What Is Performance Marketing and Why It’s Important

Have you launched a digital advertising campaign in which you paid only when results were delivered? These results could have been in the form of clicks, leads or sales. If you said yes, chances are you’ve done or been doing performance marketing.

What is performance marketing? It is a strategy that allows you to pay affiliates, advertising publishers or performance media marketing agencies based on agreed-upon performance instead of a flat fee. Also called online performance marketing or performance media marketing, it combines advertising and brand marketing activities, focusing on measurable results to determine the payout. Putting out a branded post on a top-tier publisher or placing an ad on YouTube are a couple of examples of performance marketing channels.

Performance marketing spend in the United States has seen a steady rise, reaching $6.2 billion in 2018, according to a study by PricewaterhouseCoopers (PwC), in partnership with the Performance Marketing Association (PMA). Further, the choice to adopt a performance marketing strategy is mostly due to its “measurability, trackability, attribution and compelling return on investment (ROI).” Attribution is a major draw here because it shows you the direct link between investment and result, such as the exact ad dollars spent to enhance the sales of a product.

With a clear path to customer acquisition and conversion, brands can reduce ad spend while maximizing ROI. This article aims to provide you with a working performance marketing definition and an awareness of its importance. We also touch on:

 How does performance based marketing work?
 Performance marketing channels
 Performance marketing metrics
 The disadvantages of digital performance marketing
 What is the performance marketing definition in the context of holistic marketing?

Let’s dive in.

performance marketing

How Does Performance Based Marketing Work?

Before we delve into the dynamics of digital performance marketing, let’s look briefly at how traditional advertising works. For the last century or so, brands have pushed their marketing messages through traditional media like newspapers, magazines, television, radio and billboards. This form of advertising aims to reach as many people as possible and requires a fixed fee regardless of performance. Often, the cost of traditional advertising is expensive because you’re paying for the readership or viewership. But it’s hard to measure the real impact of a broadcast or print ad.

Nowadays, new forms of advertising occur online and offer objective-based, precise audience targeting. Here, you have the means to reach the right people at the right time so that your ads lead to customer acquisition or conversion. And you pay only when your ads perform.

As the competition gets tougher, it is important to concentrate your budget on marketing channels that bring tangible results. Opt for services that allow you to measure marketing performance and produce data that drives better business and marketing decisions. Practicing performance marketing is the way to go.

As such, it’s a good idea to get familiar with these roles:

 Advertisers: These are the merchants and retailers that want to promote their products or services through affiliates and publishers. Retail and eCommerce sectors benefit the most from this approach, especially those offering beauty and fashion products, food and beverages and other consumer goods.
 Publishers: Affiliates predate what is performance marketing now. They promoted brands according to set goals on their personal or business sites. These days, affiliates share the “publisher” label and the market with influencers, content creators and other marketing partners.
 Affiliate networks: Third-party entities or platforms connect brands and publishers, provide efficient tracking of key performance indicators (KPIs) and facilitate payments.
 Outsourced program managers (OPMs): This group comprises any full-service digital marketing agency offering performance marketing services or a performance marketing company. OPMs take charge of strategy, campaign execution, compliance with regulations and publisher outreach.

Performance Marketing Channels

Have you ever encountered and gotten confused by the performance marketing vs digital marketing comparison? Let’s clarify the difference for a moment.

Understand that digital marketing is the use of online channels to reach customers and bring products and services to them. It’s a broad field that includes search engine optimization (SEO), email marketing, content marketing, social media marketing and video marketing. Now, imagine some channels falling under a smaller category in that broad field. They share similar features and fit the performance marketing definition: solutions you only pay for when desired actions occur.

If you go beyond classification and consider purpose, a performance marketing strategy is designed to achieve digital marketing goals. So instead of puzzling over the better option – performance marketing vs digital marketing – let’s find out which online performance marketing channels can enhance your marketing efforts.

Sponsored Content/Native Advertising

When done properly, branded content proves to be one of the most valuable examples of performance marketing services. Alignment with the right brand ambassador or influencer racks up qualified leads and sales on top of online visibility. While paid content can turn some people off, partnering with a content creator who can weave your brand into a story works wonders. Finding the right platform and format is also key. For instance, Instagram has been among the most popular and effective platforms, reporting 3.7 million sponsored posts in 2018 (Source: HubSpot).

