What is Performance Marketing? Everything You Need to Know

Performance marketing encompasses a variety of marketing tactics that focus not on real results rather than hypothetical effectiveness. These tactics have become increasingly popular in the age of the internet and can be highly effective when executed by an experienced marketing professional.

Table of contents:

• What is Performance Marketing?
• How Does Performance Marketing Work?
• What Are the Benefits of Performance Marketing?
• What Are the Challenges of Performance Marketing?
• How Much Does Performance Marketing Cost?
• What Are Performance Marketing Channels?
• What Are Evolving Performance Marketing Trends?
• How Can Businesses Set Up a Performance Marketing Campaign?
• Performance Marketing Best Practices
• Develop Successful Performance Marketing Campaigns

What is Performance Marketing?

Performance marketing is any marketing effort that pays advertising partners only when the effort actually performs. 

Performance marketing has become much more widely used with the advent of the internet. The extensive and detailed data that are available from online interactions has made this already effective marketing method even more powerful and an increasing number of people are taking note. From Fortune 500 companies to sole-proprietor startups, many businesses and organizations are using performance marketing.

Performance Marketing vs Traditional Marketing

Performance marketing differs from traditional marketing in how marketing funds are paid. 

Traditional marketing channels, such as television, radio, and newspaper advertisements, are paid for regardless of the effectiveness of a campaign. For example, a television ad for the Super Bowl costs millions regardless of whether the ad achieves its intended purpose.

In contrast, performance marketing is paid for only when an advertisement or campaign delivers results. No payment is made for a campaign that delivers no results, and campaigns that do deliver results are paid for according to how well they do.

The concept of paying an advertising partner only based on results is hardly a new concept. For example, a commission-only salesperson earns a paycheck only when they perform — in other words, closing a sale. Poor sales performance equates to little to no pay, and strong sales performance enables top salespeople to earn substantial paychecks.

How Does Performance Marketing Work?

At its most basic level, performance marketing involves three parties, just as traditional marketing does:

• Advertiser: The business that’s marketing its goods or services.
• Audience: The demographic that the business hopes to reach through its marketing efforts.
• Publisher: The one who actually publishes the advertisement, usually within the context of other content that’s not advertorial in nature.

The only shift in these basic relationships has been a move from pre-internet publishers, like television stations and newspapers, to internet-based publishers, such as websites.

Of course, there are several other intermediaries that frequently play a role in performance marketing. While the marketing can work in concept without intermediaries (e.g. the business that directly employs a commission-based salesperson), the complexities of online marketing virtually necessitate certain intermediaries. Some of the more common intermediary roles are:

Digital Marketing Agencies

A digital marketing agency helps businesses develop, evaluate, and manage performance marketing campaigns. Marketing agencies may be large or small, and they may be general or specialized. For instance, they may specialize in SEO, content marketing, pay per click (PPC), web development, email marketing, or conversion rate optimization.

Advertising Platforms

Advertising platforms sell advertising space and place advertisements. This is normally for paid advertisements, and the process is usually automated through a complex algorithm.

Affiliate Marketers

Affiliate marketers are a specific type of publisher that publishes links to a business’s website, product listings, landing page, or a different target. Affiliate publishers aren't paid for mere visits to the target website, but only when visitors take the desired action (e.g. make a purchase) on the site. Upon a conversion, affiliates are paid a flat or percent-based commission.

What Are the Benefits of Performance Marketing?

Performance marketing offers a variety of benefits, which is partly why performance marketing tactics are used by such a wide array of businesses. The benefits stem from both the concept of paying for advertising results and the level of data that’s available online.

Extends Reach & Brand Awareness

Performance marketing offers businesses more ways to extend their advertising reach and build brand awareness. Businesses that have primarily used traditional marketing channels can now reach their target audiences online, and those that are already advertising online can extend their reach by marketing on multiple websites, social media platforms, and other online channels.

Better Targeting & Attribution

The detailed data that’s available allows for in-depth targeting, as well as tracking and attribution. Different campaigns can be set up for different target demographics, and individual customers can even have personalized campaigns sent to them.

Low-Risk

Performance marketing tactics are all inherently low-risk because payments aren’t made unless they convert. Businesses don’t have to put up large sums in hopes that a campaign will be successful, but they only pay when a campaign is successful. Moreover, the cost of a campaign is directly proportional to how a successful campaign is, making it more cost-effective when the campaigns actually do perform.

Flexibility & Scalability

Many performance marketing tactics are quite flexible and can be used in highly creative ways. Infusing a campaign with creativity can improve results, and the flexibility that’s afforded allows businesses to tailor campaigns to their needs.

What Are the Challenges of Performance Marketing?

