The Pros and Cons of Performance-Based Marketing for eCommerce Businesses

In eCommerce, where everyone's trying to crack the code for profit, one term you've probably come across is Performance-Based Marketing.

Now, don't let the jargon scare you – it's essentially a results-driven strategy that flips the script on traditional marketing. Instead of throwing things at the wall and hoping they stick, this approach ties success directly to measurable outcomes.

As our online shopping carts continue to fill up, eCommerce is getting more competitive by the day. That's where performance-based marketing steps in, promising businesses a more promising way to see results that actually matter.

In this blog post, we're diving into it. We'll spill the beans on the good stuff and the not-so-great stuff. Tag along as we unpack the pros and cons – because, hey, every strategy has its quirks!

Pros of Performance-Based Marketing

Performance-based marketing is usually considered a great way to market an eCommerce business since the risks are comparatively low here.

And there are multiple other advantages as well, like the ones we’re about to cover in this section.

1. Cost-effectiveness

Let's talk dollars and sense – because who doesn't love a good bargain, especially in marketing?

With performance-based marketing, you're not forking out cash for vague promises or fancy ad placements. Nope, you're paying for results that you can see and measure.

It's like ordering food and only paying for what you actually eat – a win-win for your taste buds and your wallet.

Plus, since you're only dishing out for what works, it's a genius way to make every cent of your marketing budget count.

However, some marketing agencies or partners work with a fixed fee + performance bonus payment model. So they’ll charge you a fixed rate, which would be much lower than usual, and bonus fees for every target they achieve.

Measurable ROI

Ever felt like you're throwing marketing strategies into a black hole, crossing your fingers and hoping for the best?

Well, performance-based marketing puts an end to the guessing game. You'll know where your marketing dollars are going, and more importantly, what they're bringing back.

Because like the name suggests, performance-based marketing works based on performance. You’re essentially only paying for achieved targets.

I might be a bit exaggerating, but this marketing model really is like actually knowing what the ROI would be before we even spend a dime!

Incentivizes Results

Who doesn't love a little friendly competition? Performance-based marketing turns your marketing partners into marketing rockstars, giving them a front-row seat to the impact of their efforts.

When the success meter goes up, so do the rewards – it's a win for everyone.

This approach doesn't just motivate your team to do better; it sparks creativity. When the name of the game is results, you'll see your marketing agency or partner brainstorming outside-the-box strategies to bring in those conversions.

Risk Mitigation

Say goodbye to sleepless nights wondering if your marketing investments will pay off.

This approach reduces financial risk by ensuring you only pay for what delivers.

Imagine it like having insurance for your marketing strategy – if it doesn't perform, you don't pay the premium.

Performance-based marketing guarantees (To some extent) value for your money, turning your marketing strategy into a safe bet rather than a gamble.

Cons of Performance-Based Marketing

I said performance-based marketing has lower risks. Doesn’t mean it has no risks.

While we all like to pay it safe and succeed, the truth is, in marketing, there are no safe bets. Of course, you can do things with a little bit of caution, but the risks are always there.

We’ll explore these risks here.

Dependency on Partners

Imagine your marketing success being a dance, and your marketing partner is your dance partner. Sounds fun, right?

Well, in performance-based marketing, your success is indeed tied to your partners. While they can twirl you into greatness, there's also the risk of the occasional misstep.

What if your partner messes up one of their moves? Really don’t want that happening, do we?

Relying on affiliate performance means you're riding the wave of their efforts, and sometimes, external factors beyond your control can throw in a curveball. For instance, if, for some reason, your marketing partner becomes unavailable for some time, it might just badly affect your marketing efforts. Might even bring you some losses.

Fraud and Mismanagement

It's the dark side of the moon – where there's money, there's always the risk of mischief.

Performance-based marketing isn't immune to the sneaky business of fraud and mismanagement. Because sometimes you’ll be trusting absolute strangers to play with your money.

The challenge lies in monitoring and preventing abuse, keeping your marketing efforts free from the lurking shadows of fraudulent activities.

At the end of the day, it's the downside of the digital age – where opportunity flourishes, so does the potential for mischief.

And that's one reason you should be careful when choosing your marketing partner. Make sure to avoid the common mistakes when outsourcing eCommerce marketing services.

