Every business needs a good marketing strategy to get the word out about its products and attract customers. One popular strategy is performance marketing, where the advertiser pays a marketing partner a defined amount in return for the sales they generate.
We’ll explain how this strategy works and help you decide if it's right for your business.
What is Performance Marketing?
Performance marketing, also known as pay-for-performance advertising, is a type of marketing that focuses on the actual effect of the advertising. The advertiser only pays the groups it’s using to advertise when those groups achieve defined, measurable results.
This strategy is most common online, where it is easy to track the results of marketing campaigns.
One example of performance marketing is affiliate advertising. A brand works with an affiliate, like a content creator or influencer, who advertises the brand to its audience. For each person who uses that affiliate’s information to make a purchase, the affiliate receives a commission.
Other examples of performance marketing include paying for:
A specific number of impressions on your advertisements
Each customer who clicks on an ad
Every lead a partner generates
The important thing to remember is that performance marketing means only paying advertising partners when they hit a specific metric. This makes it a fairly low-risk strategy to get the word out about your products and services since you only pay for actual results.
How Performance Marketing Differs From Other Types of Marketing
Performance marketing is primarily a digital marketing strategy because it relies on tracking precise metrics.
It’s easy to track how many people click on a social media post or how people arrive at your company’s landing page. On the other hand, it’s more difficult to determine whether people visit your store due to a radio ad, television ad, or other forms of advertising.
For example, purchasing an advertisement on a billboard is not performance marketing because you’re simply paying for space on the billboard. You aren’t paying your advertising partner for the number of people who see the billboard or come to your store after seeing the ad.
Performance marketing campaigns also tend to focus heavily on generating leads and sales. Your advertising partnerships bring your target audience to your ecommerce site and generate sales.
Other types of advertising do try to boost sales but might have other goals. For example, brand marketing aims to build a relationship between your customers and your brand.
While that relationship can result in sales, brand marketing focuses on getting your company’s name and message out while generating brand awareness among consumers.
Performance marketing best suits companies looking to increase sales or reach defined sales targets. Other forms of advertising might be better at different points in a company’s lifecycle.
How to Measure Marketing Performance
Performance marketing involves paying marketing companies, content creators, influencers, or whoever you’re advertising through for specific actions. You might agree to pay for each lead they refer you to or every customer who clicks on an ad on their site.
Whatever your agreement is, you must be able to measure some key performance indicators (KPIs) to pay your partners and figure out if your strategy is working. This tracking also helps you optimize future marketing efforts.
You can use a few different metrics to measure performance marketing strategies.
Cost Per Acquisition (CPA) or Pay Per Sale (PPS): This tracking method relies on determining each customer's channel to arrive at your ecommerce site. You then pay the referrer a commission when that customer completes a sale.
Lifetime Value (LTV): This metric relies on predictive analysis to estimate how much a customer will spend on your company’s products or services. You provide more compensation to advertising partners for referring higher-value customers.
Pay Per Lead (PPL): PPL involves paying your advertising partners for each person they refer to your registration or sign-up form, assuming that the potential customer provides you with their information to make a sale.
Pay Per Click (PPC) or Cost Per Click (CPC): This strategy pays your advertising partner for each person who clicks on your ad while on their website.
Cost Per Impression (CPI) or Cost Per Mille (CPM): These strategies involve paying your advertising partners for each person who views your ad on their site. CPM is a common metric that refers to the cost per thousand impressions on an ad.
Pay Per N: You can also pay your advertising partners to encourage potential customers to complete the desired action (N). This can mean ad clicks, app downloads, creating an account, or sharing a social media post.
Types of Performance Marketing
There are many types of performance marketing channels that a company can use. Some examples include:
Native advertising: This strategy involves generating advertisements that don’t look like ads. Instead, they blend into the website they appear on and look like native content. Sponsored tweets on Twitter are an example of this.
Sponsored content: A form of native advertising, sponsored content marketing involves publishing content on websites that host that type of content. For example, you might pay a video creator to make a video that features your product or service.
Affiliate marketing: This advertising relies on having your partner direct their audience to your website, usually through a specific link or coupon code. You then pay your partner a commission for each sale through their link or code.
Search engine marketing (SEM): There are a couple of forms of SEM that you can use.
Paid search marketing: This involves paying websites like Google Ads or Bing to place sponsored advertisements in their search results when users search for terms related to your company or its services and products.
Search engine optimization (SEO): This is an organic form of SEM. Instead of paying to show up in search results, you build your website in a way that appeals to search engine algorithms so that it appears in search results.
Social media marketing: This strategy leverages social media websites like LinkedIn, Instagram, or TikTok. It can involve sponsored content from creators on that platform, influencer marketing, native ads, and other forms of performance marketing.
Email marketing: If you can build a mailing list or work with an agency with a mailing list, you can send emails directly to your desired customers.
How to Create a Performance Marketing Strategy
If you’re considering performance marketing for your business, follow these steps:
Determine your specific goals: Is the goal of your ad campaign to generate a specific number of sales, boost website traffic, or something else? Knowing what you’re trying to accomplish is essential before you get started.
Select your advertising channels: Decide how you’ll advertise based on your goals. Generating sales may include affiliate marketing and paying for each sale. Boosting brand awareness could involve social media marketing and paying for social shares.
Design and launch your advertising campaign. Now it’s time to do the real performance marketing work. Put your advertisements together, select a target audience, and send the campaign to the world.
Measure results, adjust, and optimize: Utilize your KPIs and metrics to see which parts of your strategy are working and which aren’t. Then, adjust your campaign to focus on what works and increase your advertising dollars' return on investment (ROI).
Benefits of Performance Marketing
Performance marketing has some notable advantages over other types of advertising.
Here are some of the top benefits of using this marketing strategy:
Low risk: You only pay your marketing partners when your desired outcome, such as a sale, occurs. This means you won’t be wasting money on advertising that ultimately doesn’t achieve your goals.
Trackability: Performance marketing inherently results in a lot of data you can use to track customers and how they find or interact with your brand. This is useful for designing future ad campaigns or learning about your target market.
Improve brand awareness and reputation: If you use a strategy like affiliate marketing or sponsored content, you can improve people’s awareness and opinion of your brand by working with popular creators.
The Bottom Line
Performance marketing is a digital marketing strategy that relies on paying your advertising partners when they achieve specific performance metrics. Potential goals can include referring customers to your website or generating sales for your company.
These strategies are incredibly useful due to their low risk and high ROI. They also provide data about your customers that you can use for future advertising campaigns.
Any company that does a good portion of its business online can benefit from this type of marketing.