Is your D2C (direct-to-consumer) brand testing the waters of performance marketing yet?
It’s 2022 and D2C is here to stay. With the pandemic pushing everyone inside for a year or more, how, why and where people buy is almost completely different from how it was just a few months ago.
More people are going online to shop than ever before, meaning there’s more opportunity than ever for potential customers to learn about your offerings and become lifelong customers.
But these opportunities can be easily missed with a traditional marketing paradigm, and brands who optimize their efforts with performance marketing are the ones who will sweep up this deluge of new D2C shoppers.
Simply put: if you’re a D2C brand in 2022 and you’re not focused on performance marketing as a key part of your business strategy — you’re already in serious trouble.
What is Performance Marketing?
Let’s be honest: “performance marketing” is a broad term. If you asked a room of twenty marketing professionals what performance marketing is, you might get twenty different answers.
In practice, performance marketing is an umbrella term for all online marketing and advertising activities wherein advertisers pay marketing platforms when a specific, measurable action is executed on their platforms.
Unlike traditional marketing, where advertisers pay advertising providers up-front with the hope of some result, advertisers only incur a cost when a specific condition — buying a product, for example — is met.
Just as D2C sales have accelerated rapidly in the ever-increasing move toward a worldwide digital marketplace, so has the need for D2C companies to take advantage of all the tools available to them — like performance marketing — or face the reality of getting left behind.
How are performance-based marketing costs calculated?
The key characteristic of performance marketing is that you only pay for the marketing that satisfies a particular outcome. If it doesn’t achieve the intended goal, you don’t pay a dime.
As a rough example, you might pay Google $1 for every time someone clicks on your ad when they see it on their Google search page. Or you might pay Facebook $1 every time someone signs up for your email list via an advertising on Instagram.
In both circumstances, you wouldn’t pay the hosting platform if the conditions are not satisfied. So if someone sees your display ad on Google but doesn’t click it, or if someone clicks through on your Instagram ad, but doesn’t sign up for your email list — that doesn’t count against your budget.
This variable cost model is crucial for success for D2C brands, as you can control costs more effectively while simultaneously optimizing your marketing spend to increase growth.
Smaller companies in a growth pattern don’t kill their razor-thin margins with over-inflated marketing costs, while industry heavyweights can leverage their larger budgets to carve out more market share through a more efficient advertising spend.
As we outlined earlier, you pay for your marketing efforts if — and only if — certain conditions are satisfied by users of the marketing platform you are advertising on. These cost metrics are always agreed upon in advance by the advertiser and the platform upon which the advertising is hosted.
Here are the most common models that will trigger a cost when the requirements are met by the end user and some of their most common usages.
- CPM (Cost per mille)
- This is also known as cost per thousand (“thousand” being English for the French “mille”). It’s exactly what it sounds like — you are charged an amount for every 1,000 people who see your ad.
- CPC/PPC (Cost per click/Pay per click)
- Cost per click is also what it sounds like: you’re charged only when a user clicks on your ad.
- CPL (Cost per lead)
- CPL pricing means you are only charged for your effort once a user takes some discrete action to sign up as a qualified lead for your business. This usually involves signing up for an email list or similar database, so you can further interact with these now-qualified leads.
- CPA (Cost per acquisition)
- Under a CPA pricing scheme, a cost is incurred for the advertiser whenever a new customer is “acquired.” What “acquired” is can change from campaign to campaign, but usually, you are charged when a customer’s debit or credit card is charged, or an order is processed.
Key Performance Indicators
Now that we’ve established what performance marketing is and how costs are calculated, let’s look at how it’s used.
Performance marketing allows you to optimize your marketing efforts by using discrete, observable data to inform and guide your marketing toward the desired statistical result.
What your desired result is can vary based on your business, your vertical, your industry, the time of year, the phase of growth your business is in, what kind of ads you’re running, what platform you’re advertising on, etc. The list of things to focus on is nearly infinite.
The key part is that you’re modeling your performance marketing campaigns based on achieving a specific objective with regards to your marketing effort.
