April 15, 2014

Performance Marketing And The Law Of Large Numbers

The Law of Large Numbers says that only over a sufficiently large number of occurrences, or trials, can the result of the trials become apparent. As applied to performance marketing, the law’s application says that only after running a large number of trials can a campaign’s effectiveness be determined. For the same reason you would never determine the probability of flipping heads or tails after a trial of just 10 flips, you cannot judge your campaign’s effectiveness after just a few trials.

The first active part of performance marketing occurs with the deployment of advertising trials. It is the moment that the ad goes live, and customers begin seeing the ad, that things get interesting. In internet marketing every ad is going to have its own unique desired click through rate (CRT), and actual CTR. But it is important that a sufficient number of impressions be allowed to run before determining that a particular ad is a success or a failure.

One of the most important questions many performance marketers ask is just how many trials within a campaign are sufficient to determine whether or not the campaign itself is a winner. The answer to this question will ultimately depend on many factors including the kind of product, the cost of the product, the lead source, and how much money the marketer has to fund the campaign. In general the marketer should devote a predetermined part of their marketing budget to each trial, a sum sufficient to place their ad before a large number of prospects. The trial should be allowed to run to its completion, and should not be aborted early due to poor results.

Many performance marketers rebel against this law. Often after having read the reports of a “super marketer” who has a golden touch, they decide that following his lead should result in instant success. But the sobering truth is that the entirety of performance marketing is based on the application of this law. Ignore it to your peril.