So often, we use digital marketing as a ubiquitous term. In reality, there are many types of digital marketing, and the channels and capabilities of each type are growing every day. One overlooked digital marketing strategy is performance marketing. With performance marketing, advertisers only pay when specific actions occur. For example, when a viewer clicks through to their page or makes a purchase.

In this article, we’ll take a deep dive into performance marketing: how it works, why you should use it, and what channels offer the most bang for your buck. 

What is Performance Marketing?

Performance marketing is a digital marketing strategy that’s driven by results. It’s ideal for companies that are looking to reach their audience at scale, because payment is based on how users interact with the content.

Performance marketing refers to a form of digital marketing in which brands only pay marketing service providers after their business objectives have been met or when specific actions have been taken, such as a click, sale, or lead. In other words, it is performance-based marketing.

Performance marketing works when advertisers connect with either agencies or publishers to design and place advertisements for their company on any number of performance marketing channels — social media, search engines, videos, embedded web content, and more. Instead of paying for an advertisement in the traditional way, these advertisers pay based on how well their ad performs, by measuring number of clicks, impressions, shares, or sales. 

How Performance Marketing Works

Advertisers put their ads on a given channel (see more on top performance marketing channels below), and then pay based on how that ad performs. There are a few different ways to pay when it comes to performance marketing: 

1. Cost Per Click (CPC)

Advertisers pay based on the number of times their ad is clicked on. This is a good way to drive traffic to your site. 

2. Cost Per Impression (CPM)

Impressions are essentially views of your ad. With CPM, you pay for every thousand views (so if 25,000 people view your ad, for example, you’d pay your base rate times 25). 

3. Cost Per Sales (CPS)

With CPS, you only pay when you make a sale that was driven by an ad. This system is also commonly used in affiliate marketing

4. Cost Per Leads (CPL)

Much like cost per sale, with CPL you pay when someone signs up for something, like an email newsletter or webinar. CPL generates leads, so you can follow up with customers and drive sales.  

5. Cost Per Acquisition (CPA)

Cost per acquisition is similar to CPL and CPS but is more general. With this structure, advertisers pay when consumers complete a specific action (which could include making a sale, sharing their contact information, visiting your blog, etc.).

Top Performance Marketing Channels

What channels work best when it comes to performance marketing? There are five types of performance marketing that agencies and advertisers use to drive traffic:

1. Banner (Display) Ads

If you’ve been online, you’ve probably seen plenty of display ads recently. These ads appear on the side of your Facebook newsfeed, or at the top or bottom of that news web page you just visited. Though display ads are slowly losing their appeal due to the increasing popularity of ad blockers and what experts call banner blindness, many companies are still finding success with display ads that utilize interactive content, videos, and engaging graphic design. 

2. Native Advertising 

Native advertising takes advantage of the natural appearance of a web page or site to promote sponsored content. For example, sponsored videos might appear in the “Watch Next” section of a YouTube page. Native ads are also popular on ecommerce sites — you may have seen them on Facebook Marketplace, for instance. Native advertising works because it allows your sponsored content to live seamlessly beside other kinds of organic content. Often, users won’t differentiate between these kinds of content, allowing you to promote your brand in a way that feels natural.

3. Content Marketing 

Content marketing is all about educating your audience. According to OmniVirt, it also costs 62 percent less than outbound marketing, and generates three times as many leads. With content marketing, the focus is on providing useful information to users and putting your brand in context. For example, a vitamin company might write a series of informative blog posts about the benefits of probiotics, with a link back to the probiotics they sell. Content marketing is a channel that can include blog posts, case studies, e-books, and more.

4. Social Media 

For performance marketers, social media is a haven. It offers not only the opportunity to reach users and drive them to your site — users can also share your sponsored content organically, extending your reach far beyond the original post. Facebook has the most extensive list of services for performance marketers, but other platforms like LinkedIn, Instagram, and Twitter also offer many opportunities to reach new customers.   

