Performance marketing is a results-oriented approach to online advertising. In this model, advertisers pay only for specific actions taken by users, such as clicks, leads, or sales. This differs from traditional advertising models where advertisers pay a fixed fee or rate regardless of the user’s engagement or conversion.
The basic principle behind performance marketing is that the advertiser sets a goal, such as generating leads or sales, and partners with a network or platform to display their advertisements to a targeted audience. The network or platform is incentivized to generate the best results possible for the advertiser, as they will only be paid when the advertiser’s goal is met. This helps the advertiser to track their return on investment (ROI) and make data-driven decisions about their advertising spend.
There are several types of performance marketing models, each with a specific goal and pricing structure:
Cost-per-Action (CPA) – In this model, the advertiser pays only when a specific action is taken by the user, such as a sale or lead. This is a popular model for e-commerce companies, as it allows them to only pay for actual conversions, rather than paying for impressions or clicks that don’t result in a sale.
Cost-per-Click (CPC) – In this model, the advertiser pays only when a user clicks on their advertisement. This is a popular model for companies that want to drive traffic to their website, as it allows them to only pay for users who are actively engaging with their ad.
Cost-per-Impression (CPM) – In this model, the advertiser pays for every 1,000 impressions (or views) of their advertisement. This model is best suited for brand awareness campaigns, where the goal is to reach a large audience, rather than generating specific actions.
Examples of performance marketing in action:
An e-commerce company wants to drive sales for a new product launch. They partner with a performance marketing network and set a CPA goal of $20 per sale. The network displays the advertiser’s product ads to a targeted audience and only charges the advertiser when a sale is made. If the network generates 50 sales at $20 each, the advertiser would pay the network $1,000.
A travel company wants to drive website traffic and increase bookings. They partner with a performance marketing platform and set a CPC goal of $1 per click. The platform displays the advertiser’s travel ads to a targeted audience and only charges the advertiser when a user clicks on the ad and visits the advertiser’s website. If the platform generates 100 clicks at $1 per click, the advertiser would pay the platform $100.
A beauty brand wants to increase brand awareness and reach a large audience. They partner with a performance marketing network and set a CPM goal of $5 per 1,000 impressions. The network displays the advertiser’s beauty ads to a targeted audience and charges the advertiser for every 1,000 impressions of the ad. If the network generates 100,000 impressions, the advertiser would pay the network $500.