As effective as performance marketing can be, it isn't entirely free of challenges. 

Decision Paralysis

Businesses sometimes are paralyzed by the sheer number of advertising platforms to choose from. Social media channels alone number in the dozens, and that doesn’t include the numerous blogs, news sites, forums, email lists, and other online platforms that are available.

Reporting & Technical Know-How

Once a campaign is set up, tracking the details of the campaign is essential but can be difficult. Some technical knowledge is required at times and there’s a science to deciphering all of the data available. Not being able to track and analyze data effectively can make it hard to stay on track and reach goals. This, of course, is the ultimate aim for a performance marketing campaign: to make meaningful goals and meet them.

These challenges are partly why many businesses rely on a marketing agency for assistance with some or all of their performance marketing needs. Agencies that specialize in online and performance marketing know-how to select channels, monitor data, and reach goals for successful campaigns.

How Much Does Performance Marketing Cost?

The prices advertisers pay to run performance marketing campaigns vary widely. Some campaigns cost just a small amount to run, while others require an enormous investment. The industry, channel, and publisher are the main factors that usually determine how much a campaign will cost.

Moreover, the way a performance marketing campaign’s cost is calculated can differ. Some of the more common ways advertisers pay for campaigns are:

• Cost per click (CPC): The amount of money paid when a user clicks on an advertisement on a specific website, network, or platform. Can be either fixed-rate or bid-based.
• Cost per impression (CPM): The amount of money paid per 1,000 impressions (or views) of an advertisement on a specific website, network, or platform.
• Cost per lead (CPL): The amount of money paid for an explicit sign-up from a consumer through an advertisement.
• Cost per install (CPI): Specific to mobile apps, a CPI is the amount of money paid when an application is installed.
• Cost per sale (CPS): The amount of money paid for every sale through a specific advertisement.

Some of these payment metrics are more applicable in certain campaigns than others. For example, retailers may use a CPS structure while software companies opt for a CPI method.

What Are Performance Marketing Channels?

Channels are the modes through which performance marketing campaigns are conducted, and there are many potential channels that advertisers can use. A few of the main types of performance marketing channels include:

• Display advertising: Overt advertisements are displayed on a website or other medium. Banner ads are a classic example of display advertising.
• Native advertising: Advertisements are designed to follow the natural function and form of a website or platform, so they don’t look like ads. Social sites and news sites often have native advertisements on them.
• Paid search/SEM: Paid search places paid listings or advertisements in online search results. These advertisements may tend more toward the display or native spectrum. Paid search is also known as search engine marketing (SEM).
• Social media advertising: Social media advertising places advertisements on social platforms. The advertisements may be traditional display ads, but they’re more often native ads in the form of sponsored content, promoted posts, etc.
• Affiliate marketing: Affiliate marketing has publishers direct traffic toward a target website and pays when visitors convert (e.g. make a purchase). Advertisers may provide different ads for affiliate marketers to use or affiliate marketers may create their own links.

What Are Evolving Performance Marketing Trends?

Because performance marketing is so prevalent online today, it’s evolving as the internet evolves. Recent changes in data capabilities and user behavior online have given rise to two main trends.

On the data side, campaigns are becoming more personalized and more relevant to viewers as a result. Improved tracking and attribution have allowed advertisers to create hyper-personalized campaigns that people are much more interested in.

On the user behavior side, the increase in social media use has given rise to influencers. Influencer marketing utilizes the recognition of both celebrities and social media personalities to sell goods. Influencers may be paid for reviews, sponsored posts or other content they create around a business’s products or services.

How Can Businesses Set Up a Performance Marketing Campaign?

Setting up a performance marketing campaign is a multi-step process, but it’s doable if businesses follow a laid-out plan:

1. Define your goals for a performance marketing campaign.
2. Choose the channels for the campaign.
3. Prepare your content and assets.
4. Prepare for the campaign’s launch.
5. Monitor the campaign and continue to optimize it.
6. Capitalize on identified opportunities and cut any fat.

Performance Marketing Best Practices

As you develop a performance marketing strategy, there are several best practices to keep in mind:

• Be specific with targeting parameters.
• Focus on relevancy, which targeting helps with.
• Utilize A/B testing to maximize a campaign’s return on investment (ROI).
• Track and monitor to further maximize ROI on an ongoing basis.
• Abide by publishers’ best practices to produce effective campaigns.

Develop Successful Performance Marketing Campaigns

Performance marketing has become one of the most effective marketing methods and strategies thanks to the internet’s capabilities and opportunities. Sit down with your team or your digital marketing partners and discuss the channels and opportunities available to you to expand your brand's reach while remaining cost-effective in getting new customers and leads.