Note: Sponsored content is also known as native advertising, which gives us many shapeshifting examples of performance marketing. That’s because this kind of content has to look, sound and feel like a part of the site or platform that publishes it. Here’s Hot Wheels collaborating with BuzzFeed and showing us how it’s done.


Social Media Advertising

Social media has powerful targeting and tracking capabilities, which you can leverage by advertising on your chosen platform. You can set up an ad campaign based on your business objectives. Depending on the platform, you can select from various ad formats and payment models. The brilliant thing about paid advertising on social media is that you have access to marketing performance data. You can trace the link between your investment and the results, with the opportunity to fine-tune your campaign to boost performance.

Search Engine Marketing (SEM)

Comprising both search engine optimization (SEO) and paid search, this performance based marketing channel is focused mostly on the latter. Pay-per-click marketing, the most popular paid search model, places your ad above-the-fold to bolster your search results visibility. A 2017 study said PPC was the second most effective SEM channel to increase sales (with 0.884 correlation), next only to SEO.

Affiliate Marketing

While it is often mistaken as digital performance marketing, affiliate marketing is just one of the channels. This performance marketing strategy has a simple premise: Merchants pay commission to affiliates for every referral or transaction. It reduces the risk for brands because revenue is gained before the money is spent.

Programmatic Display Ads

An experienced performance marketer would recommend programmatic display with caution. In general, this type of ad requires advertisers to pay for impressions, or the number of times your creative was displayed on the web. Being seen is way different than garnering clicks or conversions. But if you find a performance marketing agency with the right skills and tools, you may be able to get your ad displayed on sites that are proven to drive marketing performance. And that’s still a rarity these days.

Performance Marketing Metrics

What does a brand, performance marketer or performance marketing company measure, then, to ensure growth goals are met?

The most common performance marketing metrics are qualified leadssalesmobile app downloadssite trafficrepeat site visits and engagement (e.g., likes, comments and shares).

Take note that some metrics may not lead directly to conversion or revenue, such as site traffic. If you’re not sure how to determine the appropriate target outcome, leverage the expertise of a performance marketing agency.

Meanwhile, familiarize yourself with these primary payment models, which can also serve as key performance indicators (KPIs):

 PPC (Pay Per Click): With this paid advertising model, you pay for ad clicks that lead to your site or landing page
 CPL (Cost Per Lead): The desired action here would be a completed signup form containing the lead’s name, email address and other contact information.
 CPA (Cost Per Action): The intended result is defined by the advertiser, e.g., a sale or a signup.
 CPI (Cost Per Install): As it sounds, payment occurs when an ad click results in an app install.
 ROAS (Return On Advertising Spend): This KPI tracks the revenue earned for each dollar spent on advertising. With this data, you can tweak the campaign if it’s not delivering your desired results.

Remember this: “Knowing KPIs and ensuring they are tracking correctly is key here,” said Shannon Thammasiene, Thrive’s director of SEO services. “This is why enlisting a professional to help you craft your strategy around your company goals is helpful. A good strategist should be able to hear what your goals are and translate them into actionable metrics to track – as well as make sure they are being tracked correctly.”

Disadvantages of Digital Performance Marketing

Performance media marketing is driving revenue and other significant results for brands in the digital age. It is easy to track and measure, effective in engaging hard-to-reach audiences and flexible to all budget sizes. However, it also has its downsides and limitations.

It is still possible to waste money if your performance marketer is new to the approach, failing to optimize campaigns and spending inefficiently. Misaligned marketing partners and fraudulent affiliate marketing activities may also threaten your strategy. Then there are also penalties that await those who overlook compliance with the rules set by the Federal Trade Commission.

Embracing Holistic Marketing

From not knowing anything or knowing just a little about online performance marketing, you’re now aware of its definition and importance, and its popular channels and payment models. You should no longer be confused about performance marketing vs digital marketing either. Getting down to business is a different story, though.

Performance marketing has plenty of advantages and benefits that align with the data-driven, results-oriented digital landscape. But it’s like those superheroes who do more good as a group than as individuals. What we’re saying is that performance marketing is a part of holistic marketing, and it fulfills its potential if practiced with fellow components: internal marketing, integrated marketing and relationship marketing.

The performance marketing services mentioned above also work hand-in-hand with other digital marketing channels like SEOconversion rate optimization and video marketing. So it’s crucial to bring everything together and achieve overall business success. If you prefer to enlist the expertise of an agency, consider a full-service digital marketing firm with a holistic marketing approach, which often trumps a performance marketing company in pricing and operation.