Performance-based advertising, also known as pay for performance, is a type of advertising in which the purchaser only pays when there are measurable results. It is mainly purchased by companies that use the Internet to reach customers. It can be purchased from a wide variety of web publishers—pretty much any website that seeks to make money from the traffic it generates. Popular hosts of performance-based advertising include search engines, home pages, website landing pages, social media networks, etc.
As an Internet tool, performance-based marketing typically reaches those who spend the greatest amount of time online. Additionally, while a CPM advertisement can promote an offline purchase, most performance-based advertising promotes online sales; therefore, it’s assumed that the audience for a given ad is already comfortable with making transactions online. This makes such messaging less effective for seniors than for a generation who has grown up with mobile devices and online commerce.
Importance of performance – buying models:
- Track performance
- Improve targeting
- Reach new audience
- Improve engagement
- Generate leads
- Better results
The four most common buying models:
1) CPCV – Cost Per Completed View:
- CPCV stands for Cost Per Completed View (advertising cost / completed video view).
- This means that advertisers pay each time a video has been viewed through to completion.
- In a CPCV model, the advertiser is paying for a view, versus in other campaign pricing models.
- This model ensures your ad has maximum impact on users. It also gives advertisers a chance of winning the first impression.
- CPCV = Cost / Completed Views
2) CPC – Cost Per Click:
- CPC stands for cost per click advertising
- In this model, the advertiser pays when a click is made on an ad
- Some advertisers prefer to buy CPC versus CPM because they believe they only pay when someone is interested enough in the message to want more info
- The higher the CPC, the more money you get paid per click
- It is measured in terms of actual delivery and cost efficiency
- CPC = Cost to an advertiser / number of clicks
- If a campaign costs an advertiser $100 and they received 32 clicks, the CPC would be $3.125 (100/32 = 3.125)
3) CPL – Cost Per Lead:
- This stands for Cost Per Lead
- With this model, advertisers compensate you when someone views an ad on your site, clicks that ad, and then takes a further action to become a qualified lead for a sale
- This might mean signing up for an e-newsletter, reward programs, or free website membership
- It is measured in terms of sign-ups achieved / cost efficiency
- CPL = Total Marketing Spend / Total New Leads
- For example: If you spent $1,000 on your campaign and 10 users convert to leads, your Cost per lead will be $100 ($1000/10)
4) CPA – Cost Per Action / Acquisition:
- This stands for Cost per Action
- With this model, the advertiser pays every time the user takes an action
- Be it a sale, a click, form submit, contact request, newsletter sign up, registration etc. - any action taken by the consumer warrants a payment from the advertiser
- Cost per acquisition is a lead-gen or sale – based metric
- CPA = Total ad spend / Total attributed conversions