5. Search Engine Marketing (SEM)

Most online research is done via search engines, and that means having a site that is optimized for search engine marketing (SEM) is essential. In terms of performance marketing, the focus is primarily on cost-per click (CPC), especially for paid advertising. For organic SEM, many performance marketers rely on content marketing and SEO-optimized landing pages. 

Performance Marketing Examples

Here are some examples of performance marketing:

1. Pay-Per-Click (PPC) Advertising

PPC is a form of performance marketing where the advertiser pays for every click that leads users to its website. The most common platform for this type of marketing is Google AdWords.

2. Affiliate Marketing

This is a performance-based marketing strategy where a business rewards one or more affiliates for each visitor or customer brought by the affiliate's own marketing efforts. For example, an affiliate promotes a product or service on their blog or social media, and gets a percentage of the sale when someone clicks through and purchases.

3. Email Marketing

Although not often considered under the umbrella of performance marketing, email campaigns can be performance-driven as well. Marketers may test different subject lines, content, and calls to action, analyzing the open rates, click-through rates, and conversion rates to optimize the campaign's performance.

4. Search Engine Optimization

While SEO isn't paid, it's an essential part of performance marketing. The performance is measured by the ranking of the keywords, organic traffic, bounce rate, and more.

5. Social Media Advertising

Platforms like Facebook, Instagram, Twitter, and LinkedIn offer extensive targeting options that allow advertisers to reach a precise audience. The performance is tracked by the engagements, clicks, impressions, and conversion rates.

6. Influencer Marketing

Brands often partner with influencers to promote their products or services. The performance can be measured by the engagements, impressions, clicks, and sales made through the influencer's unique promo codes or affiliate links.

7. Display Advertising

Advertisers pay for banner ads to be displayed on websites relevant to their product or service. These are often paid per impression (CPM), click (CPC), or acquisition (CPA).

8. Content Marketing

This involves creating and sharing valuable free content to attract and convert prospects into customers, and customers into repeat buyers. The type of content you share is closely related to what you sell. Performance is usually measured by the engagement rate, social shares, and the number of quality leads it generates.

Benefits of Performance Marketing

With the future of digital marketing looking more promising each year, using performance marketing channels can help you scale your advertising efforts to meet your company's needs without breaking the bank.

Performance marketing is a creative and effective way to diversify your audience and expand your reach, all while capturing valuable data. And the benefits don’t stop there. When you embrace the full functionality of performance marketing, from native and affiliate advertising to sponsored social media content, you’ll find it's easier than ever to grow your business.

What is Performance-Based Advertising?

Performance-based advertising is a method of digital advertising where the advertiser pays for specific actions taken by users, such as clicking on an ad, making a purchase, or signing up for a service. This differs from traditional advertising, such as display advertising, where the advertiser pays for ad impressions regardless of whether the user takes action. Marketers often use performance-based advertising to drive more measurable results and optimize their advertising spend.

How Performance Advertising Works? 

  1. Define Performance Goals: The advertiser determines the specific performance goals they want to achieve through the advertising campaign, such as increasing website traffic, generating leads, or making sales.
  2. Target Audience: The advertiser identifies the target audience they want to reach with the ad campaign, including demographic information, interests, and location.
  3. Choose Advertising Channels: The advertiser selects the digital advertising channels they want to use to reach their target audiences, such as search engines, social media, or websites.
  4. Create Ad Content: The advertiser creates the ad content, including text, images, or videos. The ad should be designed to effectively communicate the message and encourage users to take the desired action.
  5. Set Bid and Budget: The advertiser sets a bid for each desired action and a budget for the entire ad campaign. The bid is the amount the advertiser is willing to pay for each desired action, and the budget is the total amount of money the advertiser is willing to spend on the ad campaign.
  6. Launch Campaign: The advertiser launches the ad campaign and displays the ads to the target audience through the chosen advertising channels.
  7. Track Performance: The advertiser tracks the ad campaign's performance and analyzes the results to determine its effectiveness. This may include monitoring the number of clicks, conversions, and overall ROI.
  8. Optimize Campaign: Based on the results, the advertiser may adjust the ad campaign to improve performance, such as changing the ad content, targeting, or bid and budget.

