Why Performance Marketing is the Future of Digital Agencies

Digital marketing changed the way we look at marketing, yet digital marketing agencies have remained surprisingly traditional in their approach and focus. That is, marketing agencies still concentrate primarily on their client’s brand development, which may render them obsolete as performance marketing is slowly gaining more traction in the digital world.

We’ve spoken at length about the importance of branding, and why brand development is a marketing strategy that pays off in the long run. However, if digital agencies want to keep up with the clients’ demands, marketers have to guarantee the ultimate end result – the purchase of their client’s product.

Is that even possible? In performance marketing, yes.

What is performance marketing?

What is the usual roadmap of digital agency’s relationship with the client? A client hires an agency, where a marketer or a team of marketers define the client’s marketing goals and develop a strategy accordingly.

With clients who are newcomers, the initial priority is to get the word about their product or service out. This means the agency will focus on growing brand awareness through classic advertising and growing traffic on the client’s website. But after a while, it becomes clear whether the sheer size of the reached audience has anything to do with sales.

This is where performance marketing steps in – and where many digital marketing agencies fall short. Performance marketing looks beyond the famous vanity metrics such as clicks, likes, or a sheer reach, and focuses on leads, downloads or sales conversion.

There is a reason why digital agencies steer clear from this model – after all, an impression or click require some work and time from a marketer. In the case of performance marketing, the marketer earns money only if they manage to go beyond this initial milestone. Basically, agencies get paid only if their marketing campaign ends with a final milestone – people signing up, downloading the service or purchasing the product.

While this is good news for clients, for agencies this means a lot of hard work – or sticking to the traditional marketing practices revolving around branding. But is it a good idea to stick to branding and ignore the rise of performance marketing?

If you look at some of the recent numbers and trends, it is not.

Why performance marketing matters

1. Advertising is going online

Marketing agencies, given their focus on more traditional practices and strategies, are popular among clients who want to build their brand or advertise in print, radio, television, billboards, etc. In all of these settings, clients pay for building brand awareness, and there is never a precise way to measure which aspects of these campaigns led to a specific number of sales.

Online advertising has been taking over traditional advertising at an increasing rate. According to media agency Magna, the digital media took 44 percent, or $237 billion, of all ad money spent globally in 2018. That figure is expected to reach 50 percent, or $291 billion, by 2020. In conclusion, it is reasonable to expect that online advertising will take over traditional in the following decade.

2. CPC is growing

As the online advertising space becomes more saturated, the only logical consequence is that the prices for ads keep growing across all networks.

The prices for ads on the Google Display Network have increased ten-fold over the past few years, while the click-through rate is down. There is a similar trend with the AdWords benchmarks. According to AdStage’s analysis of over 760 million ad impressions and nearly 3 million clicks on the Google Display Network (GDN), by early 2018, the average cost-per-click (CPC) increased by 83%, while the average click-through-rate (CTR) dropped by 27% compared to 2017.

This price does not rely solely on competition and adword competitiveness. “Google can choose to set minimum CPCs however it sees fit,” SearchEngineLand reports. “There’s no rule that it has to show 10 ads per page or three ads at the top of the page.”

But the trouble isn’t just that clicks and keywords are becoming more expensive – it is that brand keywords’ prices skyrocketed as well. In general, brand CPCs (costs for the keywords connected directly to the brand) should be relatively steady, because of low competition for these words. However, in 2017 brand CPCs had a 21% increase compared to 2016.

Similarly, Facebook clicks also became pricier. In early 2018, the cost of a thousand ad impressions was up 122 percent compared to early 2017.

When impressions and clicks become costlier, clients become more attentive to the results they produce – moving the focus from branding to performance marketing.

3. Clients want efficiency

One way towards marketing efficiency is personalization. According to research published in Harvard Business Review, personalization can reduce acquisition costs by up to 50 percent, lift revenues between 5 and 15 percent, and increase the efficiency of marketing spend by 10-30%.

However, personalization requires you to tend to your marketing campaigns on a daily basis. The initial scoop of reached audience needs to be tested for various metrics, scored, segmented and targeted based on their priority and preferences.

The importance of setting the right key performance indicators is the foundation of performance marketing. You’ve probably heard about the expression “vanity metrics,” used to describe numbers that often provide clients with little ultimate value. A large number of impressions or high open rate are not bad per se – but if they are not complemented by meaningful action such as sign up or purchase, they are vanity metrics.

According to the Director for Marketing Services in Hileman Group, Kyle Chandler, the ultimate success of your marketing campaign is measured based on these KPI metrics.

4. Marketers (and tools) adapt

In the early days of digital marketing, it was all about the traffic. Nowadays, it is all about reaching the right people. Marketers adapted, algorithms became more sophisticated, and so did marketing messages.

Many of the tools you are already using are fine-tuned to score and hyper-target your most likely customers based on a palette of demographic or behavioral variables.

This requires synchronized work between advertising tools, marketing automation software, customer relationship management software, and reporting platforms. These tools allow you to reach out to an audience, slowly lead them through the sales funnel, and measure how many customers you earned, as well as how many you lost at each specific stage.

These tools also enable marketers to go beyond CPC advertising based on brand keywords, using some alternative options for targeting.

• Remarketing or retargeting

It is increasingly popular because it decreases the cost of your ad spend and increases the return on ads. It’s available for search and display ads in Google AdWords. On Facebook, you can set up retargeting with Facebook Pixel.

This is a short piece of code placed on your website, which allows you to trach what your page visitors do outside of Facebook. The pixel is a short piece of code which you place on your pages, improving the way ads are displayed on Facebook for your site and your products and services.

• Video content

Facebook has been particularly welcoming to video content in the past few years, since they drive traffic, engagement, and at the same time, prompt users to action. According to Wyzowl, 74% of users who watched an explainer video to learn more about a product or service subsequently bought it, while two-thirds of consumers say they’ve been convinced to buy a product or service by watching a video.

• Creative content

Sometimes, all it takes is a little bit of creativity. Quizzes as a tool of performance marketing may seem like a hard sell at first, but if you try them like these people did, you will find that quizzes cover both traditional and modern performance marketing practices.

More than 82% of users will take part in a Facebook quiz if they see it on their social newsfeed. That is way more powerful CTR than any classical advertisement you could normally run on Facebook. Thanks to their unique psychological effect, quizzes are a multifaceted marketing tool that enables you to collect leads, build brand exposure, segment, sell products and services.

Conclusion

If you are a digital marketer and you have a client who wants to see the results before you get paid, we got you covered. On LeadQuizzes blog, you can find plenty of useful lessons about the original, slow-burning, and effective marketing practices.

If you are interested in getting 2122% ROI thanks to retargeting, click here and check out how we did it. If you want to check out how to build a successful YouTube channel from scratch, check out this ultimate 2019 guide.

And if you want to give quizzes a chance, click below!