Truths and lies of performance marketing
What’s Performance Marketing? Performance Marketing or Affiliate Marketing is the name given to results-oriented marketing – lead or sales generation marketing – generally runned on a performance basis model, meaning the digital marketing agency assumes most of the risk as it takes over both the investment and management of the online campaigns charging the client only after a conversion or marketing result – lead or sale – is achieved.
This collaboration model between the client and the digital marketing agency, is, at the end, the best case scenario for both parties, because the results of the digital marketing agency are bonded to its client’s – based on a win-win philosophy: the agency wins only if when its client wins – , so the agency may also invest in nurturing its client in order to achieve tangible results, and so the client pays delighted as it only does it whenever results happen (leads and / or sales).
Are we then at the definitive collaboration model between digital marketing agencies and its clients?
The answer, as it usually happens in digital marketing, can not be different from «it depends…” But…Depends on what? Let us analyze it by getting back to this post’s title: Truths and lies of performance marketing.
1.Every online marketing campaign can be based on performance model. This is the first wrong assertion, because as any trading commission – as CPL or CPA are actually commissions obtained after results are achieved -, the payment associated with the online channel results is made or should be made based on the results achieved through actions directly linked to sales – Google Adwords campaigns, SEM, Social Media campaigns, Social Media Marketing – . However, there are many related actions which need to be done in addition to those online marketing campaigns that are not related to sales at first sight and yet are essential in order to address a strategy and action plan driven to success. And which are those kind of actions we are talking about? In general, all those related to the initial consultancy service at the online marketing campaigns pre -release, such as:
- The marketing and online communication plan development, in order to better define the Marketing strategies and actions that need to be taken in the chosen time horizon.
- A Social Media Plan development, in order to determine themes, publication rates or communication tone and style that will need to be followed in each of the social media profiles.
- The SEO strategy and its implementation, in order to position the client’s website at the top position of searching results. This actions can be divided into two stages: on-page SEO and off-page SEO – which require a lot of prior consulting work – keywords research, landing page SEO optimization facing the new strategy defined -, as well as continuing work on content marketing in order to generate quality content which helps position the page on the organic search results or the dedication to also generating a linkbuilding strategy – off-page SEO – , which need to be addressed during some months until they finally begin showing its results.
- Consulting and analysis on web usability and convertion funnel optimization – website performance – with the objective of bettering the page conversion ratio and decreasing its bounce rate. All this gets usually done by making some usability video tests and an experts report in order to determine the proper optimizations that need to be implemented.
- Configurating an Automated Marketing Service – from a CRM system -, defining decision trees and automating marketing processes related to the Customer Relationship Management such as Customer Support, Remarketing – mainly run through E-mail Marketing or Social Media campaigns -.
These actions, by their nature, should not be included within those that can be added at a performance model, mainly because they provide a value beyond the own pursuit of leads and sales – and even influence the results- they are not directly related to them.
2.The Performance Marketing model is the best way of collaboration between agency and advertiser. This idea is just a half true, since it is not always the best model of collaboration between agency and advertiser, mainly due to the state or level of implementation of the online project of the client company.
Far from the current trend of offering Performance Marketing services to startups or entrepreneurs, the Perfomance Marketing model is more suited for companies which are already established in the online channel, with a branding strategy which is been worked in pursuing their online results improvement.
In the end, we must understand that any Digital Marketing Agency working under this model needs to minimize its management and consulting in order to get its ROI in a quicker way, specially in case the Digital Marketing Agency is capable of working independently and reducing the hours reserved for meetings and consulting, focusing only on recovering their investment in actions that offer a faster return on investment, because it will surely result on beneficial outcomes for both parties.
In the case of startups – which usually show a lack of knowledge in the online channel – it will be necessary to perform many trials and discard errors in order to discover which methods work better for the startup purposes, which means the Performance Marketing is not the proper way to work with this kind of business. This work system, for operational purposes, is more likely to be assumed by those companies that have an internal team that lines up with the working process of the Online Marketing Agency, mainly by unloading much related content marketing work, and, of course, because of their previous experience in the online channel, they better understand this working system and they are usually willing to reduce both meetings and consulting hours with the agency. However, both startups and entrepreneurs – both being new projects and lacking knowledge of the online channel operating ratios and marketing processes -, despite seeing the Performance Marketing model as a cheaper one, discover quite often during the working progress that they are really in need of consultancy, which ends up with them demanding these kind of services that were not approved at the beginning of the working contract and hence is not viable in this model of work – always assuming that everything is done with the necessary quality –. This all ends up in contradictions which often occur between the pace of work and autonomy needed by the agency in order to get its Return On Investment, and also with the needs of the startup project, in terms of consulting, training and ongoing care. This all is even paradoxical, thus it fits much better with the conventional working model explained before.
3.Performance Marketing is the cheapest working model for the client.
Not having to pay monthly fees in terms of campaigns management or materials preparation tends to be perceived by the client as the most economical model contract. However, the Digital Marketing Agency, in order to get back the investment made and the risk taken, must determine much higher CPL / CPA costs than when working under the conventional model, and this often conflicts with the margin per unit the client company has settled or the average ticket of his e-commerce, resulting thus quite difficult to assume those CPL / CPA the agency offers them for their services.
