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Performance Marketing: The Answer to Lower Customer Acquisition Costs

Nov 17, 2021 | 7 minute read

Performance Marketing: The Answer to Lower Customer Acquisition Costs

Matt Goodman

Co-founder, CEO

Marketers are always on the hunt for cost effective ways to bring in new customers. As customer journeys become more complex, the number of touch points and channels required to reach these customers continues to rise — not to mention the increasing price for acquisition.

Even before the ecommerce shift in 2020, acquiring new customers was difficult (and expensive, especially during peak times) — now with a larger pool of competition, it hasn’t become any easier.

One increasingly popular strategy brands are adding to their marketing is performance marketing. In this article, we’ll explore why employing a performance marketing strategy may be the next step to give you that extra edge from the rest of the competition.

What is performance marketing?

If you’re a fan of dictionary definitions, the Performance Marketing Association defines performance marketing as “online marketing and advertising programs in which advertisers pay marketing companies when a specific action is completed, such as a sale, lead, or click.”

Simply put, this means, as a brand or retailer, you’re not paying unless a specific action is taken.

Traditional advertising models will have you paying upfront for impressions, clicks, and engagements that you hope will lead to sales. Performance marketing allows you to have a little more control over your ROI.

There are many different types of performance marketing:

Merchants who are ready to scale will find the flexibility of headless commerce much more conducive to their goals than the rigidity of traditional ecommerce. Here are the biggest advantages of going headless:

  1. Affiliate Marketing

    The most common form of performance is affiliate marketing. Affiliate sites can be desirable options to increase your revenue with little work and grant access to very specific niches.
    Typically brands seek affiliate marketing as a way to tap into this niche audience for brand awareness but are looking for new sales and pay a commission.
  2. Native Advertising
    Contrary to display advertising, native advertising seamlessly blends your advertisement within the publisher content. Brands can tailor their copy and creative to that of the environment creating a feeling for the user that it belongs. While it’s a bit more work, it’s an effective way to attract engagement.
    Brands will most likely pay a CPM, but some publishers do offer a CPC model.
  3. Sponsored Content
    You’re probably most familiar with sponsored content with the rise of influencer marketing. This could be in the form of a dedicated post or article that promotes a specific brand or product for compensation.
    You will likely find an array of payment methods depending on what type of sponsored content you’re after. It could be anywhere from CPA to offering a free product for the post.
  4. Social Media Marketing
    As one of the current powerhouses in the marketing world, brands are familiar with the targeting ability to reach a very targeted audience.
    The performance marketing aspect is typically centered around engagements, likes, clicks, and even sales.
  5. Search Engine Marketing
    Search Engine Marketing allows you to reach potential customers by showing ads related to specific search terms entered into search engines.
    The most common payment model here is on CPC.

Overall, there are many other avenues to explore this style of marketing in order to round out a full fledged performance strategy. From performance agencies to SaaS platforms that use a well rounded ecosystem to generate sales and only pay on performance.

Performance marketing is very beneficial as a brand for a few reasons:

  1. It’s trackable and measurable
    We’ll use a successful sale as our metric — we all know that’s usually the ultimate goal. In the case of performance marketing, you’re only paying when that sale is made. Instead of putting money upfront and not knowing if those ad dollars resulted in a sale, you can easily link that sale to the platform.
  2. It’s low risk
    There isn’t nearly as much risk with performance marketing as traditional advertising has. You see the results in real-time, modify your budget, or even put stops in place to avoid overpaying.
  3. It allows you to extend your reach
    With performance marketing, you reach a more substantial and diversified audience than with traditional advertising. It may seem obvious, but performance marketers don’t get paid unless you get paid. That means they’re going to work extra hard to make sure the campaigns are successful.

These benefits and more come together to form a viable risk-averse option, generally at a lower cost — especially for customer acquisition.

Lower your customer acquisition costs with performance marketing

The cost of customer acquisition is rising

The goal of any digital advertiser is to maximize revenues and protect the ROI. They’re tasked with acquiring new customers and retaining existing ones. We’ll focus on the former: acquiring new customers.

While the customer acquisition cost (CAC) will vary by brand, platform, and even product, the price has risen over 50%. As a result, brands are constantly looking for ways to improve their CAC.

Performance marketing is often much cheaper

Traditional digital advertising works, there is no doubt. You’d be hard-pressed to find someone who isn’t using a combination of display, social, email, content, search, etc. According to eMarketer, marketers spent $129.34 billion dollars on digital advertising in 2018 alone. But there is one glaring issue: the majority of those channels don’t have a way to guarantee performance.

Brands and advertisers are spending a lot of money on advertising in the form of an upfront budget. As mentioned before, this upfront spend is used to advertise products, which hopefully leads to clicks and — even better — sales. However, that isn’t guaranteed.

With performance marketing, the risk falls onto the advertising company itself. They assume the liability because you only pay when there is a successful outcome. This is fantastic news for brands who can reallocate the extra money they would have spent on an upfront budget to other channels. This added flexibility allows you to grow and compete.

It’s easier to plan your budget

As marketers, we’re looking to maximize our ROI — which can be difficult when you’re looking across the sea of channels you’re likely using. While the majority of marketing platforms allow you to set a budget, performance marketing platforms have an added edge.

Performance marketing campaigns are easy to budget for. Marketers typically have to identify their goals and provide an ideal CPA (cost-per-acquisition) when planning.

From there, the clear tracking allows brands to make adjustments on the fly. If one strategy doesn’t work, it’s relatively easy to try a different angle. Eventually, the results will either support your approach or convince you to pivot.

Another perk is that outcomes are a priority throughout performance marketing campaigns, meaning ads will be optimized for goals — whether it’s impressions, clicks, leads, sales or whatever else your goal may be.

Final thoughts when looking to add performance marketing

If you’re ready to take the dive and see if your online brand is ready for performance marketing, I have some parting thoughts and tips when thinking about your strategy.

  1. Add performance marketing; don’t replace. There’s a reason traditional digital advertising is still growing: it works. Diversify your channels and reach, but do so in a cost-effective way with performance marketing.
  2. A performance marketing platform should span the entire sales funnel. A good performance marketing platform helps acquire new customers. A great one also helps keep them.
  3. Consider your LTV when deciding your CAC. A successful business model requires that your customer spends more than the cost it took to acquire them. Utilize what you know about your customers to help inform you in the planning stages.
  4. Find a partner that aligns with your brand. This can have a few different meanings, whether that means affiliates with a similar audience, a platform that specializes in your particular goal (conversions/clicks/etc.), or one that gives you complete control over how you pay.

About the author

Bradley Wilkinson is a Partnerships and Marketing specialist at Klickly, a 100% commission-based advertising platform. Bradley works with SaaS companies, agencies, and ecommerce stores to help grow their brand. With 9 years experience in results-oriented marketing and content, he has helped startups, mid-level ecommerce merchants, and entrepreneurs with branding and strategy.

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