All about Performance marketing: Avoid the newbie mistakes

Simply defined, performance marketing is the practice of advertisers and media vendors sharing the marketing risk in various degrees -- from cost-per-click arrangements to revenue sharing, and all points in between.

Sadly, major online media vendors continue try to dodge an inevitable onslaught of dynamic CPMs driven by demand-side platforms (DSPs) and make excuses for why they don't accept CPC deals. However, as advertisers continue their inevitable march to eliminate marketing waste, resistance to lower-risk performance marketing arrangements will ultimately be futile. And the reason for this progression is tracked digital media.

Because more companies will need to consider performance marketing in 2010, this guide to avoiding newbie mistakes should help you navigate the setup and manage performance marketing arrangements more effectively.

Is my company or my client right for performance?
I won't be cavalier and suggest that every company should convert their CPM media buys to performance media. But here are some situations where performance strategies thrive:

• For the action-oriented. Consider performance media if your brand or offer requires some form of user action to realize the value.
  
• For unique clients with minimal channel conflicts. Focus on clients and their product offers that don't have many alternative sales channels to circumvent.
  
• Where a phased start is a viable option. For a shift to lightweight performance marketing, consider shifting CPM buys to CPC buys, which shifts the media risk partially to vendors.
  
• When simple actions are ideal. If you're looking to achieve simple objectives, such as email sign-ups, contest entries, or friending activities in social media, definitely consider performance media.
  
• When free trials or low-cost deals can help you win big. If you offer software on a free trial basis or market a low-cost (under $100) product and are willing to make an unconditional satisfaction guarantee, don't wait another day -- get started.

Let me add one caveat to the above: Lead generation is for experts only. Be careful with cost-per-lead (CPL) arrangements using performance media. In fact, avoid any affiliate marketing arrangements where you don't have a direct connection with the actual media vendor -- there is too much incentive here for scammer affiliates to enter fake data. (Instead, approach media vendors directly.)

Who are the performance media vendors?
As performance media continues to emerge in mainstream channels, I want to introduce a term -- "tradigital" -- to represent traditional digital media vendors (think CPM buys), so we can separate them from "traditional" performance media vendors.

Surprisingly, few digital marketers know the categories of performance media vendors, let alone the names of those vendors. Here are the principal players:

• Search engines. These are primary purveyors of CPC media opportunities with the added benefit that visitors have been searching for your products/services.
  
• Websites. Since websites tend not to sell out their inventory and ad network backfill is often too cheap, website/portal owners are increasingly open to performance arrangements from attractive brands.
  
• "Tradigital" ad networks. Ad networks have access to so much cheap premium media that the smarter ones welcome the opportunity to test a performance arrangement. Smart media buyers will begin to shift a portion of the CPM media to CPM/CPA hybrids, which tends to result in a discount to the effective CPM.
  
• Affiliate networks. Although best for CPA offers for online purchases, affiliate networks like LinkShare and Commission Junction work well for brands that are comfortable with basic performance media buys and are ready to move to the next level. Oddly enough, affiliate marketing tends to be the first channel companies leverage. For a number of reasons, it often makes sense to wait until other performance media arrangements are in place before approaching affiliate networks.
  
• Emailers. A little secret in performance marketing is that more than 50 percent of total performance transaction volume is driven by email list owners who have developed loyal audiences that respond to offers sent to their lists. Because the cost to generate revenue through email deliveries is almost nil, the area attracts both winners and some real shady characters. So it's important to check references of customers of emailer partners. Professional performance media agencies generally know the winners from the losers.