A Simple Guide to Performance Marketing

A Simple Guide to Performance Marketing

Need help with acquiring more customers for your business? Performance marketing can be extremely helpful to get new customers, so business owners can benefit from learning about this strategy. If you're new to performance marketing, this guide is for you.

Let's explore why if you’re not taking advantage of performance marketing within your customer acquisition strategy, you should be. 

Here's what we'll cover:

Feel free to explore these helpful marketing guides after you're done here:

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What is Performance Marketing?

Performance Marketing Association defines performance marketing as “online marketing and advertising programs in which advertisers pay marketing companies when a specific action is completed, such as a sale, lead, or click.”

Simply, this means, as a merchant, you do not pay unless there is a specific action. This can be very favorable because performance marketing is:

  • It’s trackable and measurable. In this example we will use a completed sale as our metric — which is typically the end goal of any merchant ;). In performance marketing, you only pay when that sale is successful. Instead of putting money upfront and not knowing if those coveted ad dollars resulted in a sale, you can efficiently link that sale to the performance marketing platform.
  • It’s low risk. The risk is greatly mitigated when it comes to performance marketing when compared to traditional advertising. You are able to see the results in real-time, more easily adjust your budget, or even put stops in place to avoid overpaying.
  • It allows you to extend your reach. With performance marketing, you reach a larger and more diverse audience than with traditional advertising. It may be a no-brainer, but performance marketers don’t get paid unless you get paid. That means they’re going to put in the extra effort to make sure your campaigns are successful.

These benefits and more come together to form a viable option with far less risk, typically resulting in a lower cost for customer acquisition.

Sales funnel with performance marketing pyramid - awareness, consideraration, purchaseSource: Klickly

Benefits of Performance Marketing for Online Businesses

1. Lower your cost for Customer Acquisition

It’s no secret, the cost of customer acquisition is rising. The goal of any digital advertiser is to maximize revenues and protect the ROI. They’re tasked with acquiring new customers and retaining existing ones — but you don’t need me to tell you that. We’ll focus on the former: acquiring new customers.

While the customer acquisition cost (CAC) will vary by brand, platform, and even product, the price has risen over 50%. Because of these variables, brands are always looking for different ways to improve their CAC.

Acquisition cost per customer statistics by MarketingSherpaPerformance marketing is often much cheaper.

There is no question that traditional digital advertising works. I’d be shocked to find a marketer who doesn’t use a combination of display, social, email, content, search, etc. According to eMarketer, marketers spent $129.34 billion dollars on digital advertising in 2018 alone. But there is one issue: the majority of those channels don’t have a way to guarantee performance in the same way performance marketing does.

Brands and advertisers spend a lot of money on advertising in the form of a budget, paid upfront. This upfront spend is put toward advertising your products, which in turn results in clicks and — hopefully — sales. However, that last action isn’t always guaranteed.

With performance marketing, the risk doesn’t fall on the merchant but goes to the advertising company itself. They assume the liability because you (this part might ring a bell) only pay when there is a successful outcome. This is great news for brands that can then redistribute the extra money they would have spent on an upfront budget to other channels — or put it towards their beach house if that’s more your style. This added flexibility allows you to scale and compete.

It’s easier to plan your budget.

As mentioned, our goal to maximize our ROI — which can be challenging when you’re looking across the sea of marketing channels you’re likely using. While the majority of marketing platforms allow you to set a budget, performance marketing platforms have an advantage.

Performance marketing campaigns are easy to budget for. Marketers typically have to identify their goals and provide an ideal CPA (cost-per-acquisition) when planning.

From there, the clarity in tracking allows brands to make modifications when needed. If one strategy isn’t working, it’s relatively easy to explore a different angle. Eventually, the results will either support your approach or convince you to pivot.

One other benefit is that outcomes are a priority throughout performance marketing campaigns, meaning your ads will be optimized for your goals — be it impressions, clicks, leads, sales or whatever else your goal may be.

While calculating your Customer Acquisition costs, make sure you have the best Shopify accounting software at hand.

2. Improve Customer Retention

The majority of revenue comes from existing customers.

So, you’re now using a combination of traditional digital and performance-based marketing to get new customers. Fantastic! Now, you want to make sure you’re giving an equal amount of love to your retention efforts.

Retention comes in many different forms: email, social media, display, video, loyalty programs, and more — the list goes on and on. Whether you’re using email automation or push notifications, you want to make sure you’re nurturing your existing customers — especially when existing customers are nearly 65% more likely to purchase products, and spend nearly 31% more so than first time purchasers.

With an average of 6-8 touch-points required across many channels before a conversion happens, you want to ensure you’re using the right platforms and tools to extend your marketing budget.

sale leads visualized - email search recommendations, forums, push notificationsNew customers help fuel your retention strategies

Without customers, there is no retention. Without new customers you’re limited to how much you can squeeze out of your current client base. Hopefully, by now, you understand why performance marketing strategies are a good option when it comes to customer acquisition. Typically, it costs five times as much to attract a brand new customer than it does to keep an existing one, but performance marketing can help ease some of that burden on your ROI.

Opting to add performance marketing to your marketing stack can help drive additional customers at a reduced cost — and having a great life-time value (LTV), can have a significant impact on your revenue AND ROI.

Performance Marketing: Takeaways

If you’re ready to see if your business is ready for performance marketing, I have some thoughts:

  1. Add performance marketing; don’t replace. There’s a reason traditional digital advertising is still growing: it works. Expand your channels and reach, but do so in a cost-effective way with performance marketing.
  2. Performance marketing platform should span the entire sales funnel. A good performance marketing platform helps acquire new customers. A great one also helps keep them.
  3. Consider your LTV when deciding your CAC. A successful business model requires that your customer spends more than the cost to acquire them. Utilize what you know about your customers to help inform you in the planning stages.
  4. Find a partner that aligns with your brand. This can have a few different meanings depending on your goals, whether that means affiliates with a similar audience, a platform that specializes in your particular goal (conversions/clicks/etc.), or one that gives you complete control over how you pay.
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