Short-term Focus

For those sneaky marketing agencies or partners out there, the spotlight often shines on short-term gains. The better they perform for you, the better they earn, so they’ll try to do everything they can to win it in the short term.

And that begs the question, what about the long haul?

The risk here is that in the pursuit of immediate results, there's the potential neglect of long-term brand building. It's a juggling act – balancing the thrill of quick wins with the need for sustained, long-term sustainability.

And it’s often you the one to be blamed too. Because if you need to be in the game for the long term, put some time into brand building as well. Don’t let your marketing partner conjure up just about anything that might hurt your brand’s image, even if that means fruitful results.

We’re a marketing agency that’s been in the game for 4+ years. We follow a strict working process, with the final stage of the process being ‘client approval’. That means we only launch ads that are approved by our clients, which makes sure anything out of the brand’s guidelines won’t make it to the internet.

But we’ve heard from many clients how their past marketing partners launched ads without their approval. Such a lack of carefulness really left a dent on their brand image.

In case you’re interested in working with a credible and reliable marketing partner on a performance-based model to hit your marketing goals, feel free to reach out.

We work with only select brand to maximize our impact. Want to see if you fit our criteria? Book a FREE 30-min discovery call with us.

Tips for Successful Performance-Based Marketing

Since there are risks associated with performance-based marketing, just like with everything else, I’ll share some tips that you can use to bring down the probability of these risks happening to you.

Trust me, these tips are the most obvious ones. But as a marketing agency, we see a lot of businesses overlooking them, and oftentimes, we’re the ones to remind them and push them to do these.

Perhaps it’s best if you get a checklist ready with these tips. You know, just so you won’t forget them…

Choosing the right partners

When choosing a marketing agency, don't just go for the flashiest cape – look for partners whose values align with yours and whose track record screams reliability.

Not to brag, but we have a track record of working with 100s of eCommerce businesses and generating millions of dollars in sales. A business looking to up its marketing efforts should look for partners with such extensive track records.

Look for what they’ve done in the past, how they’ve done things in the past, the businesses they worked with, the results they yielded, testimonials, etc.

Implementing robust tracking and analytics

KPIs are vital. That’s how you know your marketing agency is performing the way your business needs them to.

Build robust tracking systems and analytics that will communicate the performance of your marketing efforts.

Even though you’re paying your marketing partner based on performance, you’re still investing to run the ads. So you need tracking systems to make sure your marketing efforts are going the right way, so that you won’t lose money in case it isn’t going the right way.

Setting realistic expectations

I’ll paint a vivid picture here…

You're about to watch a movie, and the hype is off the charts. But if the film doesn't meet those sky-high expectations, disappointment sets in.

The same applies to performance-based Marketing.

Set realistic expectations from the get-go. Rather than demanding you need to make a fortune out of a penny (Which obviously isn’t a realistic expectation), lay out a roadmap to get there.

Do it in milestones with scaling terms.

And in case a marketing agency promises you results that are too good, that’s every reason to doubt their credibility.

If you’re getting promises and offers that are too good, just know that the agency is incompetent and doesn’t have the extensive experience to realize that they cannot just make promises without really experimenting and learning your marketing campaigns!

Continuous monitoring and optimization

Marketing is not a one-and-done deal – it's a living, breathing strategy that requires constant care.

Continuous monitoring and optimization are your green thumb. Keep an eye on the metrics, prune away what's not working, and let the flourishing results speak for themselves.

It works just like a marathon with regular pit stops for tweaks and improvements.

Conclusion

As we bring the curtain down on the pros and cons of Performance-Based Marketing for eCommerce, it's clear that this strategy is no one-size-fits-all magic potion.

Like any tool in the marketing arsenal, its effectiveness lies in the hands of those who wield it with intention and precision.

Since we, as an agency, has been really consistently well in the past years with our TRIED, TESTED, & PROVEN marketing techniques, our capacity to help more businesses is also growing.

Apply to see if you fit our criteria. Book your FREE 30-min discovery call with us now!

The competition in eCommerce is fierce and the digital landscape ever-shifting. But the cost-effectiveness and measurable ROI of performance-based marketing gives you a higher chance of thriving and flourishing.

But there are risks too. That’s why it's a delicate balancing act that requires a keen understanding of both the short-term gains and the long-term sustainability of your brand.

With the right partners, tools, and mindset, this strategy can elevate your eCommerce game to new heights. Good luck and happy marketing!