In practice: Search and email
Take a closer look at how two online marketing disciplines work will illuminate this point about performance.
In search marketing, the end-user has intent as they are searching, while the advertiser only pays for the click -- proof the consumer is interested in its product or service. With the click, the conversation between advertiser and consumer begins. In 2009, tracking conversions from click to sale is no longer state of the art, but state of the practice. As long as an advertiser understands the profitability of each sale and the conversion rate from click to sale, she knows the value of each search click (profitability of sale * conversion rate of click to sale = value of a click). As long as she is buying clicks from the likes of Google for less than the value of each click, she is guaranteeing a profit on her search marketing spend -- just like buying $10 bills for $5!
A second example comes from email marketing, under the assumption the email program has been purchased on a CPA basis and the action for which an advertiser pays is a completed form requesting more information.
First, an opt-in email is sent by an email publisher. If recipients are interested in the subject, they open the email. If they are interested in the offer, they click through to the advertiser's site. If they intend to purchase (or at least strongly consider a purchase), they fill out a form requesting information. Here, the advertiser pays only per form requesting information. As long as the advertiser understands the conversion from request for information to sales and the value of each sale, the advertiser can understand the value of each form submitted. Again, if the advertiser is buying request-for-information forms submitted for less than the value of each form, that's like figuratively buying $10 bills for $5 -- and literally guaranteeing a positive ROI for each marketing dollar spent.
These simple examples make plain the power of online performance advertising. In both cases (provided the value of a sale and the conversion from action to sale are understood), the advertisers would be wise to spend as much as they can. The new limits on this spend are how much can be spent while maintaining the conversion and sale values, or the capacity of the advertiser to deliver products and services. What's clear is that it is not the annual marketing budget.