Performance-Based Marketing + How it Works
It is not uncommon for marketers to invest time, effort, and money into ad campaigns that ultimately fail to render results. It is discouraging and can feel like a waste of time (and ad spend).
Using performance-based marketing allows marketers to set their campaign goals and only pay after the campaign reaches these goals.
This article will discuss performance-based marketing, its advantages and disadvantages, and how to build an execution plan.
What is Performance-Based Marketing?
Performance-based marketing (PBM) is a form of advertising where the advertiser only pays after the campaign achieves specific measurable results. Using PBM, advertisers avoid wasting ad spend upfront on uncertain metrics.
How Does Performance-Based Marketing Work?
Using PBM, ad purchasers pay nothing until the campaign completes a desired action, such as a completed lead, sale, booking, or download. Under this model, the advertiser will first nail down the key metrics they want their ad campaign to reach. After executing the campaign, the advertiser either pays or keeps their ad spend, depending on campaign results.
This method differs from standard advertising models, where providers exchange money upfront, regardless of whether the campaign reaches KPIs.
Under the PBM model, campaigns could be measured based on the following metrics:
Cost Per Lead (CPL)
Number of Audio Listens
Number of CTV Watches
Number of Saves
Number of Social Follows
Number of Social Likes
Number of Sales
Number of Downloads
Number of Installs
Number of Subscriptions
Types of Performance-Based Advertising
Native Advertising
Native advertising mimics the format of the website. It is "native" to the web page. If done well, the ad looks like it belongs on the site. Native ads boost engagement because it is difficult to distinguish between actual content and ads.
Native advertising campaigns typically try to achieve specific cost-per-click or cost-per-impression goals.
Paid Search Marketing
According to Evan Jackson, a Paid Search Specialist at Pathlabs, paid search is crucial because it allows marketers to target users based on specific searches they input into a search engine.
The advertiser is, therefore, only charged if the user clicks on the ad. When built correctly, paid search is cost-effective because most clicks (billed on a CPC basis) are incredibly high-intent users who are likely to convert.
Social Media Advertising
Social media advertising encompasses various platforms where marketers field ads, including Facebook, Instagram, Twitter, Snapchat, Youtube, and much more.
This method is ideal for generating brand awareness and reaching many people. The trackable metrics for PBM campaigns using social media are likes, follows, shares, website clicks, or cost per lead.
CTV Advertising
CTV is any TV with an internet connection, including Roku, smart televisions, Apple TV, etc. These devices allow users to access various streaming platforms where, of course, they will see ads. Advertisers can tap into this ad channel using programmatic advertising, where CTV media fields ads automatically.
This PBM method is ideal for generating brand awareness and reaching many people. The trackable metrics include watch time, completion rate, and direct website traffic.
Video & Audio Advertising
Similar to CTV advertising, these two methods utilize programmatic advertising functions on different video and audio platforms on the web. Examples include Spotify, Youtube, Apple Music, etc.
Video and audio campaigns measure success in views or streams, downloads, click-through rates, etc.
Benefits of Performance-Based Digital Marketing
More Simplified Measurements, Insights, & Optimization
Using a PBM model requires advertisers to focus on the most important key metrics they want to reach – the service provider is paid based on these results.
Advertisers pay for the exact metrics that equal success. If, after a campaign, the analytics show that a given metric had poor performance, the team can reassess and optimize to pay for a different metric.
According to our CMO, Mario Schulzke, this model drives advertisers to be more data-focused and should help align the campaign's goals and the service provider's incentive.
Increased Transparency
Performance-based marketing can often throw any secrecy or miscommunication out the window. Before launching any ads, the business seeking these PBM services will sit down with the partner or agency and detail the key metrics and performance indicators they want to hit.
After laying out the campaign framework, the media partner is responsible for executing the advertisements.
This process is transparent because the service seeker knows what they are paying for, and the media buyer (service provider) knows what campaign goals they are trying to reach.
Challenges of Performance-Based Advertising
Attribution
We asked Mario Schulzke about challenges in PBM, and he underlined that many marketers struggle with attribution.
Consumer behavior is not linear, and many businesses already have an omnichannel campaign strategy. Because of this, campaigns can be challenging to track. When users convert, it may be unclear which ad ultimately pushed them over the conversion line.
If the marketers aren't clear on which ads are driving conversions, the metrics they track will be incorrect, ultimately making the PBM campaign obsolete.
Potential for Delayed Results
If using a media execution partner, the ball is no longer in the advertiser's court after launching a campaign. As a result, the partner is now responsible for executing the campaign accordingly while the business waits.
The campaign may still hit the goal; however, it may not be in the timeframe the client wants.
Increased Risk of Fraud
Mario emphasizes the risk of fraud in performance-based marketing. Some media partners take an "at all costs" approach and do anything to meet metrics that will get them paid. Occasionally, resulting in malicious practices like spamming, meta keyword stuffing, link farming, gateway pages, etc.
These practices result in inaccurate campaign results and can lead to a loss of customer trust or losing the business's website.
Prioritization for Long-Term Goals
Running performance-based campaigns can be effective, but they greatly emphasize short-term campaign results. Dependent on the drive and business, this may be effective.
However, this practice can detract from long-term goals. Sometimes, it is better to have less substantial results from quality leads in the short term because they will eventually compound into more significant developments in the long-term.
How to Build a Performance-Based Marketing Strategy
Before diving in on a performance-based marketing campaign, finding a trustworthy agency (or media execution partner) to work with and establishing specific, traceable goals is crucial.
Then, advertisers decide which channels they want to field their ads on. PMB campaigns are often most effective in established, relatively high-trafficked locations.
After discussing execution details, including timelines, payment models, and what media to use, the advertiser launches the campaign. However, the buck does not stop here.
While the ad campaign runs, the service provider constantly tracks the predetermined goal metrics. If a particular part of the campaign is not performing well, it is optimized for future improvement.
After wrapping the campaign, the service provider and the business meet to address campaign performance. At this point, payment is exchanged based on the performance.
Please note this is just a summary. This process may include additional steps, parties, etc.
Is Performance-Based Marketing Right for You?
RTB should not be a standalone method, rather it could be an additional layer added to a campaign strategy.
A strong advertising structure is necessary to track data, attribute where traffic is coming from, etc. In addition, the metrics put in place should be reachable and realistic. If not, the service seeker will never pay nor ever receive the results they want.
If you have a solid advertising funnel, know what metrics you want to hit, and want to explore PBM, go for it. If not, PBM will likely not get you the desired results.
Curious about the benefits of working with a digital media agency partner? Get in touch with Pathlabs to see how we can become an extension of your team.
