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  • May 2, 2022
  • By Linda Pophal, business journalist and content marketer

Marketing’s New Strategy: Paying for Performance

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There’s an old saying in marketing that goes something like this: “I know that half of my advertising works; I just don’t know which half.”

That lament has long been the bane of marketers in both traditional and digital environments. Those in the digital world, though, are fortunate that technology offers them advanced means of gaining precision around what works and what doesn’t.

Because of the value of this information, performance marketing has emerged as a new specialty in the marketing world—one focused on the ability to measure or attribute clicks, leads, and purchases to specific channels or drivers.

“Performance marketing is a scalable and cost-effective customer acquisition channel where your marketing dollars go on driving real results,” says Nicky Senyard, founder and CEO of Fintel Connect, a performance marketing company in the financial services space. “Even if you are getting results through digital marketing channels like [pay-per-click] or social media, you can power digital growth by integrating performance marketing as part of a holistic marketing strategy,” Senyard says.

Steve Martin, chief marketing officer of Act!, a CRM and marketing automation firm, says that performance marketing is a phrase that gets thrown around a lot in marketing circles. Basically, he says, “I really think it’s all about measuring ROI.” Marketers must be able to say that the dollars they spend are yielding some results.

Unfortunately, while that sounds logical and fairly straightforward, it is anything but.

There are, says Martin, “hundreds of handoffs between AdWords and Google Analytics and WordPress and HubSpot and Salesforce.…” The list goes on.

At the same time, digital marketers also are likely using paid advertising via Google or various social media channels, promoting their products and services on social media channels and focusing on generating positive word-of-mouth recommendations on various online sites, including Google, Yelp!, and others.

HOW PERFORMANCE MARKETING WORKS

In the old days, measuring traditional direct mail efforts was fairly straightforward. Marketers would include a code on the order form or use a special telephone number tied to a specific offer and fairly easily track results.

Today, though, these kinds of measurements are far more precise.

“The concept behind performance marketing is quite simple,” says Roger Huang, head of growth operations at Springboard, a tech industry talent development platform provider. “Agencies and brands work together to set goals, and then the agency is paid based on its ability to achieve those goals. This type of marketing can be extremely effective, as it aligns the interests of both the brand and the agency.”

Despite the potential precision of online metrics, though, marketers are facing new challenges, Martin says. While it’s gotten a lot easier for marketers in a digital environment to track Urchin Tracking Module (UTM) codes, or cookies, Martin says that access to this information is declining based on concerns with customer data privacy. “There’s a whole list of walls being thrown up, which creates all kinds of challenges for marketers,” he says.

But marketers aren’t the only ones involved in performance marketing, especially at small companies. Martin says he works with a lot of smaller businesses where the owners or managers have to wear a marketing hat, even though that’s not their area of expertise. “I see people who are just kind of thrown into it because they’re desperately trying to grow their business,” he says.

Martin works with customers to try to get them “over the hump” of setting up their tracking systems appropriately. Effort is involved, but it’s effort that will pay off, he stresses.

To demonstrate those payoffs he often turns to case studies.

“If you can’t measure it, you can’t manage it,” Martin says. Software can help, he says. “CRM and marketing automation becomes a force multiplier. If you set up it, and you run it correctly, it can do the outreach for you. You can be personalized and automated.”

At the outset, though, specific goals must be established and agreed upon.

Effective performance marketing starts with concrete and measurable goals, Senyard says. She advises looking at your CRM to identify customer acquisition costs. “Your data can enable you to create bottom-line goals, like the number of new customers driven, or a target cost-per-acquisition rate.”

Those new to performance marketing, Senyard says, “can set up a basic cost-per-action rate with an affiliate network to dip your toes in the water with multiple affiliates at once.” Once you start seeing results, she says, “you can nurture authentic and sustainable influencer partnerships by getting guidance from account managers that have visibility into the competitive commission landscape in the network.”

Performance marketing, Senyard says further, is a long-term strategy. “Be patient with growth—it’s a marathon, not a sprint,” she says. “Like SEO, just because it takes longer to see results doesn’t mean you shouldn’t invest in it. Performance marketing is a rewarding channel to supplement the rest of your marketing mix.”

SETTING PERFORMANCE MARKETING GOALS

There are a variety of goals that marketers could choose to measure the effectiveness of their performance marketing efforts—from clicks to leads to purchases, says Sarah Jameson, marketing director for GreenBuildingElements.com, a news and information hub for building needs. Most often, though, performance marketing is typically measured based on cost-per-click (CPC), cost-per-lead (CPL), and cost-per-action (CPA), Jameson says.

Whatever metrics are used, though, “goal setting is all about clarity,” Huang says. “When brands set specific, measurable goals for their marketing campaigns, they are able to better assess the success of those campaigns. This allows them to negotiate more effectively with their agencies and also ensures that everyone is working toward the same goal.”

In addition to always ironing out contract details up front, Huang recommends making sure performance outcomes are always tied to specific metrics and compensation. “There should be a direct cause-and-effect relationship,” he says. “For example, if the brand achieves its desired goal, the agency is rewarded with a higher commission rate. Conversely, if the agency fails to meet certain benchmarks, it may be penalized with a lower commission or even fired.”

