What Is Performance Based Advertising?
⏱ Reading Time: 4 minutes
Performance-based advertising is the business model by which referrers of the product or service are paid commissions for referring it. The types of referrers that usually participate in this type of business model are typically affiliate marketers, partner websites and web content publishers.
They are paid commissions for referring desired “actions” that a visitor needs to fulfill. It can be trough clicking on the ad, leaving information, or buying the product, etc. These actions generate visitors from referrers websites to the advertisers’ website they partner up with.
Performance-based marketing is ideal for advertisers because it only has a cost when the desired actions are made. You don’t spend money if nothing happens. But when some of the actions mentioned above, you pay the price. Affiliate marketers also tend to like performance-based advertising because the more they publish advertised content, they earn more commission.
Key Points of Performance-Based Advertising
What are the crucial elements of any performance-based marketing? We can break down into a few key points.
First is ads that will catch the attention of the public. Without appropriate and high-quality ad, that is attractive and stand to the point behind its message, you won’t succeed. People won’t even bother with your brand and your products.
Then, a second key point is placing ads on relevant topics or locations. Marketers call this targeting. Targeting your ideal audience means that you need to spend time analyzing your ideal customer. What age group, gender, and their preferences are? Then you are ready to tweak your ads that match with relevant keywords that are popular in your industry.
A third key point is making user-friendly landing pages for click ads. User-friendly pages are must have in today’s user experience and if you don’t fulfill design requirements, then you are missing an opportunity for potential new buyers.
Last, but not least is monitoring and adjustment to increase click responses. If you see that your advertising campaigns are underperforming, you need to re-think it all and find a way to improve your click response rates. This might be the hardest part of making this type of marketing.
Within performance-based advertising, there are many ways to advertise and display products. Each pricing model is a different way of making money and possesses its own advantages and disadvantages.
Here are the most common ones:
Photo 1. Pricing models
CPM (Cost per Mille) pricing models charge advertisers for impressions. The price depends upon how often you display the ad to a user. However, this is the weakest form of performance-based advertisement. The problem with CPM advertising is that advertisers charge for compensation even if the target audience does not click on the advertisement.
CPL (Cost per Lead) is another popular model within performance-based marketing. You get a commission whenever the visitor submits information into a form on a website or landing page of the advertiser. CPL pricing models are the most advertiser-friendly because it’s easily measurable.
CPV (Cost per View) requires you to pay per video or ad watched. It refers to video marketing advertising tactics. CPV helps you evaluate how well engaged your viewers are with the video, from where they view it and if they stop watching the content and lose their interest.
CPC (Cost per Click) is a model where you are paying a referrer on the clicks. It measures how many times a visitor clicks an ad and according to that, the advertiser gets compensation. CPC ads work best when you post them with relevant content, such as a blog which discusses the industry or reviews products such as the one that’s in an advertisement campaign.
CPA (Cost per Acquisition) is a model that offers either paying the referrer or affiliate a flat rate compensation. Or a percentage of the amount spent by the visitor for some product or service. It is the most popular pricing model in affiliate marketing.
Brand-Based vs Performance-Based Ads
Marketers use brand-based ads to build a connection between a user and an advertiser over time. This is the most common type of advertisement and most large brands such as Coca-Cola, McDonald’s, Apple, BMW, etc. use it. The goal of these ads is to build up the brand image and importance among users, but there is no way to directly monitor how successful they are. Neither is there any direct tracking.
On the other hand, performance-based campaigns require lots of A/B testing and tweaking. But they can offer a much better ROI to the advertiser. ROI is great because it can quickly determine if the campaign is successful or not. Therefore, many advertisers choose this type of advertising.
While performance-based advertising only costs money when it is effective, this does not automatically mean that it’s above other forms of marketing or advertising. Performance-based advertising goes along with brand advertising and other forms. You can choose pricing models which fit your needs and goals. Pricing models like CPM, CPL, CPV, CPC, and CPA all have their own advantages and disadvantages. Research all your needs and ways of doing business to set the right pricing models.
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