Do you want more sales? Do you want to acquire more customers? Do you want to build brand awareness? Do you want to build demographic data for later campaigns? It’s all relative to what your business’ needs are — but the key thing is having specific key performance indicators, or KPIs, to gauge whether your efforts are working or not.
Some common KPIs that companies use to optimize their marketing efforts include:
- Return on ad spend (ROAS)
- Click-through rate (CTR)
- Conversion rate
- Website traffic
- Returning vs. new visitors
- Average time on page
- Average order value (AOV)
- Sales (by number or gross)
- Leads generated
- Sales qualified leads
- Cost per lead
- Cost per conversion
- Cost per acquisition
- Retention rate
- Email list growth
- Attrition/churn rate
Note that it’s common for the cost metrics discussed earlier to also be KPIs. It makes sense — a lower marketing cost means higher profit, so many businesses will target a lower Cost Per Acquisition or Cost Per Lead lower in an effort to boost profit.
Why switch from a traditional marketing strategy to a performance marketing strategy?
A better question would probably be: “why wouldn’t you?”
Traditionally, a company would pay advertising/marketing costs up front, with no guarantee that your advertising is working. You buy a billboard, you supply the creative, the affiliate puts the billboard up…and that’s it. You pay a sum to an affiliate who hosts your marketing effort and you pray as hard as you can that it works.
With performance marketing, these costs are variable and can be controlled based upon performance. With traditional marketing, it’s as Hunter S. once said: “buy the ticket, take the ride.”
Directly related to cost, there’s lower risk involved for brands when utilizing performance marketing methods. As you only pay when a certain action is completed, you’re not risking an entire quarter or year’s worth of marketing budget on an effort that could completely fall flat.
With performance marketing, you can spend money ONLY on the campaigns that are working, AND adapt your spend and budget in real time. This allows D2C brand to limit the risk of any given campaign — a crucial advantage for any D2C business, no matter your goals, size or vertical.
In our billboard example above, how could you measure whether your earlier marketing effort was successful?
In a practical sense, you can’t. Maybe you could set up teams of people at exits near the highway, stopping motorists and polling them about their impressions of a billboard most of them probably didn’t even see.
With performance marketing, you can see the results of your efforts while the campaign is running. You can track how your ad is being received, who is receiving it, who is interacting with it and how. This provides measurable, definiable results to gauge how your advertising effort is performing — and how it can be improved.
Performance marketing offers real-time insights into the who, when, where, how and why of your campaign, so you can not only optimize the existing campaign, but gather important knowledge of your customer base to improve performance for forthcoming campaigns.
Performance marketing is extremely adaptable. With the real time data and control of performance marketing, you can change anything about your advertising efforts whenever you want.
You can resequence videos to improve performance, add a CTA to increase clickthrough, turn off failed campaigns before they eat up your budget, or boost your most successful campaign once it’s a statistically-relevant winner.
Performance marketing is much more specific than traditional marketing. With performance marketing, you can narrow your focus to only extremely specific groups of people, so you can tailor your advertising to meet your ideal customer. You can target people by age, gender, location, race, political preference, marital status, familial status, areas of interest — even past behavior — and that’s just scratching the surface.
The biggest reason for switching to performance marketing for D2C brands is also the simplest.
Performance marketing is a more efficient use of your money.
Performance marketing streamlines costs, targets more specific and more relevant potential customers, generates more qualified leads, increases the control you have over your advertising in real time, and delivers meaningful, measurable results that impact your bottom line.
Simply put, performance marketing allows you to optimize your marketing dollars in a way that’s simply impossible through a traditional approach. With a performance marketing approach, you can advertise in a way that is flexible, cost-sensitive and much less risky.
In the D2C space, your marketing has to perform efficiently — or your competitors will quickly and ruthlessly take advantage of the opportunities you’ve missed.
When you compare the tangible, specific benefits of performance marketing with the “Welp, hope this works!” approach of traditional advertising, there really is only one choice for D2C brands who want to grow in the year 2022.
You can either hop on the performance marketing train…or say hello to Xerox for us.