Performance Payment Increasing- What and Why?


IAB PwC Adspend Study 2008

The above graph from the Internet Advertising Bureau and Price Waterhouse Cooper came out at the end of last year and so is a little outdated.  However this has been subsequently supported by more recent numbers amounting to the same conclusion, yet their source credibility was too low for me to want to quote here- mixture of word of mouth, Ad network sources and others (if you know of any published results, please comment at the bottom).

The first point here is the apparrent discrepancy between what constitutes “performance”.

In our definition we refer to performance pricing as “Payment taken or given when an advertiser meets the clients objective“.

In the same way as you would pay a salesman a % of the revenue or a sales bonus for making the sale, online publishers are paid when the client makes a sale, sign up etc. In this regard I do not see Cost per Click as “performance” advertising, since, unless the advertiser is only looking for clicks to their website, then their actual objective has not been met and so cannot by definition be classed as performance related pay.  It’s like saying to a car salesman “No I didn’t sell any cars, but everyone we spoke to is now a lot more interested in cars.

True performance advertising is represented by a Cost per Lead or cost per X pricing model that has been defined by the advertiser and publisher.  A publisher is then paid for a sign-up, qualified lead or even sale, depending on the campaign goal.  This has significant benefit for companies and the online advertising market.

The fact that this graph shows that performance advertising is growing while CPM pricing is falling seems to be reflected in the growth of Paid Search, which operates largely on a cost per click payment model.  Although Google for example offer CPA modelling (where you can bid on the price of an acquisition) they still charge for the clicks they deliver.

As such this area needs to be defined and quantified correctly before it can be relied upon as valid. Overall however this is a useful indicator of how the industry is remunerated and the increasing demand of advertisers for performance related pay.  It demonstrates the dynamics of the internet marketing industry and so I am surprisd it is not referred to more.  Either way I suspect pay for performance will only increase given the increasing accountability of marketing through analytics and the fact it reduces the financial risk for advertisers.

This is likely to open up payment for visitors reaching any of the numerous stages of purchase (to take one objective as an example), as well as different payments for different objectives a client might have on their website.  Almost like having your own sales force, but no matter how large or small your company is, if your business model works then so will performance marketing.

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