We must also remember that the more sales are generated, the more the fees scale – the higher the volume of retail sales CPL / CPA -, which means the unit variable cost will be higher and higher as the fees increase is directly proportional to the number of sales achieved, and this, in the end, can be a much greater starting than if you were just working under a conventional model with a series of monthly fees and advertising investments previously planned, which are generally controlled based on the acceptance of the proposal and economic agreement.
Does this mean that, at the end, the Performance Marketing model does not compensate? No quite. Just like everything else, it must be thoroughly analyzed in order to see its viability or not with respect to the nature of the online business that its needed to promote.
4.Not getting the initially expected results is a campaigns responsibility due to their lack of optimization
This is also a statement commonly made, especially among clients, and even if not entirely false, it must, however, be taken into context : What online sales depend?
As shown in the picture, there are three variables that directly influence the sales of any e-commerce:
The product / service.
Although it May be very obvious to Indicate That to influential fairly aspect in the turnover of a business is the product or service being marketed , it is not so, specially form an entrepreneur or startup perspective, given that their product or service has already passed many filters and analysis, which means those entrepreneurs and startups are usually convinced – and it’s true in most of the cases – that the product already meets all market requirements. Though, what they are they missing? Most of the times, the Customer , which is the ultimate judge and the one that really validates a business idea by deciding whether to buy or not, so determining the viability and future of any proyect.
So, do we have to swing back what the customer really needs and wants? Quite often, when a need product or service is launch to the market and the results are not as expected, there is a reading that every company should make itsef: Is our product what customers really want? Is there a way to adapt it to the reality of our potential customers? And the most important question: Am I really addressing the target audience of my product / service?
Trying to ask all these questions, and trying to answer them all with honesty, will allow the client company repurpose its business model taking into account the potential consumer and its target audience.
What we must also not lose sight of is that when a new product / service is lanched to market, it is necessary to have it tested by it target audience, and the only viable way of collecting all the necessary information about it is by investing on quality promotional campaigns. In addition, any new product / service can be changed or pivoted only in the medium / long term , so it is not the only variable to be taken into consideration when optimizing marketing actions and the results achieved. There are two other variables in this equation which can be optimized by themselves in the short term in order to achieve better results.
The conversion ratio shows the percentage of results obtained from all traffic received on the client’s web platform – or, if you prefer it this way, the amount of users who have visited the website motivated by any action of marketing that has finally become log: ie in user interested in the service or content published by subscribing to the newsletter or, of course, for sale, ie, percentage of users who finally after surfing the web have decided to purchase the product / service.
Logically in the conversion ratio affects the product / service, but in many cases, although it meets customer needs and why the customer finally does not complete a registration form or purchases any product or service it is due to some other reasons that are closely related to the customer experience and how simple the convertion funnel results to them (ie the registration process / sell) on the platform.
This really can be optimized in the short / medium term and improved to facilitate the user throughout the process.
It is therefore important to analyze the user behavior when browsing the web, to analyze where a higher rate of rebound is produced and put measures to prevent the abandonment in the purchase process in those pages where users abandon it. Ideally, the Digital Marketing Agency with which you are working all the action plan will also provide ongoing consulting to the client and suggestions about how to monitor the users behavior on the web in order to improve the page conversion ratio and better monetize online marketing actions.
This third variable, could really be called «marketing efforts», and it can be changed in the short term, and, along with the conversion ratio in page must work together in order to continue optimizing and improving the outcomes obtained. So, what should we include here?
- Optimizing campaigns and online marketing activities
- Advertising investment
The first is the daily work of the Digital Marketing Agency, which is to optimize creatives, advertising messages, segmentations or keywords, seeking the improvement of ratios affecting conversion – number of impressions, clicks, page views, CTR%, percentage of users who register and / or purchase any product or service – to be defining those campaigns, ad groups and ads that work and make it better.
The second is the advertising investment, ie, the sum of money paid to the online channels such as Google Adwords, Facebook ADS, ADS Twitter, Linkedin ADS. This will depend on the level of competition has in the sector where it competes our client company – the greater the competition, the bigger the investment needed – , the complexity of the product / service that is being promoted – again, the more technological or innovative, the more investment needed -, the product price – the higher the final price the higher the investment needed – or for example, the type of profile target audience – as a B2C target differs from a B2B one, and the costs of reaching them are also different -.
5.Performance Marketing is the only one that allows you to monitor the results, and optimize campaigns in order to achieve your goals.
People tend to mistake the terms «Orientation to Results» and «Performance Marketing». A client may work with its Digital Marketing Agency in a conventional way and that one may take a completely results focused work, achieving both leads and sales, withouut necessarily having to work under a Performance Marketing model.
What is now known as «Performance Marketing» is a contract model between the client and the agency at which all actions are oriented to results, leads and sales, but it’s that, in addition, the Digital Marketing Agency offers its services and charges only while results are achieved variables. Furthermore, in both cases, the level of monitoring and optimization is the same, since the objective is also shared: To increase the number of leads and sales achieved.