These steps provide a general overview of the performance advertising process, and the specifics may vary depending on the advertising platform or network used.

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FAQs

1. What is performance-based marketing?

Performance-based marketing is a digital marketing strategy driven by results. It is suitable for brands that aim to reach their audience at scale as payments are made to marketing service providers once the business objectives have been met, such as a click, sale, or lead. 

2. Is performance-based marketing a scam?

Performance Marketing is legit, and it isn't a scam. It is an incredibly valuable industry for business. It can be that an advertiser charges you fees based on performance and only invests the amount into remarketing and brand bidding. 

3. What are the benefits of performance-based marketing?

With performance marketing channels, you can scale your advertising efforts and meet the company's requirements with a pocket-friendly approach. It is an effective way to diversify your audience. You can expand your reach and capture valuable data while adopting a trackable and manageable plan. 

4. What is the role of performance marketing?

Performance marketing serves as a strategy in online marketing that plays a major role in customer acquisition and customer retention. It triggers measurable user reactions or transactions, helping businesses flourish. 

5. Should I implement a performance marketing plan?

If you are in the initial stages of a business venture, performance marketing plan implementation helps you reach out to your target audience more quickly. It will help you build brand awareness through affiliates and increase traffic to your site. Moreover, performance marketing is transparent and measurable. You can view the complete click-to-consume path of every buyer and estimate which channels produce better results. Most importantly, there is no prepayment. Thus, there is a lower risk involved. 

6. What is the difference between performance marketing and digital marketing?

Performance marketing is a type of digital marketing wherein you make a payment only when a certain outcome occurs. Digital marketing is a broad term encompassing various strategies, payment models, and channels. 

7. Can I do performance marketing myself, or should I hire outside resources?

Any company can carry out performance marketing independently, as long as they have the in-house marketing team size, budget, expertise, and bandwidth to do so. If not, it would be best to hire trustworthy outside resources. 

8. What is the difference between performance marketing and brand marketing?

Performance marketing is an advertising program in which advertisers pay marketing companies after the completion of a specific action, such as sales or lead. On the other hand, brand marketing concentrates on marketing practices that help build and enhance positive consumer perceptions of the brand while engaging consumers.  

9. What are the 4 types of advertising?

The four main types of advertising are display, search engine, social media, and performance-based. Display advertising uses visual elements to promote products or services and appears on websites, mobile apps, or social media. Search engine advertising appears in sponsored results of search engines when users search for related keywords. Social media advertising promotes products on social media platforms like Facebook, Instagram, and Twitter. Performance-based advertising, also known as cost-per-action advertising, pays for specific actions taken by users and is focused on measurable results.

10. What is the significance of performance marketing?

Performance marketing allows advertisers to measure results and determine return on investment, leading to more efficient use of advertising budget. Advertisers can target specific audiences and track the success of campaigns, enabling refined targeting and better use of resources. This results in lower advertising costs, higher ROI, and improved marketing effectiveness. It also shifts focus from ad impressions to user actions, leading to more meaningful and relevant advertising experiences for consumers.

11. What is performance in digital advertising?

Performance in digital advertising refers to the results and outcomes achieved from an advertising campaign. This includes metrics such as click-through rates, conversions, sales, and return on investment. Performance is a key focus of performance-based advertising, where advertisers pay for specific actions taken by users, such as clicking on an ad or making a purchase, rather than for ad impressions or clicks. Measuring and optimizing performance helps advertisers make informed decisions about their advertising campaigns and allocate resources effectively.

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