The advertising game is changing, and it’s about time. For too long, businesses have thrown good money after bad.
Sure, you could measure clicks. You might even be able to measure impressions. But was there any correlation between all this movement and anyone actually converting to a customer? Did a lead get so inspired that they picked up the phone to call you?
Changes are afoot in this arena. Performance-based marketing flips “old-school” advertising on its head and evaluates prospects based on what they did after they saw your ad—not before.
Why Businesses Are Demanding To See Results
The issue with advertising was easy to diagnose: there was no alignment of incentives. An advertising network charges you a boatload of money for impressions and clicks. Then, they get paid regardless of whether that click results in a customer. They get paid for the activity—not for delivering on their promises.
Most businesses don’t care about activity. They care about getting results. Performance-based marketing turns this on its head. Now, ad businesses only get paid if a prospect actually converts. This makes sense when you consider how much money is wasted on traditional forms of digital advertising. A lot of wasted budget is attributed to bots, accidental clicks, and prospects who were never going to convert in the first place. Performance-based models cut all this rubbish out by only charging advertisers if something of value actually happens.
What Performance-Based Actually Means
There are a few different types of performance-based marketing models but the same principle runs through them all: payment depends on the action taken by a prospect rather than the exposure of an advert. Cost-per-Acquisition (CPA) is the king of performance-based models. This model only charges advertisers if a prospect performs an action that takes them closer to being a customer. Examples of this include making a purchase, signing up for an email list or giving permission to be contacted at a later stage. When looking for a performance-based model, checking out the best cpa networks allows advertisers to see which one delivers data without misleading practices.
Other models include Cost-per-Lead (CPL) and Cost-per-Sale (CPS). They each offer different strengths depending on your business structure. A B2B firm is less likely to need a CPS model. Their sales cycle takes longer so they have more touchpoints to manage. An eCommerce business depends on the CPS model because sales ties back directly to their advertising costs.
The Trust Factor
Performance-based marketing grows in popularity because of something that might be small but is nevertheless crucial: trust. Businesses have been let down too many times by campaigns that looked shiny but flopped. Performance-based models restore trust in marketing. Ad networks are only paid if you get a new customer so they are more likely to work with you and not against you. They want to make sure your ads work and get traction.
Instead of just beating visitors to your landing page with tons of traffic, performance-based networks actively scout traffic sources that are qualified and more likely to convert.
Which Businesses This Model Works For
Performance-based marketing does not suit all businesses. It works best when the desired action that a prospect takes is clear, and there’s a well-defined conversion funnel. If you need to build an elaborate sales cycle for clients, performance-based marketing is not for you. On the other hand, this type of model suits eCommerce businesses perfectly because the sale process is lightning fast.
Performance-based advertising also works for software as a service (SAAS) firms who need subscriptions, lead generation businesses, and app downloads. Performance-based models work best for small and medium firms who can’t afford to take a big financial risk. If your budget is tight, performance-based models feel much safer than traditional models which force advertisers to pay for every impression—no matter how irrelevant.
The Tech That Makes It All Happen
Performance-based advertising wouldn’t be possible without all the advances in tracking tech we have seen over the past decade. Conversion pixels, server-side tracking, and cross-device attribution models mean it’s now possible to see how an ad someone saw drove their buying behavior.
Modern networks rely on real-time tracking data to analyze campaigns while they’re still running. If certain placements and creative elements are not converting, these are automatically scaled down while the ones that do get the credit.
What This All Means Going Forward
The rise of performance-based advertising is not going anywhere. If anything, it’s picking up speed as advertisers demand guarantees from the money they put into campaigns. Traditional awareness campaigns still have a role to play in the marketing budget, but they are under fire too, as brand marketers are also feeling the heat to deliver better results.
As performance-based models grow, advertisers will have to adapt their thinking about campaigns. Traditional vanity metrics like impressions and reach will not carry as much weight moving forward. What will matter is whether your ads improve your business—do they bring customers? More sales? Increased customer lifetime values?
The game has changed because the rules have changed. Performance-based advertising didn’t just introduce a new payment model for ads. It has shown businesses what advertising should be about in the first place.
