What is Performance Marketing? Complete Guide 2022

Marketing Agencies are often berated for obtaining results that don’t actually matter to a business (and charging them exorbitant fees anyways). Bounce rate? Impressions? Click-through rates? How do these numbers help my business exactly? Here’s the simple answer - they don’t. 

This is how performance marketing came to be. To provide results that matter to the business. 

Digital marketing is a broad term that encompasses different types, strategies and channels. Within this, performance marketing is a specific, result-driven strategy that businesses may be unaware of.

A Performance Marketing Agency’s success is measured by the results they obtain. This can be in terms of a business objective or if a specific action has been taken, such as a new lead generation. It is based on the performance of the marketing efforts. 

What kind of results actually matter?

Many of you are probably well-versed in the metrics listed below. But here is a recap for those who may need a refresher.

Lifetime Value

Lifetime Value (LTV) is the cumulative net profit that you are expected to generate from a single customer over your relationship with them. Knowing the LTV can help create strategies to acquire new and retain previous customers while maintaining profit margins. It is one of the most important metrics is to ensure that your customers keep coming back for more after their first interaction.

Customer Acquisition Costs

It is important to know exactly how much you are spending to acquire every new customer. What is the point of new leads, a high click-through rate if you are spending hundreds of dollars just to acquire a single customer? CAC can clearly show how much you are spending to acquire every customer, to make sure you maintain your margins.

Gross Margin

Simply put, gross margin shows how much a company retains from each sale after its direct costs are factored into. It is measured from dividing the cost of sale by the gross sale price. The cost of sale includes factors such as the labour, material, and packaging costs, among others. If it costs you $2 to create a $5 product, your gross margin would be 60%, or $3. Gross margin is integral in ensuring your business is operating profitably, and costs are minimised.

If we wanted to cover all these metrics, we could be here for hours. But these are a glimpse of some of the metrics that performance marketers look to improve to create value for your business.

Different Performance Marketing Channels

Performance marketing is a result-driven, fast-feedback strategy of digital marketing. With that said, it tends to focus on paid channels to achieve its goals.

Paid Social

Social Media has been and continues to be one of the largest channels for paid marketing. This is mainly due to the sheer volume of potential customers that utilise these platforms. The wealth of data available regarding customer demographics and insights make social media platforms attractive for performance marketers. It helps to bring results to businesses effectively and efficiently. 

The biggest differentiating factor between Paid Social and Search Engine Marketing (SEM) is Social Media’s ability to generate demand, which SEM lacks. SEM is limited by search volume, as advertisements can only be shown for keywords that are already in the potential customer’s interest. Paid social is not limited to this, and can be shown to people that had no prior interest in the product, generating demand.

Paid Search

Having your business on the forefront of the Results Page is a surefire way to stand out against the competition. Performance marketing involves finding the right keywords for your brand, and making sure your brand is exposed to the right audience. As organic growth increases in conjunction with paid ads, the goal is for your business to rank higher regarding the relevant keywords. This will ultimately bring more traffic, and hopefully, leads for your business.

Benefits of Performance Marketing

The biggest benefit to performance marketing is the peace of mind as a business that they are focused on the results that matter to you. It’s hard to argue with sales and graphs that go up.

Some performance marketing agencies work on a hybrid structure of a retainer + performance structure. The nature of this pay structure is also a big benefit for businesses. With this alignment of interest, businesses can place confidence in the effort that will be provided to help reach their goals.

Conclusion

Interested in finding a Performance Marketing service? Launcher Lab is the Performance Marketing Agency which specialises in scaling up businesses with our create-test-iterate approach. Want to get results that matter to your business? Contact us today