to subtract the cost of attracting and subsequently retaining the client from the received revenue;
- AOV - It represents the average cost per order. To determine this ratio, the revenue generated from sales over a specific period of time must be divided by the total number of orders over that period. It is useful to compare the size of the average value with the same indicator for previous periods and/or the current market situation in your segment;
- RVR return rate - It indicates how many users return to the site again. This allows you to evaluate whether the site is interesting to visitors. A low ratio is a good indicator for companies that sell long-term products, such as real estate. To calculate the RVR, divide the number of repeat sessions by the total number of sessions, and then multiply by 100 %;
- TCR task completion rate - This indicator allows you to answer the question of how easily a user can perform the desired action on the first attempt. The number of users who successfully completed their task (for example, made a purchase) should be divided by the total number of site users who interacted with the corresponding tools (for example, with an order form or "shopping cart"), and multiplied by 100%;
- ARPV - This indicator determines the cost of 1 session, i.e. the amount of money that 1 client session brings in. To determine this parameter, divide the total revenue for a specific period by the number of sessions at the same time.
In e-commerce alone, there are over 30 different performance indicators that require constant tracking and optimization.
How to choose KPI
As a rule, 5-10 main indicators are tracked within a single campaign. The choice of specific parameters depends on the goals and strategy of the marketing campaign, which is determined by the specifics of the business:
- corporate site - The most important parameters are traffic, lead price, number of rejections, conversion rate, cost of attracting an order, and refunds;
- e-commerce - This includes the average value, the bounce rate from the "cart", the conversion rate, the customer's lifetime value, and the task completion characteristic;
- online store - Traffic, rejections, refunds, conversions, average value, and the customer's lifetime value are mainly calculated.
To calculate the necessary factors and conduct analytics, various specialized web services and programs are used ("Yandex.Metrica, Google Analitycs, and others) that allow you to automate the process and present a more visual result.
At its core, performance marketing is the result of a long evolution of digital trends that involve the use of offline and online digital technologies to promote a commercial product. With the right approach, Performance Marketing can really provide the maximum return on investment in advertising, which increases the profitability of the business. It should be taken into account that expert assessment of the current situation and likely prospects, analytics, and the ability to develop a comprehensive strategy is especially important. Only a professional approach will ensure the desired result.