Performance Marketing Explained Like You're Hearing It for the First Time

If you've interacted with a marketing agency before, you're likely to have come across the term "performance marketing" - and, more often than not, that's as far as the explanation goes. Most business owners nod their heads at some level, and move on - only to do a google search on the topic shortly thereafter.

Let's delve deeper into what performance marketing is, and more importantly, how it works.

Understanding performance marketing

Performance marketing is marketing that is paid for on a performance-based i.e. results-oriented basis, as opposed to a cost-based (how much you pay for an ad) or impression-based (how many people are exposed to the ad) basis.

Compare this to traditional marketing, where you pay a certain price for a certain output (a newspaper ad that costs $1000 that might have a reach of 100,000 or 10,000 people).

Performance marketing, on the other hand, is all about results; a business only pays for a marketing campaign when a certain action is done, like viewing the ad, clicking on the ad, registering on the business's website, or purchasing from the business's website. It's all about tracking, and the ability to know exactly when and where the business is getting value.

What are performance marketing channels?

Some of the most common performance marketing channels and how they're used:

Meta (Facebook/Instagram) ads

This is one of the most popular performance marketing channels available, ideal for businesses that sell visually arresting, attractive products like clothing, personal care items and cosmetics, food items and so on. Marketers can also target potential customers on very specific criteria such as age, gender and interests to help their ads reach the most relevant people.

Google ads

These are very useful for getting customers to view a particular business's website when they're searching for relevant terms or phrases, like a particular type of item ("buy running shoes online").

Marketplace ads (Amazon/Flipkart-sponsored products)

These are similar to Google ads, although these target people who are already on an e-commerce marketplace and looking to purchase items as well. These usually have a higher conversion rate than other channels since users are ready to spend money as well.

Influencer and Affiliate marketing

These aren't typically performance marketing activities, but some influencer and affiliate marketers operate on a performance-based system where money is paid depending on sales figures. This makes them fall under performance marketing as well.

"Performance marketing" does NOT always mean "fast results"

One of the main misconceptions about performance marketing is that results should be quick and visible shortly after starting a campaign.

A lot of performance marketing campaigns go through three phases:

• A testing phase (which could last up to 2 weeks) where several different types of ads are tested out in small batches to see what works best. (These campaigns may seem to be unproductive or "bad" at this point, but it's a crucial step.)
• An optimization phase where the marketing budget is shifted towards the ad type that is performing best, with costs per sale or engagement gradually dropping.
• A scaling phase, where the ad budget is increased to make the most out of the ad type that's performing best.

Businesses that pull out their ads too early (during the testing phase) often miss out on seeing results.

The all-important ROAS metric

ROAS stands for Return On Ad Spend, and is an important metric that indicates how much revenue a business earns for every buck that goes into the marketing/ad budget.

A ROAS of 3, for instance, means that a business makes ₹3 for every ₹1 that goes into its ad budget.

However, a ROAS of 3 may not always be that great. That mainly depends on what the business's profit figures are - if a business only makes ₹1 for every ₹1 that goes into producing its goods/services, a ROAS of 3 would mean that the business is only breaking even. Businesses should focus on improving their ROAS figures to be higher than their profit margins.

Other common performance marketing mistakes

• Fluctuating budgets, especially turning ads on and off at various points. This resets the "learning phase" of the ads and leads to wasted money.
• Changing ad creatives too frequently - give the ads enough time (a few days) to show results before making any changes.
• Using the wrong landing page - if users are being directed to a poor-quality landing page that doesn't perform well, it'll negatively affect the performance of the ad, no matter how good it is.
• Neglecting retargeting campaigns. Most people aren't likely to make a purchase the first time they land on a website. A retargeting campaign can be a great way to remind them what they're missing out on, and it's one of the most cost-effective types of ads available.

In conclusion

Performance marketing isn't a magic wand, and while it should be able to provide you with quantifiable results, it isn't always as straightforward as throwing more money into an ad and seeing results. It takes time for ads to optimize before they see significant gains, and it takes a keen eye to assess whether an ad's performance is worth further investment. However, businesses that do put in the work and utilise performance marketing effectively (without falling for the various pitfalls associated with it) are likely to see good results from such campaigns.

It's also important to note that the sheer amount of testing and performance tracking involved in performance marketing campaigns can be time-consuming, and if a business finds itself spending too much time on it while not getting the results it wants, a performance marketing partner like Braniva can build these ads for you, utilise real-time data and tweak and optimise your ads for better results so you can focus on other core aspects of your business.