There are dozens of ways that businesses can market themselves on social media and across the web today, but small businesses face at least one major constraint: cost. Marketing budgets are finite, and you can’t be sure how successful a given campaign will be until it runs. But what if brands could stipulate success as part of their contracts? This approach, known as performance marketing, has gained popularity recently and, combined with the growth of attribution-based marketing, it has put pressure on outlets to deliver if they want to turn a profit.
ROI has long been a key factor for businesses deciding on how to distribute their ad spend. It’s why, for example, influencer marketing continues to dominate on social media. Though some of the more strategic elements involved in influencer marketing have changed in recent years, companies have remained loyal to the process because influencers deliver their followers. The ROI on such campaigns is superb compared to other promotions, so there’s no reason to pivot away from influencer marketing – but influencers are just one set of players.
Given this emphasis on ROI, it makes sense that brands would shift to emphasize performance marketing, but without a coordinated effort on the part of advertisers, such a model is bound to be a hard sell. Why would platforms agree to host performance marketing campaigns? It’s not necessarily good for their profit margins, after all, and it shifts the locus of responsibility from the advertiser to the ad platform.
An Old Model Renewed
In order to understand how brands and marketing agencies manage to sell performance marketing campaigns to platforms, it may help to contextualize the practice within a larger history of advertising. Ultimately, performance marketing is just an iteration of PPC and PPI marketing, and advertisers and platforms can organize their contract based on a variety of models. As such, performance marketing campaign costs may be based on costs per click or per impression, or on higher-stakes metrics, like the cost per sale or install.
Whatever model advertisers and platforms agree on, the underlying principle is the same as that involved in more traditionally billed advertising: platforms are selling their audience’s eyes and attention. The bigger the audience and the more sway they have over them, the more likely the platform is to profit off of the campaign by driving clicks, sales, or other interactions.
As noted above, brands are committing more of their budgets to attribution-based marketing because it helps them better track the ROI for each ad platform, and such metrics are at the heart of performance marketing. By pivoting to this approach, brands decrease campaign risk while demanding higher ROI. They are also asking platforms to engage is a more mutual relationship. Yes, companies still need to create quality campaigns in order to encourage engagement, but platforms will also need to work harder on behalf of their advertisers if they want to maximize their own profits.
Performance marketing may not be groundbreaking in its principles, but it will undeniably play a key role in advertising in 2021 and beyond. After all, results shouldn’t be negotiable. Performance marketing just puts some expectation front and center.