It’s common for companies to work with agencies to assist with management of their performance marketing efforts.

NEGOTIATING WITH AGENCIES

When working with agencies, it’s important to be clear and specific about your goals and to have key performance indicators (KPIs) identified. Agencies can provide some direction here by sharing results they’ve attained for other clients.

“Make sure you have clearly defined goals for your campaign and that they are measurable,” Huang says. “Ideally, there should be formulas in place to measure them. If customer retention is your KPI, then track things like customer lifetime value, customer acquisition costs, and so on. Also, always be prepared to renegotiate terms if the agency fails to meet agreed-upon benchmarks.”

Ritu Kapoor, chief marketing officer of Lob, a direct mail and address verification firm, suggests that when defining performance marketing goals, think about how they will align with overall business objectives. She also warns against setting goals around vanity metrics.

At Lob, “we focus on the objective and key results (OKR) goal-setting framework. Originally created by Intel, it was made popular by John Doerr, who introduced it to Google in 1999.” Effective goals, Kapoor says, need to indicate both what you want to achieve and how you’re going to measure that achievement.

“Your goals depend on how sophisticated your assets and programs currently are,” Kapoor says. “Look at the whole customer journey—how customers will become aware of your brand, why they want to visit your website and, finally, how easily they will be able to register once they’re on your site.”

At Lob, Kapoor says, “we’ve found that splitting variable compensation between high-level company goals payable at the end of the year and short-term pipeline targets helps to create focus on the short term while keeping an eye on company goals at the end of the year.”

Successful performance marketing campaigns are also reliant on continuously tracking the performance of campaigns and making necessary adjustments to ensure you are meeting goals.

Finally, Jameson says, make sure to focus on transparency in terms and conditions of contracts. “Establish detailed terms and conditions to ensure communication between brands and agencies,” she advises. “A good professional relationship starts with a contract that lays down ground rules that both parties agree with.”

Because of the value they can provide, performance marketers are in high demand these days, Martin says. Their skills are quite different than skills related to copywriting or graphic design that marketers in traditional settings tended to have. Data analytics has become increasingly important for marketers and organizations. In fact, some choose to bring performance marketing activities in-house rather than working with an agency. There are benefits and potential drawbacks to both.

USING IN-HOUSE STAFF

“Opting for a third-party marketing agency to handle your marketing campaigns means they set the price, but businesses still have control over the number of ads and the quota,” Jameson says. “On the other hand, in-house marketing teams must be able to come up with a budget proposal to be approved.”

Deciding whether to use an agency or in-house staff, Jameson says, depends on desired results. “Brand knowledge, brand focus, and networking are better for in-house teams to take on, while a results-driven approach is the strong suit of a dedicated marketing agency,” Jameson says.

Compensating in-house staff in performance marketing roles is “an interesting question that we’ve wrestled with,” Martin says. With sales roles, he says, it’s very common to provide a base salary plus commission. That’s less common in marketing roles, he says, though it is starting to change, particularly as marketing becomes more results-oriented

Ultimately, of course, with performance marketing, the focus is on getting results. That is most effectively done through ongoing analysis and process improvement.

“One of the most appealing aspects of performance marketing is its capacity to tailor the consumer experience through the use of data,” says Adam Wood, cofounder of RevenueGeeks, a company that works with customers to help them choose tools to manage online sales.

“Organizations can use dynamic remarketing to modify the ads that a client sees based on their behavioral data,” he says. “For example, if a customer visits a website and adds a product to the shopping cart but does not complete the purchase, the merchant can then include that product in its advertising creative to entice the user to complete the purchase.”

Because the customer has already expressed an interest in the product before seeing an ad, conversion rates for remarketing efforts are often substantially greater than those for traditional acquisition initiatives, Wood says.

Testing is another important best practice for performance marketers. A/B testing is quite common and involves testing two variations of an advertising effort that might include testing headlines, offers, landing pages, or other marketing attributes.

Testing and monitoring should also occur over time to help marketers monitor trends that might indicate their efforts are losing effectiveness. That loss can occur if consumers become fatigued with seeing the same ads repeatedly, causing them to ignore or even block them. It’s important to avoid fatiguing—or irritating—customers or potential customers, Wood says. He recommends using a frequency cap to limit the number of times a consumer will see ads each day.

“Testing and measuring are vital for any solid marketing strategy to operate, as any competent marketer understands,” Wood says. “When it comes to performance marketing, A/B testing may help you figure out what’s working and what’s not when it comes to conversions, click-through rates, [average order value], and traffic.”

Performance marketing holds promise for marketers who take the time to understand how it works, which systems and tools can best meet their needs for ongoing tracking and monitoring, and how to establish a process for continuously improving marketing performance and, ultimately, ROI. 

Linda Pophal is a freelance business journalist and content marketer who writes for various business and trade publications. Pophal does content marketing for Fortune 500 companies, small businesses, and individuals on a wide range of subjects, from human resource management and employee relations to marketing, technology, healthcare industry trends, and more.

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